Re Cheung Kwai Kwai
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DCCC526/2010 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CRIMINAL CASE NO. 526 OF 2010 ---------------------- Transcript of the audio recording of the Reasons for Verdict Date: 18 February 2011
******************** 1.Defendant, you pleaded not guilty to nine offences of Fraudulently or recklessly inducing others to invest money contrary to sections 1071 A(1) and 2(a) of the Securities and Futures Ordinance Cap.571. 2.The prosecution case was embodied in the prosecution opening. I shall refer to that briefly. Charges 1 and 2, they relate to 7 February 2005 and 24 December 2007. Madam Siu So-chun invested US$30,000 in Minibond Series 17 and US$35,000 in Minibond Series 34. The prosecution alleged that D claimed these were very secure investments and principal protected. 3.Charges 3 to 5. Madam Li Wai-man invested HK$400,000 in Minibond Series 21, US$100,000 in Minibond Series 28 and HK$1,000,000 in Minibond Series 25 on or about 28 August 2005, 4 October 2006 and 1 February 2008 respectively. 4.The prosecution allege that you, defendant, told her the interest rate was high, interest would be paid on a quarterly basis and the Minibond belonged to very reputable and stable reference entities and as long as they did not close down, she would get back her principal amount invested. You made similar representations on each occasion. 5.Charge 6. Mr Lam Wai-kwan was induced by you, defendant, to invest HK$520,000 in Minibond Series 34 on or about 14 December 2007. You told him that the interest rate was higher than for fixed deposits. Purchasing Minibond was identical to lending money to the reference entities and he would not suffer loss to the principal invested as long as the reference entities did not close down. If any one of them went wrong he would only lose one-seventh the principal invested. 6.Charge 7. Mr Fong Kwok-tung on or about 22 November 2006 went to the Bank of China to inquire about Minibonds. You said the product was very secure and entirely linked to eight International organisations with good credit ratings; that the product was principal protected and that if any one of the eight international companies closed, he would only lose one-eight of the principal invested. He subscribed US$55,000 to Constellation Series 55. 7.Charge 8. On or about 1 December 2006, Mr Lau Ka-yiu attended the Bank of China. You recommended the purchase of Minibond Constellation Series 56. You told him they were principal protected and it was a low risk product. The product was issued by eight big companies, reference entities. You said Lau would only lose the principal invested if all eight companies closed down and if any one closed he would only lose one-eighth. He invested HK$3,000,000. 8.Finally, Charge 9. Madam Fung Sui-fong was induced by you to invest HK$200,000 in Minibond Series 30 in January 2007. You recommended the product which earned a high rate of interest; you told Fung that the investment was very secure; it was linked to seven big companies, reference entities, and, if any one of them closed down you would only lose one-seventh of the principal invested. 9.Mr Lee Siu-po, an expert witness examined the documents in relation to the Minibond Series which were Credit-link Notes issued by Pacific International Finance Limited. They involved complicated structures and operations with different parties and exchange of responsibilities. They were not principal protected and investors could lose part and possibly all of their investment. Another expert, Professor Tong Hin-sang examined documents in relation to the Constellation Series. He opined that the Constellation notes concerned were Credit-link Notes issued by the Constellation Investment Limited. They were not principal protected and investors could lose part or possibly all of their investment. 10.The evidence comprised one set of Admitted Facts, which is P66; live testimony from the six alleged victims and live testimony from two experts whose reports were read into evidence in accordance with the provisions of section 65B of the Criminal Procedure Ordinance, Cap.221 and then subject to further examination and cross-examination. 11.The facts admitted and read into evidence in accordance with provisions of section 65C, Criminal Procedure Ordinance Cap.221 established the following:
12.The collapse of Lehman Brothers and events thereafter. On 15 September 2008, Lehman Brothers filed for bankruptcy protection. Between 15 October 2008 and 22 July 2009, the Hong Kong Monetary Authority made a number of public announcements including the following.
13.Expert evidence for the prosecution and defence. The witness statements of the three experts were admitted to evidence under Section 65B of the Criminal Procedure ordinance as P64, P65, and D1 and D2. 14.The live evidence for the prosecution. Six prosecution witnesses gave evidence as to the facts. They were put forward by the prosecution as alleged victims. The first prosecution witness was Miss Siu So-chun and the alleged victim in Charges 1 and 2. She is aged 62; a retired maid; educated to Primary 3; able to read Chinese but not difficult words. She had known you, defendant, since 1990. She knew you initially as a student at the school where she worked and later knew you at the Kincheng Bank. She agreed she bought Minibonds many years ago through the bank. She seemed to say she had bought into a type of bond which matured without problems and you said to her, “Since you did not need to use a sum of money you could use the sum to buy this Minibond. The Minibond is safe.” She said she was told this in the bank which was in Wong Tai Sin but she could not remember if it was Kincheng Bank or the Bank of China. The Bank of China had acquired all Kincheng Banks. 15.She went on to say when you mentioned the Minibond; you told her nothing else. She trusted you, mutual trust, even if you said anything else she could not remember. It’s a shame. She said she did not know if it was principal protected. You had told her. It was generally similar to funds I had bought previously and there should not be any problem. She said she knew nothing about the level of risk and could not remember if anyone carried out a risk assessment. She bought the Minibond paying US$30,000 for Series 17 but could not remember this without being reminded. She also bought Series 34. She said she did not know the meaning of “Principal protected” and did not remember if anyone mentioned that to her. 16.This was around 2005 and something might have matured. You told her that for Minibond Series 17, the tenor was five and a half years and there was a fixed interest rate and she would receive it every three to six months but probably every six months. She said you told her the interest rate and could not remember if you had showed her a leaflet nor if she had completed any documents. She said she probably did but she said she didn’t need to look at them as she trusted you. She said she trusted you because she knew you and had previously bought without problem. She said it was all blank in her mind but even if you had explained the documents she would not remember. 17.She believed she had signed the document, shown P2, she identified the signature and the date of 12 February 2005. She made it clear she had no memory of it. Minibond Series 34 was also sold to her by you. You said, “Unless several organisations collapse, there should not be any problem.” She could not remember the organisations but she trusted you. She said when you explained it to her she was not listening or paying attention and could not remember anything. She agreed she had given a witness statement but did not wish to refer to it. For reasons given, I ruled this to be the end of the matter. She went on to say she could not remember clearly what it was. Understandably in the circumstances, Mr Duncan did not cross-examine. 18.Madam Li Wai-man gave evidence as PW2. She said she was 59, educated to primary level and a retired vegetable seller. She subscribed to three Minibond Series 21, 28 and 35. Minibond Series 21 was explained to her by you. After you explained it you asked Wong Lap-hung to process it. You went on then to talk to her about insurance. This took place in August 2005. You sat face to face in a room in the bank. You gave her your name card, which is P12, which described you as a senior personal service officer at Wan Tai Sing Branch of the Bank of China. Stapled to it was the document subscribing to the Minibond. She put the name card, P12, subscription form, P13, and the leaflet in an envelope. You referred to seven reference entities, including Citigroup, Coca Cola, HSBC, IBM, PRC and McDonald’s and Standard Chartered Bank. You said the latter was a note issuing bank and it would be very safe. It belonged to these companies. 19.PW2 said she had a low interest rate, her money being in a fixed deposit account and you told her about Minibond Series 21. She said, you said, “Now I’m introducing to you a product which has a longer tenor, a higher interest and a more secure interest rate which will be distributed every three months.” You said it was a very secure bond because of the companies involved and PW2 said she came to have confidence in it, in you and in the Bank of China. You said it was very secure unless she redeemed it half-way through in which case she would lose the processing fee. PW2 said she trusted you so she bought it. 20.She identified her signature on P13. She said that P14 was the leaflet placed on the table, Wong Lap-hung finished the procedure then handed the documents to you, defendant. You put your name card, leaflet and subscription form in a folder and passed them to her. She said she did not read the leaflet as the print size was small, you circled and explained parts. PW2 said her purpose was just to raise interest so she just put it aside. 21.PW2 also said she purchased Minibond Series 28 because her fixed deposit had become due in October 2006. She went to the Bank of China, Wong Tai Sin and saw you. You told her her fixed deposit was due and that the interest rate offered by the bank was very low and differed every month. You introduced her to Minibond Series 28 and if she invested in US dollars the interest rate would be 6.5 per cent, which was higher than if you invested in Hong Kong dollars. You said there were seven related companies and named them; the tenor and interest rate were quite good. You suggested changing to US dollars. PW2 said she did so, investing US$100,000. You showed her the leaflet which is P17 but put it on the table with one-third folded over. She did not see the words, “Not principal protected” and you did not mention this. 22.You told her to be assured about it. You said there was a gift certificate and Lehmans was never mentioned. She said you did not, in fact, mention Hong Kong and Shanghai Bank, she had she had mixed that up. She said the companies were very safe, especially Standard Chartered which is a money issuing bank and Citi Corporation a big group. You said there would be a big problem if a money issuing bank closed. She said that you explained to her that if one of the companies closed down, she would lose money but if none did, she would not. She said that she trusted the Bank of China so purchased Minibonds for US$100,000. P17, the leaflet was given to her after purchase. It was attached to the subscription form which is P16. She identified her signature. 