Securities and Futures Commission v. Lo Kam Chung

HCMA 36/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO 36 OF 2012

(ON APPEAL FROM ESS 40414 OF 2011)

____________

____________

_______________

J U D G M E N T

_______________

1.In November last year, this Appellant, a man of previous good character in his early 20s, appeared in the Magistrates’ Court (David Dufton Esq) on a summons that he “did without reasonable excuse, between April and November 2010, carry on a business in a regulated activity namely, advising on securities when [he was] not licensed to do so”, contrary to s 114(1)(a) and (8) of the Securities and Futures Ordinance, Cap 571. He pleaded guilty, and admitted the following facts set out in Brief Statement of Facts:

“1. At the material time, the Defendant was not licensed by the Securities and Futures Commission in any capacity or in relation to any regulated activities under the SFO.

2. Between 8 April and 1 November 2010, the Defendant, upon subscription, provided advice on securities to subscribers via a discussion forum in his Facebook account (‘Discussion Forum’). During that period, the Defendant, in the name of ‘Peter Sun’, sent the stock codes of his recommended shares and the prices to buy / sell the recommended shares to subscribers via the Discussion Forum. The contents of these messages are recommendations or advice on which, the time at which and at what price securities should be acquired or disposed of, within the meaning of advising in securities (Type 4 regulated activity) in Schedule 5 of the SFO.

3. In his interview, the Defendant admitted that (a) the Discussion Forum was set up by him and the messages by ‘Peter Sun’ in the Discussion Forum were written by him; (b) in April 2010, he imposed a monthly subscription fee of $200 for the Discussion Forum (it was later increased to $300); (c) after the subscribers had deposited the subscription fees and sent the payment slips to him, he would grant them access to the Discussion Forum; (d) between April and September 2010, he received subscription fees of $200 and $300 from various subscribers.

4. Three subscribers, PW2 to PW4, were interviewed and said that (a) they deposited monthly subscription fees of $200 or $300 on 4 to 6 occasions into the bank account provided by ‘Peter Sun’ in order to have access to the Discussion Forum; and (b) they received advice on securities from ‘Peter Sun’ via the Discussion Forum.

5. Sections 114(1)(a) and 114(8) make it an offence if a person who, without reasonable excuse, carry on a business in a regulated activity.

6.  The Defendant, between 8 April and 1 November 2010, without reasonable excuse, carried on a business in a regulated activity namely, advising on securities, while unlicensed.”

2.What the Appellant, who was not then legally represented, said in mitigation on the day of his plea is set out in paragraph 3 of the Magistrate’s Reasons for Sentence.  It is that “he was a full time student and that he did not know he could not give such advice.”  The Magistrate also records in that paragraph that the Appellant “told the court that he had no qualifications or experience to give this advice and that during this period he had received about $60,000 in subscription fees”.

3.Before passing sentence, the Magistrate adjourned for a community service suitability report.

4.Such a report was to hand when the court reconvened on 15 December last year.  At that stage, the Appellant was represented by a solicitor, Mr Clifton Wong, who mitigated on his behalf.

5.What appears in the community service suitability report should be recited.  The opening paragraph of this report reads:

“Gathered information reveals that Defendant is a young adult with an urge to improve his financial condition. Although his parents had failed to provide adequate supervision and guidance to him in his childhood and adolescence, he still behaved within limit in the past. He had paid much effort to strike for a better future. Therefore, while he was attending full-time day school, he still took up part-time job to earn more money for the family. Regarding the present offence, he pleaded guilty and admitted to the brief facts readily. He alleged that he was interested in investment. Hence, he shared his views with others through internet. He did not ask for any rewards or service charge at first. However, out of greed and to restrict the participants’ status, he started to receive monthly service charge since April 2010. He claimed that he did not know that it was unlawful at that time. During the present enquiry, he understood that it was risky to provide the investment recommendation to the subscribers without professional qualification or knowledge. He was more aware of the seriousness of his unlawful act. In order to bear his legal responsibility and to make reparation, Defendant shows willingness to perform unpaid work under Community Service Order. He admitted that it was immature for him to focus on earning money at this stage. He promised to pay more attention on his studies and to develop his career step by step after his graduation. It seems that Defendant has gained good insight into his problem. He was more realistic to set up his life goal. Having considered Defendant’s remorseful attitude, his clear criminal record, his motivation to make reparation, he may deserve a chance to be rehabilitated in the community. Hence, Community Service Order, as a constructive disposal for enhancing Defendant’s law-abiding sense is recommended.”

