HKSAR v. Tam Lai Shun and Others

DCCC690/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 690 OF 2010

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Reasons for Sentence

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1.Leung Po-yee and Ku Kam-lung, you have each been convicted on your own pleas of six charges of conspiracy to defraud. The victim named in each charge was the company that had been appointed the shares registrar responsible for the allotment of shares in the initial public offering of shares in companies to be listed on the Hong Kong Stock Exchange.

2.In order to provide an equitable allotment of shares, the initial public offer scheme provided that a member of the public could submit only one application for the allotment of shares in a particular allotment exercise.  Each applicant had to sign a declaration on the application form for share subscription, declaring that they had only made one application.  The share registrar commissioned to conduct a particular initial public offer share allotment exercise would conduct a check on all applications to make sure that duplicated applications by any individual were identified. If they were identified, the applications would be disqualified. 

3.The check would include checking the names and identity card numbers of the applicants.  This provided a loophole for the dishonest in that applications could be lodged in the same name provided different identity card numbers were entered on the form.  An obstacle in the way of those dishonestly submitting multiple applications in this way, together with supporting checks, is that if an application was wholly or partially unsuccessful, the refund cheque would bear not only the name of the applicant but part of the ID card number provided by the applicant.  You realised that the fourth and fifth digits of the ID card numbers of an applicant’s ID card number would, for data protection purposes, be replaced by crosses, and that therefore, provided that the identity card numbers given in the application forms differed only in respect of the fourth and fifth digits, the fact that they were duplicate applications would not be detected and the refund cheques could still be banked by an applicant.

4.You both conspired to defraud the share registrar in relation to the IPO applications in the six IPO exercises referred to in the six charges.  The sixth IPO exercises took place within a short space of time, between 16 October 2006 and 7 December 2006.  They involved the six companies named in the charges. 

5.Pursuant to the conspiracy, multiple applications were submitted in respect of each exercise in your own names and in the names of five of your relatives.  When the applications were made in the same name the ID card numbers differed: 48 duplicate applications with false ID card particulars were submitted in respect of the offer of Industrial and Commercial Bank of China (Charge 1); six duplicate applications with false ID card particulars were submitted in respect of the offer of Kingboard Laminates Holdings Limited (Charge 2); 20 duplicate applications with false ID card particulars were submitted in respect of the offer of Zhojin Mining Industry Company Limited (Charge 3); 27 duplicate applications with false ID card particulars were submitted in respect of the offer of China Communications Services Corporations Limited (Charge 4); 26 duplicate applications with false ID card particulars were submitted in respect of the offer of Shanghai Jin Jiang International Hotels Group Company Limited (Charge 5); and 39 duplicate applications with false ID card particulars were submitted in respect of the offer of China Communications Construction Company Limited (Charge 6). 

6.If the duplicate applications had been detected, not only would the duplicate applications have been invalidated, but the applications which bore the correct particulars would also be invalidated. Taking the difference between the offer price and the opening price after the shares were first listed, your profit, on the basis that the multiple applications had not been detected and that you had disposed of the shares at the time of the initial opening price, would have been as follows: Charge 1, the Industrial and Commercial Bank of China, $20,140; Charge 2, Kingboard Laminates Holdings Limited, $5,335; Charge 3, Zhojin Mining Industry Company Limited, $5,730; Charge 4, China Communications Services Corporation Limited, $15,400; Charge 5, Shanghai Jin Jiang International Hotels Group Company Limited, $20,000; Charge 6, China Communications Construction Company Limited, $67,200.  This would amount to a total profit obtained pursuant to the conspiracy of a $133,805.  It is admitted that you, Ku Kam-lung, would sell off all the successfully allotted shares.  Your counsel, Mr Wong, alleges that because you did not sell all the shares immediately your own estimate of the profits you made was only $99,000. 

7.Mr Wong has submitted on your behalf that these were victimless crimes.  I do not accept that submission.  As a result of your dishonesty you were allocated shares that would otherwise have been allotted to other applicants.  These offences are serious not simply because of their sophistication and the fact that they involved dishonesty and affected the interests of other applicants for the shares, but because if allowed to continue they would undermine Hong Kong’s reputation as a financial centre. Sentences of imprisonment are inevitable.