23.She claimed that at the time of signing, the three ticks shown thereon were not there. She said she only discovered the three ticked boxes later when the incident occurred several years later. She was asked to sign without any explanation. P15 was another name card of yours with your mobile number on it. You had been promoted to personal financial manager by this time. 24.She said the third purchase was Series 35, HK$1,000,000. She said she was phoned by you as she had $2,000,000 in fixed deposit account. You suggested her to use 1,000,000 to purchase Minibonds and 1,000,000 for Chinese insurance. This was February 2008 when PW2 went to the Bank of China. You showed her a leaflet which was P20. You circled seven reference entities, seven companies. You did not name the companies shown. She was told that if Hong Kong and Shanghai Bank closed down, she would lose part of her money but still six others. You said that there would not be such an incident as all seven companies closing down at one time. The Peoples Republic of China would not close. 25.PW2 said she understood that if all companies closed there would be some loss. If not all closed down altogether there would be no loss but to take it up at the time of maturity, you told her. P19 was a purchase order and PW2 recognised her signature. She said when she signed this, the two ticks that were not there. You filled in on the form and you told her to sign and that you would give her a photocopy. PW2 said she believed you had put on all the ticks when you made the photocopy. You never explained the document. She only discovered the ticks at the time of the Minibond incident. P18 was your name card, by which time you had already transferred to San Po Kung. She said for the third purchase, you took about half an hour to explain the product, 20 to 30 minutes to explain the second purchase and about 20 minutes to explain the first purchase. 26.PW2 was then cross-examined by Mr Duncan on your behalf. She insisted that she was told by you the bonds related to certain companies. You also mentioned the benefits of fixed interest rate and tenor. She agreed it was Mr Lai Tat-sang who introduced her to you and you gave her your business card, similar to P12, at Bank of China, Wong Tai Sin. You had also sold her insurance. She said other staff did not assist her invest, not Lai Tat-sang and she believed Wong Lap-hung did not. 27.From 2005, she only dealt with you at the Bank of China. She said, regarding Charge 3, you explained the Minibond and passed it to Wong for processing then to be signed. Wong was only involved in the first transaction. She accepted she got mortgages to purchase two flats with your assistance. One mortgage was in 2009. She agreed making two witness statements about these matters, one in 2008 and one in 2009. 28.She agreed she made no notes when the bonds were explained to her. She believed, prior to the collapse of Lehmans she did receive interest on all three Minibonds and appeared to be perfectly happy with what had taken place. At no time before the collapse had she any reason to think back to what was said. She trusted you. It was three years after the third purchase she had to recall events. She said she trusted you and remembered the general explanations. 29.PW2 claimed not to find remembering difficult. All three explanations were more or less the same. She said she was certain that you said the seven companies would not get into trouble. Looking at P16 and P19, purchase orders for the two Minibonds, she confirmed the ticks were not in the boxes when she signed; only found them when Lehmans collapsed when she opened the envelope. Regarding P19, the first ticks she said she had not been informed about the risk. Also the second tick, she was an aggressive investor, but she had not been told that. She said she had told you not to let her lose anything as this was her pension. She claimed that you cheated her into buying the Minibonds. She claimed you did not tell her that Series 28 was not principal protected. If she had known she would not have bought but rather put her money in low interest fixed deposits. 30.Shown pamphlet P17 she agreed it was clearly stated it was not principal protected. Despite feeling cheated and betrayed she still took out a mortgage with you in 2009 as this was borrowing money and that the Bank of China had all her particulars. She did agree that her witness statement did vary from the evidence regarding the ticks. She told the police she did not notice the ticks there when she signed but told the court they were not there. She said that at the police station she was very confused. Ticks were not there. She agreed with counsel that when Lehman Brothers’ collapsed her motive was to get her money back by hook or by crook. However, she did say that she had told the truth. 31.She agreed after her first witness statement she did go San Po Kung branch of the Bank of China and created a big fuss; a lot of noise and urinated on the floor. She had to be removed by the police. She said she was very unstable then and could not control her emotions; attended a psychologist. She did agree that she had a conviction for a minor theft in 1982 when she was fined $400. I have to comment that in assessing her evidence I totally discounted this matter as being too trivial to be of any probative value. 32.She disagreed that you took no part in the first Minibond sale, that is, Series 21. She said when Mr Wong assisted with the processing of the Minibond nothing was filled in. She could not recall who filled in the manuscript parts. On the second and third occasion when she purchased bonds it was you who explained the products and processed the purchase. 33.Turning to the question of her employment. PW2 claimed to have ceased selling vegetables in 2004 and had no other form of business. She said she had signed documents in the name of Isabelle since the age of 17 and that she had, at no stage, said that she had come back from abroad. Nor did she tell you that she had managed a watch business. She said she did not remember if she asked you to photocopy a letter to the Inland Revenue Department for an appeal in respect of profit tax. She never told Lai Tat-sang she had been involved in watch and clocks, nor that she had an office in San Po Kong. She claimed that no risk assessment had been undertaken. She was shown a questionnaire entitled “Investment preference” which, despite her signing, she claimed she had never seen. It was dated 4 October 2005. 34.P5, the subscription form for Minibond Series 28 relating to Charge 4 was shown to her and she admitted signing it in two places. She denied that you had carried out a risk assessment at this stage. In May 2005 she invested $1,000,000 in Kung Hei Fat Choi bonds at the Bank of China. She denied that it was through Wong claiming this was done by Lai Tat-sang. He explained and suggested she bought it but could not recall who processed it. She understood the subscription form; she said she did not know if it was Wong Lap-hung’s staff number on it but it was Lai Tat-sang who recommended the Kung Hei Fat Choi bonds. She maintained that during your 20 to 30 minutes explanation of the Minibond Series 28 you did not say it was not principal protected. If you had done so she would not have bought it. She maintained that you said things would not go wrong unless the Standard Chartered Bank collapsed and you did say that if none of the entities closed down she would not lose anything. 35.She agreed that you promoted Minibond Series 35 to her. She referred to the subscription form P19 dated 1 February 2008. She agreed that in January she took out an insurance policy through you. Prior to this she agreed she had subscribed to Stirling Equity Funds with the Nan Yang Bank. Also she subscribed to equity funds which had dropped in value but she had not invested with someone other than you. She denied telling you she was unhappy with Equity Funds and wanted to subscribe to Minibonds because they gave her higher interest rate and stable income. Nor had she asked you to phone her if any new Minibond opportunities rose which is why you called her for Minibond Series 35. 36.She denied that you made it clear to her it was not principal protected. Nor did you make it clear for the second and third set of bonds that if one entity went down she would suffer a loss. She maintained you only said if all entities went down there would be loss. She said that you did not say if all companies closed together there would be no loss. She confirmed that at the time of subscribing to the second Minibond you gave her a name card which is P15 showing you to be promoted to personal wealth manager and that this was on 4 October 2006. She claimed not to know that you had not been promoted until December 2006. She then claimed not to remember if P15 was given to her at that time. She was re-examined by Mr Man. 37.Lam Wai-kwan gave evidence as PW3. I do not deal with this evidence as he was not cross-examined and Charge 6 was dismissed by me on submission of no case to answer by Mr Duncan. Mr Man very fairly considered that the evidence could not support the charge. 38.Ms Fung Sui-fong gave evidence as PW4 whilst appearing as PW6 on the list of prosecution witnesses. She was 80 years of age; educated to P2; and been retired over 10 years. She had been a sewing worker. She said she purchased Series 30 Minibonds for HK$200,000 which was Charge 9. She said she purchased them from a female called Cheung in mid 2007. She said, “I can’t remember so many things.” She readily agreed to attending an ID parade on 8 April 2010 when she had not done so. She said that you, defendant, were a member of staff of the Wong Tai Sin branch of the Bank of China. 39.She went to the bank around the time her fixed deposit was due to mature and asked you about more interest. You gave reasons; interest every 3 months; that the Minibonds had six to seven bosses. She said she asked if it was risky and you told her that even if one or two went wrong there were several others. She said she trusted the Bank of China. She believed Minibonds not to be risky. She agreed you did show her a leaflet, P60 but she could not read it. She agreed you did explain the contents of the leaflet. You said the bosses of the Minibonds were companies with histories. You referred to the names of the companies; they were companies with histories in existence for more than 100 years and not possible they would all go wrong. You said if one went wrong you thought she would lose very little and still get interest. 40.She received interest and so many people subscribed to Minibond Series 30. She said she did not know she would suffer a loss if one company closed otherwise she would not have bought. She said she saw so many people subscribing she just wanted to earn more interest. You explained that even if one of the reference entities closed down, she would not lose all the money. She said that she just wanted to earn more interest. You did not tell her what she would lose just that she would earn several tens of thousands interest and there were so many people subscribing. 41.She said that you and her had a conversation for a good half hour. PW4 said she indicated she wanted to buy but when you saw that she was aged, you asked her to get a younger person, her daughter to come along. She said that you told her things in detail about the Minibond but we were now asking her to recall, the implication being that she found it difficult to recall. She said she was told who the bosses were but had now forgotten. She signed a subscription form, P10, that was on 8 January 2007. She could see the date. She could see her signature. 