6.That is followed by a number of paragraphs under the heading of “Other Remarks”.  These paragraphs read:

“ Defendant was born and brought up at a local working class family. He is the elder son of his parents. His father deserted the family due to his great debts when Defendant was studying in primary school. Thereafter, Defendant had gone through a hard time with his mother who was a chronic mental patient and his younger brother, now aged 17. The family has been living on Comprehensive Social Security Assistance. Defendant loves his mother and younger brother very much. They maintained good family relationship. He resumed contact his father a few years ago. As the father was remarried with dependant children, he could not offer any support to Defendant.

Defendant was a full-time student but he still took up part-time jobs to earn more money. He is the years 3 student of Higher Diploma in Building Studies at the Hong Kong Institute of Vocational Education. In the past three years, Defendant has been relying on the financial assistance from Student Financial Assistance Agency and his earning from part-time jobs.

Defendant admitted that he owed debts to banks up to about $100,000. With intent to earn more money for improving the family’s living, he started to take up decoration job orders since 2005. However, he could not receive all the payments from his customers. As a result, he owed salary arrears to his co-workers. Thus, he withdrew money from his credit cards account to settle the arrears leading to his debts. He hoped to settle his debts by installment after completing his Higher Diploma course.

Defendant was under monitoring due to his low heart beat rate.  A medical appointment at the Medicine Clinic of Alice Ho Miu Ling Nethersole Hospital was fixed on 11.1.2012.  He claimed that his health condition was stable as he led a normal life.  He thought that he was fit to take up unpaid work under Community Service Order.”

7.Mr Wong offered a detailed submission as to why a financial penalty was appropriated.  This submission is noted, albeit not at length, in the Magistrate Reasons for Sentence.  The Magistrate also referred in his Reasons for Sentence to the letters of support written on the Appellant’s behalf and shown to the court.

8.In the result, the Magistrate sentenced the Appellant to serve 80 hours community service and pay a fine of $20,000.  He also ordered the Appellant to pay investigation costs of $25,652.

9.The Appellant now appeals against sentence.  On appeal he is represented pro bono by Mr Eric Cheung of ONC Lawyers.

10.The objective of this appeal against sentence is to put the Appellant in a position to avail himself of the spent conviction scheme provided by the Rehabilitation of Offenders Ordinance, Cap 297.  By reason of s 2(1)(a) of that Ordinance a conviction cannot be spent if the penalty imposed in respect of it exceeds imprisonment for 3 months or a fine of $10,000.

11.On the basis of the past sentences to which the prosecution drew the Magistrate’s attention, there is substance in the submission made on the Appellant’s behalf that in the absence of aggravation which is not present in his case, a fine not exceeding $10,000 is normal.  It is true that a fine not exceeding $10,000 plus investigation costs of $25,652 would fall short of the $60,000 which the Appellant received in subscription fees.  But the Magistrate was not seeking to impose a financial penalty which matched or exceeded that sum of $60,000.  In passing sentence, he said:

“Ordinarily in imposing financial penalty, a court should strip the profits made out of the crime; but I also have to consider that he is now a student, he has very limited means. I therefore will impose a financial penalty, but the fine will be limited to $20,000 and he is ordered to pay the costs of $25,652.”

Moreover, there is the community service order in addition to a fine and an order to pay investigation costs.

12.In my view, there is no warrant for a fine exceeding $10,000.  Accordingly the appeal is allowed to reduce the fine to $10,000.  The community service order will remain and so will the order for payment of investigation costs.

Mr Eric Cheung, of ONC Lawyers, for the appellant

Mr Allen Lam, instructed by the Securities and Futures Commission, for the respondent