8.Your role, Ku Kam-lung, was the major one in these conspiracies.  At the time you were employed by Core Pacific Securities Company Limited as a customer service officer.  You were in a position to understand the weaknesses in the system of allocating shares.  You decided to exploit that weakness.  It is admitted that you instigated the scheme.  You were able to utilise the other defendants in this scheme as you had been helping them out with their investments and had the authority to operate their investment security accounts.  It was your money that was used to fund the multiple applications.  You were the person who subsequently sold the shares once they had been allotted. 

9.I have been referred to the case of HKSAR v Au Wai ming, Weyman and others, DCCC1064/2008, which came before the District Court a year ago, in September 2009.  It also involved charges of conspiracy to defraud.  The defendants were involved in multiple applications in the same initial public offers.  As in this case, the defendants were of previous good character.  The judge adopted a starting point of 6 months' imprisonment in respect of each conspiracy.

10.While in my view a higher starting point could well be justified, I am prepared to adopt the same starting point in this case not simply for reasons of consistency, but because you, Ku Kam-lung, are a man of 56 who has never been before the courts before, because these offences have been hanging over your head for 4 years, a year longer than the defendants in that case, and because you have already suffered the hardship of losing your job with Core Pacific. 

11.By reason of your pleas of guilty you are entitled to the usual discount of one-third.  The sentences I pass, therefore, against you, Ku Kam-lung are as follows: on Charge 1 - 4 months' imprisonment; Charge 2, 4 months' imprisonment, one month consecutive to the sentence on Charge 1; on Charge 3, 4 months' imprisonment, 1 month to run consecutively to the sentences on Charges 1 and 2; on Charge 4, 4 months' imprisonment, 1 month of which is to run consecutively to the sentences on Charges 1, 2 and 3; on Charge 5, 4 months' imprisonment, 1 month of which is to run consecutively to the sentences on Charges 1, 2, 3 and 4; on Charge 6, 4 months' imprisonment, 1 month of which is to run consecutive to the sentences on Charges 1, 2, 3, 4 and 5.

12.You are therefore sentenced to a total of 9 months’ imprisonment.

13.These are offences which were committed for financial gain, and in my view the court should also impose financial penalties upon you.  In addition to the sentence of imprisonment, I impose the following fines: on Charge 1, $20,140; on Charge 2, $5,335; on Charge 3, $5,730; on Charge 4, $15,400; on Charge 5, $20,000; and Charge 6, $67,200.  The fines are to be paid on or before 30 November 2010.  In default of payment, 1 month’s imprisonment on each count to run consecutively with each other. 

14.You, Leung Po-yee, were party to this conspiracy and involved in its execution.  Like your former husband Ku Kam-lung, you are a woman of previous good character.  These were, however, serious offences of dishonesty, and a sentence of imprisonment is appropriate.  While I consider that the same terms of imprisonment I have imposed on Ku Kam-lung to be appropriate in your case, I am prepared to suspend those sentences for a period of 2 years. 

15.I am satisfied that there are exceptional circumstances justifying the suspending of the sentences in your case not simply because of your lesser role in these offences, but because of the serious health problems, both physical and psychological, from which you have suffered in the past two years and which are described in the reports that have been submitted to me. 

16.I am satisfied that a suspended sentence will give you a better opportunity of recovering your health, providing you take the decision to commit no further offences within the next two years.  The effect of the suspension of these sentences is that you will not serve them unless within the next two years you commit another offence punishable by imprisonment.  If you do so you will be liable to be sentenced not only for the additional offences, but it is also likely that these sentences will be activated.

17.The sentences that I pass are therefore as follows: on Charge 1, 4 months' imprisonment; on Charge 2, 4 months' imprisonment, 1 month of which is to run consecutively to the sentence on Charge 1; on Charge 3, 4 months' imprisonment, 1 month of which is to run consecutively to the sentences on Charges 1 and 2; on Charge 4, 4 months' imprisonment, 1 month of which is to run consecutively to the sentences on Charges 1, 2 and 3; on Charge 5, 4 months’ imprisonment, 1 month of which to run consecutively to the sentences on Charges 1, 2, 3 and 4; on Charge 6, 4 months' imprisonment, 1 month of which is to run consecutively to the sentences on Charges 1, 2, 3, 4 and 5. 

18.That is a total sentence of 9 months' imprisonment.  But, as I say, all those sentences are suspended for a period of 2 years.