42.She remembered your name, who had handled the subscription process for her. She said you said there were six bosses and they would not all close at the same time. You did explain the second tick to her. She said that she was thinking so many bosses and not the case they would all close down. You did not tell her it was high risk nor that the risk was very great. When she signed she thought initially it was safe. She saw so many people subscribing to it she thought it was safe. She did not remember who put the ticks, she just signed. She confirmed signing P11, the confirmation form. She probably did not listen carefully but that you probably explained it to her. 43.PW4 was then cross-examined. She identified her signature and that of her daughter on P10. She agreed before her daughter signed you explained the nature of the product to her. She agreed she took no notes just listened. She also agreed there were times occasionally during the explanation she did not listen. She did receive interest payments every three months until the collapse of Lehman Brothers. She said she did not have a good memory, she just cared that she got the interest. She did accept that by this time she had forgotten what you had said. 44.She identified her witness statement of 21 October 2008. She said you did explain to her about the product and she could remember some and had forgotten some. Referring to the witness statement which had documents attached, she said she probably gave them to the police but then recalled that she had definitely given them to the police. At the time of making her witness statement she said she had not got back her money but after she did, she threw everything away. She was shown an allotment advice, that that bank must have sent it to her. P60, the leaflet was the document given. She did not pay attention to details, such as, if you put circles on it. She again agreed she did not remember a lot of the details you went into when describing the bond. It was difficult for her to remember what you had said four years ago. 45.She agreed it came down to this. She was sure that you had spoken to her but not sure what you had said. She said she saw so many people in the neighbourhood buying Series 29 which was sold out so she waited for Series 30. She agreed she was desperate to buy the Minibond even before you spoke to her, “I saw so many people buying them.” It was difficult to work out what came from her mind and what you had told her. She accepted that she could have met you on three occasions but was not sure about this. She was told on the first occasion to go and then come back with her daughter. 46.A joint bank account was opened dated 29 December 2006. She said she only met you once with her daughter. She agreed you explained the product to her but she could not remember. You also explained it to her daughter. She said when she and her daughter signed there was a man present but she did not know who he was. The man was not present for the explanation that you gave and she also said she could not remember if you made it clear that the product was not principal protected. D5, a copy of the leaflet of Minibond Series 30 was shown to her and that “Not principal protected” was circled. She did not pay attention to whether you circled it. She insisted you said if one entity went down she would not lose very much. She also said that you used the term “bosses.” She denied that she was not clear in her mind about the companies. PW4 was then shown her witness statement of 19 August 2009. She said she just told the police that you said that if one entity went down you would not lose much. She agreed it was difficult to recall what you had said but insisted you had said if one company went down she would not lose very much. 47.Mr Lee Siu-po, Simon, gave evidence as PW5. His third witness statement at P64, P67 and P68 were read to the court and admitted to evidence under Section 65B of the Criminal Procedure Ordinance Cap.221. I accepted him to be an expert in the matter we are dealing with now. In-chief he added to the contents of the witness statement, I do not intend to go into his evidence and will comment on it later at the conclusion. He was cross-examined. I will mention merely a few matters of note.
48.Mr Fong Kwok-tung, originally PW4, then gave evidence as PW6. He told the court he was a part-time security guard aged 62 and educated to Form 3. He had subscribed to Constellation Series 55, which is Charge 7 for US$50,000. He said he went to the Bank of China in November 2006 to purchase it after reading an advert in a newspaper. That was Wong Tai Sin branch. You gave him your name card, P22, and showed him the leaflet P24. He said you told him it was a structured bond and when he asked if it was secure, safe, you replied it was very safe. You said there were eight connected companies with which he was not familiar. You said they were very safe and all had held A plus or something like that. He said he intended to buy safe bonds as he had retired and did not want to put money at high risk and you said to rest assured because even if one had risk there were seven others to compensate. 49.He said he understood the US$50,000 was divided into eight parts so if one closed he would still get back seven portions. It never occurred to him he could lose it all. He said it was principal protected that was stated in the leaflet but now when shown the leaflet he could not find it. But he did say the figure 100 per cent had been mentioned. He insisted it was stated there. You said he could get back the principal, referring to P23, a photocopy subscription instruction form given to him by you undated. P8 was the same form but that was dated 10 November 2006 and signed by both him and his wife. Referring to the customer confirmation, he saw his signature and that of his wife to the left of the box. The second tick was to say he was advised the risk was high. He said he was sure it was not explained to him. He said you had put the ticks there before he signed and you did not explain the risk level was high. He said you spoke about the product for about 30 minutes in your room. 50.P32 is a questionnaire dated 1 November 2006 which you conducted with him. He said he was unclear about the date and believed the questions were not asked. He said no one explained to him what the ticks referred to. He said no one explained he was an aggressive investor. When Lehman Brothers collapsed he was not scared because he thought he would only lose one-eighth of his money but later you contacted him and told him to be prepared to lose it all. 51.He was then cross-examined by Mr Duncan on your behalf. PW6 agreed he was attracted by the high interest rate. He agreed after the collapse of Lehman Brothers he complained to the Democratic Party and to the Bank of China. He did this to get his money back. He made a witness statement on 6 November 2008 and provided the police with a number of documents including his copy of the subscription form P23 and the leaflet P24. Also an allotment notice, D8, posted to him by the Bank of China. Also a page of interest calculations written up by you, that’s D9. He agreed he signed a written letter of complaint to the Bank of China on 4 February 2009. He agreed he was motivated to retrieve his investment. 52.He made his second witness statement on 4 September 2009 and said he told the truth. The subscription agreement was dated 10 November 2006. He agreed he took no notes of your explanation of the Constellation Series. He received seven lots of interest payment before Lehman Brothers collapsed and agreed he was satisfied with the bond’s performance. He agreed until the collapse he had no reason to think back as to what had happened when he invested. Only then did he try to recall what had happened. So by the time he recalled two years had passed. He felt it was not difficult to recall, he said, now having checked it he could recall signing the questionnaire on 1 November 2006. 53.He went on to admit that when he thought back after. However he claimed to have no difficulty recalling what he had said as he had much impression. He accepted he could not remember if he went to the bank alone or with his wife. On 1 November 2006 he said he went in first and then the wife later. Then he disagreed that on 1 November he and his wife went to a temple in Wong Tai Sin but when it was put to him again that after the visit they went to the Bank of China, he changed his mind and agreed. He said they had gone to Wong Tai Sin to have tea with a friend. He did go to the bank and expressed to you an interest in Constellation Funds. When asked if you proceeded to conduct a risk assessment with him, he said he did not remember. He agreed it was difficult to remember back to those events. 54.Referred again to P32, the questionnaire signed by him, he conceded he could not recall if he was asked a number of questions by you. He did not remember if he had told you he was comfortable with losing 20 to 30 per cent of his investment. He said he could not remember if you had made him aware of the contents or not as he had signed so many documents. When it was put to him that he had never told you that he did not want his money put in high risk investment he said he just said that he told you he wanted a higher interest rate than fixed deposit and that was all. 55.P23, a copy of the subscription form was put to PW6 and he agreed he signed it and that the three ticks he referred to previously had been put on and he agreed. However, he said you did not explain the matters ticked. Also he did not remember if a risk assessment was done for his wife, however he was shown a form signed by his wife and he now remembered. He accepted that the money for the subscription was still in another bank. He had signed to subscribe but he had not provided the funds. He left with various documents, including the subscription form. He had forgotten if he had been given a Prospectus for Constellation Series. Later he provided the Bank of China with US$50,000. 56.P8 the other subscription form was dated 10 November 2006. He agreed he phoned you and you in Yunan. He told you that he had money by cashier’s order. This was deposited by his wife on 10 November. He believed the subscription form dated on that day had been returned by the bank. He agreed that a lot of these matters had been forgotten until Mr Duncan mentioned them. 57.In 2007 he agreed he had made a number of investments with Bank of China. He did not know if they were high or low risk. These were put to him and he agreed. P33 was another investment questionnaire signed by him about a year after the first one. He agreed that you explained the same as 12 months ago and had some boxes ticked. It was put to him that when he invested in the Constellation Series he signed for it and was fully aware they were not principal protected and he replied, “it said it was.” He said he believed in you. He said you explained to him the risk of structured bonds. You said there were eight connected companies and if one closed he would still have seven to compensate. 58.He was scared there might be a risk so he asked if it was safe. You said that BOC was an agent and that he could rest assured it was safe. He claimed most of his understanding came from you. He could not read the leaflet at the same time as you were explaining as the writing on it was too small. Mr Duncan put to him that it was difficult to say which part of his understanding came from you and which from his own mind and he agreed with this. He denied you had made it clear to him it was not principal protected. He claimed they provided no credit event, you did not tell him he could lose all his money. 59.He disagreed you never said it was a safe investment. Then when it was put to him again that at no stage did you ever say it was a safe investment he agreed because he said, if a credit event arose it was not safe. He also disagreed that you never said it was split into eight portions. He knew that now, though at the time he did not study the leaflet. He believed that you had used the word, “Portions” but agreed there was a possibility that he had misunderstood. He also disagreed that you had not said that one entity closed he would get seven portions, and that after four years, he could not be sure what exactly was said. 60.He was then re-examined and he said it seemed he was not given a prospectus before he left. He did not read the subscription form before signing it. You explained the risk. He was impressed about the percentage of risk. He could bear 20 to 30 per cent. He did say that you said it was not principal protected but when a credit event occurred he might not be able to get all his investment. He said if no credit event he could get back all his principal. 61.Lau Ka-yiu then gave evidence as PW7. He was 40 and proprietor of a trading company. In November 2006, he subscribed to Constellation Series 56 in the sum of $3,000,000. This was sold by you. You had phoned him and he went to the Bank of China in Wong Tai Sin. You promoted Constellation Series 56 bond with leaflet P63. You told him it was low risk, safe and much better than putting it in the bank as it had a higher interest rate. You said it was low risk and identical to an insurance policy he had taken out with you. You said it was issued by eight companies in the table. You told him that if one of the companies had problems he would lose one-eighth of the principal. The companies were world renowned, if all closed the Bank of China might have problems too; that if all closed he would lose his principal. If he did not redeem it early he would get his principal back at maturity. 62.PW7 said he told you he wanted a stable low-risk product. The purchase was dated 22nd of the month when his money was transferred to the bank. He said your introduction took about five minutes. P9 was the subscription form for Constellation 56 which he signed on 1 November 2006. You put the ticks in the boxes and asked him to sign. He said you did not explain details. At the time of signing he had not paid attention. This was on 22 November 2006. He was not sure of the date he signed whether it was October or November 2006. When he left he was only given a leaflet. 63.P34 a questionnaire dated 4 August 2006, which you had carried out with him but did not tell him the purpose. You read it out to him. This was done at the time he opened the stock account in August. He just read it to see if the ticks were correct but was not given a copy. It indicated he could lose 10 to 20 per cent and same as with the Constellation 56. 64.PW7 was then cross-examined. He acknowledged now remembering the transfer of funds from the fixed deposit account to his investment account at the Bank of China. This exchange showed PW7 was not sure about the transfer of his money but denied having difficulty remembering the events of that day. He said your introduction only took five minutes so he had a clear recollection of the important parts. He agreed he did not record notes. After subscribing he received interest payments until Lehman Brothers collapsed. Until this he had no reason to think back to what had happened. He made a witness statement on 21 October 2008 doing his best to recall events of 1 November 2006. He said before the witness statement he went to a seminar conducted by the Democratic Party, spoke to his wife and browsed forums on the Internet but he had not much impression of the contents. 65.He said he did not believe he had signed a complaint to the Democratic Party. He was then shown a signed complaint and now remembered it. Also he complained by email to the Monetary Authority. He phoned the Bank of China to complain but could not recall the date. He also phoned you, defendant. He believed that he had not asked to meet you outside the bank but had not got much impression of the conversation. He agreed that the contents of the witness statement were motivated by his wish to get his money back. He accepted, in paragraph 5, he accused you of misleading him to get commission, enhance your performance and to get promotion. He said he read in a newspaper about the commission and he did have the thought that you were promoted because of this deed. 66.He agreed that he had not got back any of his $3,000,000 invested and 30 per cent of his motivation to give evidence came from his desire to get back this investment. He agreed that at nowhere in his witness statement did he say that you had described it as a safe investment nor indeed had he said this in his second witness statement. You showed him a leaflet. The leaflet was actually provided by a colleague of yours. He agreed and confirmed that this was provided on 1 November. You phoned him to say you could arrange a higher interest rate. His wife went to the bank with him but he could not recall if she left during the course of the explanation nor if she returned later to the bank. 67.When he made his first witness statement he said he did not provide the police with a number of documents. However, he agreed there were attachments but he did not provide them. On 1 November 2006 he said he was only given a copy of the leaflet. The leaflet was used by you, defendant, to explain it. He agreed he did not provide the police with a copy of the leaflet but P24 was the type of leaflet. He said he had no impression of providing other documents to the police. On 1 November 2006 he denied he was given a copy of the subscription form or the prospectus. He said in his witness statement that you then showed him a flyer, saying it was a capital protected bond, you said this was like principal protected bond. He did agree P24 clearly stated it was not principal protected. He insisted you said there were eight companies and if one closed he would lose one-eighth. When put to him that you made it clear it was not principal protected, PW7 said you mentioned the risk to him. The risk was acceptable was what you said. 68.He disagreed you did not say it was a capital protected investment nor that you had pointed out expressly the entry on the leaflet. He also disagreed that you had highlighted it despite circling it. He denied the reason he did not provide the original leaflet to the police was that it was circled. He claimed to have lost it. He agreed that the leaflet was placed between you. He claimed this to be the first time he had had to recall the words. He disagreed that you never said it was low risk. He said he told you he wanted a stable low risk product even though not in either of the witness statements he said this. It clearly offered a higher risk rate than a fixed term deposit and had a longer tenor. It did occur to him that as an interest rate was higher the risk was probably higher but it had a longer tenor so he did not regard it as high risk. 69.P34 he said he was unclear as to its purpose but you did not explain it to him. He agreed you did question him and read it out to him. He signed it. In the second witness statement he said some of the answers were not what he approved of. He said ticks were put on by you. He had no impression of receiving a copy of the questionnaire. P9, you did not explain it to him. He signed it twice. He disagreed you explained the contents of the customer confirmation box. He maintained you had said it was just like the five year insurance policy you had sold him before and he could remember the reference even after four years. You had said it was issued by eight companies. Now he knew this was incorrect and the leaflet says something different. 70.P24 was clear as crystal that issued by Constellation Investments Limited but he did not read the leaflet in detail as you had explained it to him. You definitely said if all the companies closed he would lose everything and if one closed one-eighth. PW7 agrees he now knows that the leaflet does not say that. He agreed he said if he knew Constellation was a structured retail bond he would not have bought it. He agreed it was clearly described in the leaflet. He said he did not know what a structured retail bond was at the time of purchase. He only came to know this later. 71.He agreed he was a business man and that he should know about products before buying and selling but he said he only listened to your explanation and did not read the leaflet. He agreed there was nothing to prevent him asking what the product was. He claimed he understood what you explained. He denied his description was inaccurate. He was then re-examined. 72.Tong Hing-sun, PW8, gave expert evidence. Again, I do not intend to go through this and will deal with that in my verdict. The prosecution case was then closed. Mr Duncan made submissions of no case to answer in respect of Charges 1, 2 and 6. In respect of Charge 6, very properly and fairly Mr Man accepted the prosecution evidence was not of such a standard as to establish a prima facie case and I agreed with Mr Duncan’s submission and consequently dismissed that charge. 73.In respect of Charges 1 and 2 for reasons I gave I held that there was a case to answer in respect of Charge 1 but not Charge 2, therefore I dismissed Charge 2. I will not repeat what I said at the time. The reasons are on the court record. 74.Defendant, having had your rights fully explained to you, you elected to give evidence and ultimately to call six defence witnesses. The first defence witness was Dr T Vinaimont with the leave of the court and the absence of objection from prosecution he gave evidence before you did. As with the prosecution expert witnesses, I do not propose to refer to what he said at this time, leaving that for the verdict itself. 75.Defendant, you gave evidence. You told the court you were of clear record, educated to form 5. You had worked at the Bank of China and its predecessor since 1982. In 2004, you were appointed to the position of Senior Personal Financial Officer, a position you held until December 2006 when you were promoted to the rank of Personal Financial Manager. 76.Your duties had been to promote bank products and advise customers on financial means including funds, credit cards, deposits, insurance etc. You also then dealt in bonds, the subject of these proceedings. Promotion to manager did not change your duties. Referring to P15, you identified your name card which was used after December 2006. You said you had worked for 28 years in the bank and prior to the collapse of Lehman Brothers you were not aware of any complaint about your integrity. You said the interest rates for Minibonds and Constellation Notes was two to three per cent higher than for fixed deposits. 77.The Charges went back to 2005 and you could not now recall precisely what you had said in every incident. You said your usual practice was to sit at the table with the relevant pamphlet between you and the customer. The pamphlet would face the customer. Your usual practice was to tell the customer it was not principal protected and explain the sort of Minibond it was. You would circle the words as you explained them. You would explain it was credit-linked to the companies in the leaflet. If one had a credit event the bond would be terminated right away and redemption may be much less. The customer had to consider if he or she had confidence in the credit ratings of the company. You would then show the customer the credit rating for each reference entity. The issuer would take the collateral from the investor to buy collateral rated triple A. The purpose was to be able to pay back the principal at the maturity. If the customer redeemed earlier he could only get back the value of the secondary market. The issuer had the right to redeem in mid term, you would go on to explain annual interest rates and the terms and frequency of coupon payments. You would then let the customer consider. 78.You would also explain the gifts and write down the calculation of the interest. You would circle important points on the leaflet with the leaflet facing the customer so he or she could read it you would explain it was not principal protected. You would also advise of the currency to be invested. You would ask the customer to take it and read it. You explained about withdrawing from subscribing. D9 you identified as a hand written note showing your calculation of the interest. 79.D5 was a leaflet of Minibond Series 30. You would use it in the course of your explanation, you would put the circles on it, you circled and explained “Not principal protected.” You would explain they were credit-linked for the companies in the leaflet. If the customer decided to proceed a form had to be used. P5 was an example of a subscription form. You would fill in all the particulars for the customer and ask him or her to confirm the name, the account number, the ID card number. Also the amount of subscription of the Series number of the notes, then you would ask him to sign. You indicated the signatures also the subscriber would sign in the customer’s confirmation box. 80.In respect of this part you would remind the customer that the product is of high risk and you would check if the customer would accept such a high risk. You would also tell them to read the terms overleaf, taking it with him or her and if there was a problem to get back to you at the bank. The customer would leave with a copy of the leaflet, the prospectus and the subscription form and a third item related to risk assessment and there were four alternatives. You would know what to tick after the questions. 81.P26 was identified as a questionnaire of investment preference necessary to be completed if the customer wished to subscribe to investment products. This was completed if it was the first time to invest or over a year since the last one had been completed. You would tick the boxes according to answers given. A score was recorded as a result of adding up the marks for each question to assess the level of risk that the customer would accept. The customer would sign to confirm. You would give a copy of the form to a new customer and those whose previous questionnaire had expired. 82.Referring to P5, a subscription instruction form for Minibond Series 28, you filled in the name, registered number with the Monetary Authority, staff number and signature after the customer had signed. Also the review member of staff completed the relevant part. You also had a checklist. You would leave customer documents while you went to the review officer, you would leave the leaflet and the prospectus with the customer to read. You took to the review officer the subscription form, the document for deduction of money, such as a passbook, also the questionnaire of investment preference. The supervisor would sign and initial after reading. You would give the customer documents to take away, the subscription form, the QIP, prospectus and leaflet. The self-checking form remained with the bank. 83.Whoever initialled the documents had explained them to the customer. The customer was invited to ask questions. If a customer was over 65, part 5 was completed as well as a witness was required. That would have to be a relative or a friend. In respect to the prospectus you admitted that you had browsed through it but not studied the whole document. You could not now recall the parts you had read. Referring to P1 and P2 you identified your signature but said it was six years ago so could not recall every detail. You followed the usual practice to explain and took documents to the supervisor for review then you gave copies to them. 84.You gave evidence relating to Charge 1 that it was dealt with by the usual procedure and you had no recollection of saying it was generally similar to previous financial products and that there should not be any problem. You would have explained according to the leaflet and circle “Not principal protected” and you did not say it was safe. This was Minibond Series 17 and the document was signed on 12 February 2005. 85.Charge 2 having already been dismissed warrants no comment save to underline that PW1 paid little attention to what she was being told. In relation to Charge 3 you identified P4, the subscription form for Minibond Series 21. Madam Li Wai-man, PW2 purchased this for $400,000 and signed Isabelle. You confirmed that your name did not appear or your staff number. However, the number of your colleague, Wong Lap-hums did appear. He is the manager and senior to you. You said it was not true that you explained it and Wong processed it. The man is also known as Wang Li-hsung. You had never come across a situation where someone explained a bond and someone else processed it. 86.P5 the subscription instruction form to Minibond Series 28 here you signed it and PW2. It was dated 4 October 2006. P25 was the QIP signed by PW2. On P5 PW2 signed twice. You had never previously dealt with PW2. The branch head had and Madam Li had looked for him. Mr Wong had been transferred out so she came to you. You said as far as you recalled you followed the normal procedures. P59 was the leaflet for Minibond Series 28 and you used it to provide the explanation. You also conducted a questionnaire investment preference which is P28. Again, as far as you recalled you followed the usual procedure. 87.PW2 had said that you provided the business card prior to signing on 4 October but it showed you as the Manager whereas you had not been promoted until December 2006. the usual procedure was followed and you would not fold the leaflet so she couldn’t see it was not principal protected. Your usual practice was to explain point by point and not fold it up. You would not refer to seven related companies and say they were safe and would not go wrong unless something like Standard Chartered went wrong. If one went wrong it would cause a credit event. You did say that she had to have confidence in all seven companies. You said you might have said they offered a very good interest rate but the tenor depended on the client. You did not say they were very safe especially the Standard Chartered and Citi Group has a big group. You did not say it would only be a problem if a money issuing bank closed down and to be at ease. 88.You may have said if one of the seven closed she would lose money. You told her that if a credit event took place she would lose money and redemption would become due. You would not have said it was the same as a fixed deposit. You did not say if none of the reference entities closed she would not lose her money. You believed you had not mentioned Lehman Brothers. You did not say if she bought through the bank the companies were safe. You recognised P5 which is a purchase order for Wealth Management product dated 1 February 2008 for Minibond Series 35 for $1,000,000, settlement due 22 February 2008. P65 was the leaflet. P6 was signed by PW2 and you also, with your staff number, the review process was conducted in initials on the form. 89.D17 was the self-checking list which was produced. You said as far as you can recall you used the usual procedure. You had some impression of this transaction. You confirmed that she had previously bought a ₤1,000,000 insurance policy with 5 year term. You mentioned she got good interest rate from the Minibond and previously bought and asked you for look for similar products. 90.P6. You said you adopted your usual procedure; the form had changed and so she only needed to sign once. You did say the bond was linked to seven companies but not that there was no chance of HSBC, Standard Chartered or the PRC closing down. You had no recollection of saying if HSBC closed she would lose only a part, there was still six other companies which may not have had problems. You did not say there would not be an incident of all companies closing down at the same time but if they did there would be some loss. You said you heard PW2 state that she had been a vegetable hawker but your understanding was that she had a factory in San Po Kong making watch parts, not a vegetable hawker. Also, you recalled assisting her with a photocopy of documents for an application to appeal to the IRD over profit tax. 91.P10 you identified as a subscription instruction form for Minibond Series 30 signed by Madam Fung Sui-fong, PW4 and Lo Wai-fung on 8 January 2007. P35 is the QIP of PW4. She had opened an investment account, P34B refers. You said it was a long time ago. Both had provided QIPs. You adopted your normal procedure. PW4 had been referred to you by a colleague. The form had the staff number of the colleague who referred her but you explained the product to PW4. You followed your usual procedure as far as you could recall. 92.D5 was a copy of the leaflet for Minibond Series 30. You had used this to introduce the product to her. P10 again was completed according to your usual procedure and signed by her. The transaction had been reviewed. D11 was then referred to, a document for aged persons to sign too. PW4 was 75 years of age at the time and the term of the product was seven years so she would be over 80 at the time of maturity. The branch manager was then involved and present when you explained the main parts. You asked if she was clear and reminded her of the related risk. He only signed after the customer indicated she understood. The manager was Chan Tak-ming. He signed and both Madam Fung and Lo Wai-fan signed as did yourself. 93.Referring to PW4’s evidence you said you did not tell her the Minibond had six to seven bosses who had worked for a long time. You did not use the terms “bosses” in any explanation nor that the bosses were companies which had been in existence for over 100 years, nor that even if one or two went wrong there were still others so she would not lose all her money; nor that it was not possible all would go wrong; nor that the risk was not very great; nor that six or seven were time honoured companies. 94.You then turned to the Constellation Notes. P32 was the QIP of Mr Fung Kwok-tung, PW6, date 1 November 2006. P8 is the subscription form for Constellation Notes Series 55 to 58. D10 is the QIP of Kok Lai-peng. P8 bears the names of Fung and Kok. P23 was the same document as P8 but lacking the date. On 10 November 2006, US$50,000 were subscribed to Constellation Notes. The customers were Fung and Kok. You said you dealt with the transaction. Your signature and staff number. You said you had some recollection of this. 95.On 1 November 2006 both of them came to the bank and wanted to know about Constellation Series 55 and 56. They opened an account and you conducted separate QIPs. You then explained the product to them in accordance with your normal procedure. You explained they had to pay this subscription to the Bank of China so you completed all the procedures to await payment. They were given a prospectus, a leaflet and a photocopy of the undated P23. On 9 November Fung phoned you were in Yunan and you made arrangements to deposit his cashier order with the Bank of China at Wong Tai Sin. On 10 November 2006 a colleague completed the procedure for them. 96.On 1 November 2006 Madam Kok had been present when the product was explained by you. You used the leaflet, P24. You circled part of it including “Not principal protected” etc. You also completed D19, the self-checking form. You also then gave copies of the QIP. You did not on 1 November say it was secure and safe. You explained according to what was in the leaflet. You did not say there were eight connected companies which were very safe but you did mention eight credit-link companies. You did not say divided into eight parts and if one company had failed there was still seven to compensate; nor to rest assured as eight companies if one closed got back seven parts. You did not say it was principal protected; you did not say if a credit event did not happen after five years he could get back all his money. You did not say that because the Bank of China was distributing it he could assume it was safe. 97.P9, you identified as the subscription form for Constellation Series 55 to 58 signed by Mr Lau Ka-yiu, PW7 on 1 November 2006. You said the name and staff number appeared there, your name and staff number appeared there as well as another member of staff, Chan Luk-kwan. The amount was large so you had a deep impression of this transaction. PW7 asked you to get him a high rate of interest. His wife was also present. You said your colleague came in and they chatted and PW7 asked him if he had something new to introduce him. Your colleague put the leaflet in front of him and then left. 98.PW7 then browsed the leaflet and asked you to explain it. His wife she had to go back to her father-in-law. You then explained the leaflet step by step as per your usual procedure. Mr Lau decided that the credit-link companies to the bond had very good rating and that interest rates were high so he decided to invest $3,000,000 for six and a half years with the Constellation Series. He said he did not need his money at the moment; it was put aside for his daughter’s education. You said you had put down the names of Chan Luk-kwan in the box referred to. His wife came to the bank but did not stay. PW7 decided to go ahead in the absence of his wife. P24, the leaflet, was in front of him when it was explained. You believe that you did circle certain terms which was your habit, “Not principal protected; Credit-link companies; interest rate, coupon payment” and the terms. 99.P9 was completed once he decided to go ahead. You identified D20, the self-checking list with your signature. On P9 the third tick is “moderate to aggressive” that being the level of his investment. P34 is his QIP of 4 August 2006. His assessment as an investor is moderate to aggressive. P9 was reviewed by your supervisor who initialled it. To your recollection PW7 was provided with a copy of P9 and the prospectus and leaflet. You did agree you may have said returns were better than fixed deposits but would not, however, have said it was safe or low risk. 100.You did not say it was more or less like an insurance policy taken out before. In fact you had no impression of dealing with an insurance policy with them. You did not say it was issued by eight companies stated nor if one had a problem that he would lose one-eighth of the principal but if all had closed he would lose the total. The issue was for Constellation investment as stated in the leaflet. You would have told him the companies were renowned companies with high credit ratings but not if they closed down BOC would have a problem. You did not say he would be lending money to the eight companies in the leaflet. 101.You said your salary is now over $30,000 a month and when you sold Minibonds and Constellation there was a transit commission but it was not an incentive rewards just that was by overall performance. Bonus depended on overall performance. You were then cross-examined at length. You were questioned about your salary, bonus and sales motivation plans. You claim not to remember details of extra payments. Since 2002 you had been selling products of the bank. You did not disagree with Mr Man putting to you that the bonus payments that the accepted bonuses for 2006 and 2007 were over $100,000 2007 to 2008 $78,000. You said generally you would not take the initiative to introduce specific products. You agreed that prior to the collapse of Lehmans there had been no complaint against you and nothing disastrous had occurred to the product you sold. 102.You agreed the staff did obtain financial benefit from selling products. You did say you checked risk levels of products and the preference of the customer by the QIP. You said you could not provide the customer with documents before you left but they were placed on the table prior to the ticks to the boxes. When you went to see the reviewing officer the prospectus and the leaflet were left on the table. You took with you the checklist, the subscription form and related documents. You were then questioned about the individual documents. After review the checklist was kept by the reviewing officer and the other forms taken back to the table. 103.You disagreed you wrote down the amount of the gift vouchers to induce the customer to buy the product. You agreed during the explanation you circled important points on the leaflet. You repeated the sections that you circled but denied dealing with P14 which related to the Minibond Series 21. You agreed P17 related to Minibond Series 28 but no circles but wasn’t sure if you had given it to PW2 or not but it was possible. You said PW2 did not like her documents marked so she would take a clean leaflet. 104.There then ensued more questions relating to individual documents. You maintained you did explain the leaflet to the customer. You accepted you did not tell the customer to read the prospectus prior to purchase. However, you did tell them to go away and read it. You did not tell the customer they could withdraw before the closing date but you knew this was the case. You did tell them to read the documents after they left. If there were problems they could contact you. 105.You accepted you had just browsed through the prospectus without reading them carefully. You did read the Chinese version of the respective leaflets and used that version to refer to. You accepted you did not ask the customer to read the subscription form prior to signing. You also accepted that when you took documents away for checking the customer was left with the leaflet and prospectus and would not have time to read the prospectus. You did say at the time you were not aware if one of the companies collapsed, the customer could suffer a total loss but now you knew this to be the case. 106.You were referred to P63 and said you believed its claim that it combined the strength of global institutions to enhance the basis for the investment. You now knew this was not correct and the more reference entities there were the bigger the risk. You denied that you told the customer the bonds were safe and linked to companies or that in relation to the Constellation Series that you told to customers that if one company collapsed they would only lose one-eighth of the investment. 107.You denied you wanted to boost your income by clinching the deals quickly. You did not claim it was safe to invest nor that as long as renowned companies did not close there would be no loss; nor that if any closed there would only be - there was a small part. You claimed to take the key parts of the leaflet and examined the product but agreed it did emphasise the good interest rates and rewards. You always gave a copy of the subscription form. In respect of the QIP you said you would explain the risk assessment. You disagreed with the prosecution case which was put by Mr Man. There was some re-examination but nothing of any real moment. 108.Ip Kam-man then gave evidence as DW2. He had 16 to 17 years experience at the Bank of China and was a Customer Support Manager of San Po Kong Branch and a colleague of yours. In recalling this the defence witness spoke of the usual procedure when processing persons over 65 and in respect of PW1 and her husband. He claimed that the usual procedure was adopted regarding Charge 2 which had already been dismissed. 109.DW3, Wang Lee-hsung gave evidence. Now retired but with 30 years experience of banking. In 2005 he was the Wealth Manager at Wong Tai Sin branch of the Bank of China. Li Tak-sang was the branch manager and a colleague but junior to him. PD3 was an application form for Series 15, the applicant was PW2. The form was filled in by him. DW3 said he dealt with her in the past and she told him she came from abroad, before going abroad she had lost much money and on Hong Kong stock she had lost several tens of millions. She seemed to be in the watch business. He identified his staff number on the form, he was the sales person but he had no role to play; it was completed by just one person. In cross-examination he agreed he had difficulty in recalling her occupation. P4 is the subscription form but five to six years ago on 22 August 2005. He accepted his memory of events was vague. 110.Lai Tak-sang then gave evidence as DW4. He was retired with 33 years experience in banking. In 2005 he was the branch manager of Wong Tai Sin branch of the Bank of China. He said that you were the Senior Personnel Finance Officer. He also knew PW2. In mid 2005 she brought a large cheque to his room. She told him that she had lost a good deal when involved with an American Bank and now only had about 10 per cent of her wealth left. She told him she frequently went to the USA where he believed her family was. She said she was in the watch business and gave an address in San Po Kong. The next time that she came she was wearing jewellery from a safety deposit box. He was cross-examined. He maintained that she was in the watch business but he could not say if this was true. 111.Chan Tak-ming then gave evidence as DW5. Now retired, his last post had been branch manager of Wong Tai Sin, Bank of China since September 2006. He knew you defendant. You had been his subordinate. He identified P11, he explained the position where an investor of 65 or over. He too went through the usual procedure. He was involved in the transaction and signed the form for Minibond Series 30. He had no reason to believe the transaction was dealt with in any other way than the usual procedure. He too was cross-examined but little emerged. 112.The defence case was then closed and Mr Man, for the prosecution and Mr Duncan for defence made very helpful and thorough submissions, final submissions which I have fully taken into consideration when reaching my verdict. 113.I now turn to the verdict. Defendant, you are person of hitherto clear record, so I gave myself the usual and necessary warning in assessing your veracity and propensity to commit the offences alleged. It was of some significance that, having been employed with the Bank of China and its predecessor since 1982, that these are the first complaints made against you of misconduct in relation to the exercise of your duties, whilst recognising the unusual nature of the financial disaster with struck. 114.There remain seven charges being each an allegation of Fraudulently or recklessly inducing others to invest money with different particularised acts alleged in each case. These charges all stem from the collapse of Lehman Brothers on 15 September 2008 which unleashed economic tragedy on a great many investors world wide. Investors in Hong Kong were hit hard. I am fully alive to the fact that this case has attracted wide spread public interest from investors, political parties and the monetary authorities. 115.The collapse of Lehman Brothers and the repercussions stemming there-from left many with a sense of outrage and betrayal, rightly or wrongly, against the financial institutions which they had trusted and desperation at the loss of their hard earned money. For many they faced a bleak and frightening journey into their twilight years faced with poverty and hardship. It is natural and right therefore to look at persons involved with those institutions which purveyed what turned out to be poison bonds to see if anyone had transgressed against the law in retailing these products. 116.Having said that, these charges, the ones remaining, being Charges 1, 3, 4, 5, 7, 8 and 9 are criminal charges subject to the usual rigours of the Criminal law which rightly places a heavy burden on the shoulders of the prosecution. That burden is to prove each and every requisite element of the charges beyond all reasonable doubt. In this they are not and cannot be assisted by any public or private feelings of sympathy for those who have lost financially. The exercise, in the best traditions of Hong Kong law, is to be undertaken forensically and dispassionately seeking the truth in the proper manner. 117.In reality the prosecution has embraced a task which is difficult in the extreme. Before turning to the specific charges I must direct some opening and hopefully fair and pertinent remarks about the whole case. The greatest difficulty they must seek to overcome is the age of the allegations. The impact on the ability of individual prosecution witnesses to recall events of many years ago, in sufficient detail to establish the statements they allege beyond all reasonable doubt. 118.I remind the court that Charge 1 occurred on 7 February 2005; Charge 3, 22 August 2005; Charge 4, 4 October 2006; Charge 5, 1 February 2008; Charge 7, 10 November 2006 and Charge 8 on 1 November 2006 and Charge 9 on 8 January 2007. We now stand in February 2011. The earliest charge is approximately six years old and the most recent approximately three years old. 119.The evidence is also clear that until sometime after 15 September 2008 the bonds and the notes were operating satisfactorily in that their interest was being properly and regularly paid, therefore none of the victims had any reason to recall the specifics of what occurred at the time they purchased the relevant product. So we have a situation where the alleged victims must recall, for the first time, what occurred so as to make a witness statement in a range of two and a half years for the oldest alleged to six months for the most recent. None of the alleged victims had made contemporaneous notes and, indeed, why should they? 120.The next difficulty in the case for the prosecution is the lack of evidence to support the complaint made by the alleged victims. In none of the seven remaining cases has the prosecution called anyone other than the alleged victim. Of course I bear in mind that, as a matter of law, corroboration is not required. Further difficulties present in the documentary evidence laid before the court by the prosecution primarily, and also by the defence to a lesser extent. Generally that documentary evidence tends, as a whole, and individually, to assist the defence rather than the prosecution. The alleged victims are left with the unenviable task of explaining away documents which, on the face of it, tend to undermine their very allegations. 121.A further difficulty in relation to you, defendant, is that the evidence of the PWs suggests, and indeed asserts, that in relation to aged investors you properly and scrupulously observed the bank’s requirement for their protection in your insistence on the attendance of younger persons associated with the investor and being supervised by senior members of staff. 122.A further difficulty but of less significance, is that whilst as a matter of law the prosecution does not need to establish motive, it has not done so in this case. I say this because whilst it is shown that the sale of the Minibonds and Notes did afford financial incentives to you and to others, there is no evidence to compare those incentives with those occurring from other financial products offered by the Bank of China. 123.It seemed from the evidence that all or the majority of the alleged victims wished to invest in some financial product yet the prosecution has not shown any difference, from the point of view of the selling agent, between the sale of those bonds and notes and say fixed term deposits or insurance policies. Again, I do make the point most forcibly there is no requirement in law for the prosecution to prove motive. 124.Dealing first with the experts. I agree with Mr Duncan’s assessment that the difference between the two expert witnesses for the prosecution and the one called for the defence are of academic interest only. In the context of the specifics of these charges little or nothing turns on their respective positions. From the court’s perspective these were high risk investments which attracted high interest rates. The Bank of China clearly regarded them as such. The risk emanated from the structure of the bonds and the notes and especially from the fact that they were not principal protected. They were not safe in the sense that if a credit event occurred to a reference entity or a swap counterparty, as applicable, it could bring the whole structure crashing down, as indeed it did. 125.The court also accepts that there was a general perception - wrong as we now know with the gift of hindsight - that Lehman Brothers had a certain standing in the minds of the financial sector and the general public leading to a false sense of security. 126.In my opinion - and I so find - a person selling such bonds and notes had a duty to give sufficient information to the public so an informed decision could be made as to whether to accept the risk in return for the relatively high interest rates and certainly not to mislead as to the risks involved. 127.I turn now to the remaining charges. Charge 1, this refers to February 2005 and relates to Minibond Series 17. The allegation is that PW1, Madam Siu So-chun was told by the defendant; 1) that she would suffer no loss to the principal amount she invested; and 2) there was no or low economic risk of loss in relation to the said product. 128.I do not need to refer to the ingredients of the offence itself. As far as I am concerned, if the prosecution proved beyond all reasonable doubt that you did make such claims and, perforce, defendant, you knew this to be false, misleading or deceptive and they must have been made recklessly. This charge had been the subject of a submission of no case to answer and, after due consideration, I did rule there was a prima facie case on the grounds that PW1 claimed you said the product was safe. 129.Madam Siu is 62 and retired. The sale of the Minibond Series 17 took place six years ago and the first time she had to recall the specifics of what was said and done was after the collapse of the Lehman Brothers on 15 September 2008. That is three and a half years later. I had already accepted that there was no evidence of you having made the first statement alleged, namely that she would suffer no loss to the principal amount she invested in the said product when considering Mr Duncan’s submission of no case to answer. 130.This merely left the second claim that there was no or low economic risk of loss in relation to the said product. The only basis for this assertion arises from an allegation that you told her the Minibond was safe. Against this, is the often repeated refrain, in that she could not remember what was said, one example being when D mentioned the Minibond, “She told me nothing else. I trusted her, mutual trust. Even if she said anything else I could not remember. It’s a shame.” She also said she did not know the meaning of principal protected and did not remember if anyone had mentioned it to her. She said too she could not remember if you had showed her a leaflet, nor if she had completed any documents, that it was all blank in her mind. That even if you had explained the document, she would not remember. These are but some examples of the difficulties with the evidence given. That Mr Duncan saw no reason to cross-examine is fully understandable. At the end PW1’s evidence is vague, unreliable and incapable of forming any factual basis to prove any fact alleged beyond all reasonable doubt. She simply could not recall and divide facts from impressions. 131.I turn now to PW2 who was the only witness with regard to Charges 3, 4 and 5. Charge 3 alleged false statements in relation to 22 August 2005 and alleges you said; 1) there was no or low economic risk of loss in relation to the said product; 2) the issuer of that product was Citigroup; Coca Cola; HSBC; IBM; McDonald’s; the Peoples Republic of China and Standard Chartered Bank. This charge relates to Minibond Series 21, purchased for $400,000. 132.Charge 4, the alleged false statement relates to 4 October 2006 and alleges you said she would not suffer any loss to the principal amount she invested, as long as the companies which were the reference entities, namely, American Express; Bank of America; Citigroup; Deutsche Bank; Merrill Lynch; Morgan Stanley and Standard Chartered did not close down. This relates to Minibond Series 28 purchased for US$100,000. 133.Charge 5, the alleged false statement relate to 1 February 2008 and allege the following; that the misstatements you made were; 1) the issuer of the said product was HSBC; Hutchinson Wampoa; MTR; the Peoples Republic of China; Standard Chartered Bank; Sun Hung Kai and Swire. 2) she would not suffer any loss to the principal invested as long as the above entities did not close down and she would not exercise her right for early redemption. This relates to Minibond Series 35 purchased for $1,000,000. 134.PW2 is aged 59 educated to Primary level and claims to be a retired vegetable seller which was a subject of dispute. Thus the events surrounding Charge 3 occurred about five and a half years ago and PW2 had to call them to mind for the first time after just over three years. Charge 4 occurred about four and a half years ago and she had call to bring them to mind after two years. Charge 6 occurred approximately three and a quarter years ago and she had call to being them to mind after about 10 months. 135.The defence case regarding Charge 3 was that you had not been involved in the explaining and the sale of Minibond Series 21, that it was Mr Wang Lee-hsung, DW4. This was put to PW2 in cross-examination and you, yourself, gave evidence which was corroborated by DW4 and strongly supported by the documentation. DW4 was your supervisor and his staff number appears on P4, the relevant subscription form. PW2’s evidence that you explained it and DW4 processed it while you dealt with insurance is incapable of being sustained, given the evidence to contradict it. The prosecution could not shake DW4 in maintaining that he had followed the usual proper procedure and could not recall any instance of deviating from that procedure. Thus PW2 has been shown to make a fundamental and serious error of memory over Charge 3. I will refer again to this as it must impact on her total credibility and, therefore, on Charges 4 and 5. 136.When assessing PW2’s credibility, I have to bear in mind in relation to Charges 4 and 5 that she had already, as I have said, fallen into error, that is at the very least, in respect of Charge 3. I noted also she did agree she was motivated to recover her money “by hook or by crook” when she complained to the police. In respect of PW2’s previous occupation, she was, in my opinion, clearly shown to be lying by defence evidence. Her investment power and ability to purchase flats raised some suspicions for a supposed seller of vegetables but the main source of doubt was the evidence of you, defendant, DW4 and DW5, that she had been involved in other businesses, notably watches. 137.DW4 was of course not so strong, however, one has to ask why did PW2 not tell the truth over this. She has also conveniently forgotten if you, defendant, assisted her with photocopying for an appeal over a profit tax, a matter with the IRD. After the collapse of Lehman Brothers, her outrageous behaviour at the Bank of China in San Po Kong, suggests an unstable personality with propensity to resort to extreme measures to recoup her losses. Anger, frustration and a sense of desperation are fully understandable but the level of misbehaviour in this case was not. 138.In relation to Charge 4 she produced P15, your name card showing that you had been promoted to manager. This too was incorrect as it was two months prior to your promotion. The evidence of defence I accept in that regard. Once again PW2 had strayed into error. I also find it odd that even after you supposedly cheated and tricked her that she continued to use you to apply for mortgages. This may be of little weight but it is certainly to my mind, odd. 139.To sum up PW2 presented as a totally unreliable witness who was shown to be wrong on material points and, in fact, shown to have lied on others. Her style of giving evidence was unconvincing and unreliable. She was not a witness of truth or accuracy upon whom I can rely. 140.Defendant, I turn now to Charge 9. This allegation related to Miss Fung Sui-fong. The offence was alleged to have taken place on 8 January 2007 and related to Minibond Series 30, purchased for $200,000. The alleged misstatements were as follows; 1) there was no or low economic risk of loss in relation to the product; 2) she would not suffer total loss to the principal amount she invested in the said product and would not lose very much of what she invested in if one of the reference entities closed down or went wrong. The transaction took place four years ago and it was approximately 21 months after that she had to bring to mind events of that day. 141.PW4 is 80 years old, educated to P2 and a retired sewing worker. Things started badly for the prosecution when she readily agreed to attending an ID parade in April in 2010 when she had not done so thus shaking confidence in her memory almost from the outset. The whole tenor of her evidence was that it was difficult to recall the details of what occurred and she admitted she paid scant attention to what she was told. She made it clear she was desperate to buy the bonds feeling she had missed out on Minibond Series 29. I quote, “I was already late for subscribing 29 so I waited for Minibond Series 30.” 142.She went on to agree she was desperate to buy Minibond Series 30. She struck me as an honest decent witness who unfortunately was very confused and therefore very unreliable. She agreed in cross-examination that there were times occasionally during your explanation when she did not listen. She agreed she did not have a good memory and had forgotten what you had said. She was to accept she found it difficult to work out what came from her mind and what you told her. 143.Reluctantly, I must conclude that, given the high standard of Criminal prosecution, I could not rely on PW4 as an accurate witness. She obviously could not tell fact from optimistic impression. I cannot and do not accept that her evidence where it contradicts that of yours, defendant, is correct. 144.Mr Fung Kwok-tong gave evidence as PW6 in relation to Charge 7. This related to 10 November 2006, Constellation Series 55, purchased for US$50,000. He alleged the misstatements were as follows: 1) he would not suffer any loss of the principal amount he invested in the said product; 2) there was no or low economic risk of loss in relation to the said product; 3) the said product was linked with eight international organisations and if any one of them closed down he would only lose one-eighth of the principal amount he invested in the product. 145.PW6 is 62, educated to Form 3 and a part-time security guard. It is well over four years since the transaction and he had no cause to recall events until over two years after it. In evidence PW6 claimed the leaflet was shown to him and accepted it was circled by you was principal protected but on examination he could not find this statement. Indeed, he was forced to accept it stated the opposite. In fact the notice in the leaflet stating the bond was not principal protected was clear and prominent. He also accepted that you circled this. In re-examination, when questioned by Mr Man, he agreed that you said it was not principal protected and when a credit event occurred he may not be able to get back all of his investment. 146.Again, this prosecution witness was vague and uncertain. During evidence he changed his version. He was inconsistent on material points. It seemed to me he just could not recall what had exactly occurred during the transaction and certainly not enough to establish the allegation beyond a reasonable doubt. There was much PW6 found difficult to remember. I note especially that he had difficulty recalling if on the first visit to the bank his wife accompanied him. When put to him that you proceeded to conduct a risk assessment with him, he said he could not remember. He accepted it was difficult to remember back to those events. When shown his QIP of 1 November 2006, P32, he could not recall if you had asked him questions. He could not recall if he had told you he was comfortable to lose 20 to 30 per cent of his investment. Put to him that he never told you he didn’t want his money put into high risk investment, he said he just told you that he wanted a higher interest rate than the fixed deposit and that was all. 147.PW6 considered his motive in reporting it to the Democratic Party and to the police was to get his money back. In that regard I can find no reason to criticise him. It seemed entirely reasonable to me. What is worrying is what Mr Duncan put to PW6 that it was difficult to say which part of his understanding came from you and when from his own mind, he agreed with this. He also conceded there was a possibility that he misunderstood some of the things put to him by you. This was a prosecution witness, in my opinion, who presented as entirely honest and fair but his evidence, taken as a whole, and given the concessions he made, could not be relied upon to establish any of the matters alleged in the charge beyond a reasonable doubt. 148.Mr Lau Ka-yiu gave evidence as PW7 in respect of Charge 8. This charge relates to a transaction on 1 November 2006 and the purchase of Constellation Series 56 for $3,000,000. The alleged misstatements here are as follows; 1) he would not suffer any loss of the principal amount invested in the said product; 2) there was low economic risk of loss in relation to the product; 3) the issue of the said product was the eight companies named in the pamphlet including Lehman Brothers, Morgan Stanley and Hutchinson Wampoa; 4) he would not lose the principal amount he invested in the product unless all eight companies closed at the same time; 5) if any one of them closed he would only lose one-eighth of the principal amount invested in the product. 149.Mr Lau, PW7, is 40 years of age and the proprietor of a trading company. The transaction took place well over four years ago and it was approximately two years when he had to bring to mind the events of the 1 November 2006. It was significant and highly suspicious that PW7 had been given a leaflet and had supposedly lost it. The suspicion that it had indeed been circled in the appropriate places by you in accordance with what you said was your usual practice but then somehow he had disposed of it conveniently. 150.At the time of the incident of the transaction, PW7 was in his 30s, a business man, and clearly and demonstrably a man who was no fool. He conceded the use by you of the leaflet to explain the product and I find it extremely unlikely, in the circumstances, that you would have so blatantly misrepresented its contents when it was on the table between the pair of you. It was also odd that PW7 claimed you only took about five minutes to explain the product. His investment was substantial yet his behaviour was bizarre in that, on his own admission, he accepted without checking and questioning what you allegedly told him. 151.Mr Duncan has noted in his final submission that the misstatements alleged are, to an extent, self-contradictory and not capable of being reconciled with each other. For example misstatement 1 and misstatement 5. It is hard to accept that you would conduct yourself in such a way in misrepresenting the product to a relatively youthful and obviously successful man of business. 152.Again much was made by Mr Duncan of PW7’s steps taken to retrieve the money. These included steps prior to the making of his first witness statement, including attending a seminar on the matter, discussing with his wife and browsing the internet. Of the latter he said he had not much impression of the content, he said he had believed he had not signed a letter of complaint to the Democratic Party but then retracted this when shown a copy. He also phoned the Bank of China but could not recall the date. 153.My finding was that all these steps were entirely proper and understandable but do leave him vulnerable to the suggestion that his evidence is coloured by association. PW7’s evidence, taken as a whole, was unconvincing and, in my opinion, inaccurate. There was much he failed to recall which led me to view with doubt and suspicion that which he claimed to actually recall. In short, my findings are the PW7’s evidence is that it too falls short on material points or being sufficiently credible to establish the alleged misstatements to the high level required by the Criminal law which is beyond a reasonable doubt. 154.Mr Man made legal submissions. He put forward the very correct proposition that the similarity of the allegations against a defendant can add to the strength of the evidence of the complainants. He supported this by relevant authorities in his final submission. However, in this case, there is a fundamental weakness of each prosecution witness of fact to which I have referred. A weakness in credibility and ability to faithfully and convincingly recall details undermine this proposition. That stands apart from the subtle differences alleged by various prosecution witnesses. 155.Having made my findings in respect of the alleged victims, I turn now to the defence case. In view of what I have said already to embark upon an appraisal of the case is perhaps of academic interest only but I feel, in the context of this case, this should be done in fairness to all. 156.You, defendant, elected to give evidence and your approach was both realistic and logical in that you made it clear you could not and did not attempt to remember what you had said precisely in each and every single transaction. You have placed before me an account of your usual procedure, how you took the customer through the relevant leaflet bringing to his or her attention salient points and circling them in order to highlight them. This approach was compelling in its simplicity. In this manner, over the course of the evidence you contradicted and refuted all the allegations made against you. 157.You also took us through the procedure for the completion of the forms which I accept was not totally ideal. You fairly accepted that your preparation and study of the leaflet, and especially the prospectus had not been as deep or as comprehensive as one would have wished. Also, I note too, you made no written notes about your advice to each of your customers. However, as I said, the general body of documents more fully supports your case than that of the complainants. 158.After careful consideration of the evidence and noting that you were not shaken on material points in cross-examination, I find that at the very least your evidence has not been shown to be untrue. Indeed, your approach and version of material support the various defence witnesses to varying degrees. 159.In conclusion, given the major problems of credibility and accuracy which each prosecution witness I have dealt with at length and referred to, and the strength of the defence case, none of the seven charges is proved beyond all reasonable doubt and therefore I dismiss each of the charges. 160.Finally I would like to thank Mr Man who led Ms Chan in this case on behalf of the prosecution and also extend my thanks to the assistance rendered by Mr Duncan and Mr Dawes and Mr Cheung on behalf of the defence. I do thank you all for the assistance I received during this, what has been a difficult case. (Discussion re exhibits and costs) 161.In this case, in the absence of objection, I make an order for costs to be taxed if not agreed and the costs include, of course, counsel.
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