HKSAR v. Tong Sui Lun, Franco

DCCC282/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 282 OF 2011

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Reasons for Sentence

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1.Defendant pleaded guilty to four charges of fraud, contrary to section 16A of the Theft Ordinance.

2.At all material times, the defendant was a salaried director and responsible officer of Quam Securities Company Limited (“Quam Securities”), a wholly owned subsidiary of Quam Limited, a public listed company in Hong Kong.  The defendant also held a licence under the Securities and Futures Ordinance to carry out and deal in securities and futures contracts.

3.In between 2003 and 2005, defendant requested his ex-colleague in another securities company Ms Yung to open securities and futures accounts with Quam Securities for the defendant to undertake trading in shares.  Respective accounts were then opened with the defendant as the executive of Yung’s accounts.  However, Yung never personally provided any funding nor undertook any trading but did authorize the defendant to use them for the defendant’s own trading.  These accounts were in fact controlled and operated by the defendant.

4.In about 2004, a Ms Wong agreed to open securities account with Quam Securities and her son was responsible for making all contacts with the defendant, the defendant was the account executive of Wong’s account.  However, Wong provided no more than 25,000 of about 2.4 million used to fund the account.  For all practical purposes, defendant all along operated and controlled the account.

5.For Charge 1, in early 2006, Quam Securities entered into an underwriting agreement with KanHan Technologies Limited as an underwriter in its rights issue exercise.  Defendant then caused an offer of sub-underwriting letter from Quam Securities to Yung where 2% commission would be paid to Yung if Yung undertook to subscribe 20 million shares of KanHan at the price of 5.7 cents each if called upon to do so. 

6.Defendant further caused a confirmation letter of acceptance purportedly signed by Yung with intent to defraud Quam Securities where in fact there was no genuine consent nor agreement by Yung.  By the aforesaid letter, Quam Securities paid commission of 22,800 to Yung’s securities account. 

7.Had Quam Securities known that Yung had not genuinely consented, the above sub-underwriting process would not have been permitted. 

8.For Charge 2, in late 2006, similar exercise was done by the defendant when Quam Securities entered into an underwriting agreement with Hua Xia Healthcare Holdings Limited.

9.Defendant caused an offer letter to Ms Wong, where 2% commission would be paid if Wong undertook to subscribe 30.16 million shares at 8 cents each if called upon to do so. 

10.Likewise, defendant also caused a letter of acceptance purportedly signed by Ms Wong with intent to defraud Quam Securities, while in fact Wong never genuinely consented nor agreed to be a sub-underwriter.

11.By the aforesaid letter, Quam Securities paid a commission of 48,256 to Wong’s account. 

12.For Charges 3 and 4, in August 2007, Quam Securities entered into a placing agreement with Galileo Holdings Limited.

13.Similarly, defendant caused offer letters to be sent to Yung and Wong respectively, where 2% commission would be paid by Quam Securities if they each undertook to purchase 47.3 million placing shares at 27.5 cents if called upon to do so. 

14.Likewise, defendant further caused confirmation letters purportedly signed by Yung and Wong to Quam Securities where eventually, commission of 260,150 each were paid to Yung and Wong’s accounts when in fact both Yung and Wong did not genuinely consent to be sub-underwriters.

15.In fact, the defendant was obliged to declare to Quam Securities if he had any beneficial interests in any account and he was not permitted to benefit from any sub-underwriting commission paid to any client.  Had Quam Securities known that Yung or Wong had not genuinely consented to be sub-underwriters, the above processes would not have been permitted.

16.Defendant aged 46, clear record, married with a daughter of 3 years old.  He had been a bullion dealer for years since graduated from university and then as a sales executive and then a director in Quam Securities till August 2010. 

17.Regarding the present offence, Mr Peter Duncan, SC, for the defendant submitted that in fact there was an underlying plot created by the defendant’s superior to circumvent or cover the cash paid to the introducer for these underwriting opportunities for false accounting purpose, that was in term becoming the purported commission paid to client’s account, and that was why the defendant needed to go through all the above exercise for following superior’s instruction and with the benefit of the company as a whole and not for any direct personal gain.

18.Mr Duncan further submitted that the defendant is willing to make full restitution where a total sum of 591,356 had been paid into court for subsequent disposal.  The offence was totally out of defendant’s character and no doubt the conviction would ruin defendant’s career as a security dealer.

19.The matter has been dragged on since 2008 and defendant was charged in 2011.  There may be certain form of delay where the defendant and his wife had since been suffering from adjustment disorder with anxiety and depression as indicated in the attached medical reports.

20.There are also numerous reference letters submitted by his family members, public officers, business associates, friends, pastor and from different organizations where the defendant had actively contributed time and effort as volunteer, all commending defendant of good character, responsible father and son.

21.Mr Duncan further expressed that as the defendant satisfied all the criteria for a community service order and that there were exceptional circumstances surrounding the offences, Mr Duncan submitted that community service order or suspended sentence may be a suitable option particularly as there were also special circumstances on the papers justified a lenient view to be taken of the facts.

22.Fraud is a serious offence.  An immediate custodial sentence is to be expected other than in exceptional circumstances.  See HKSAR v Ho Ka Keung No.2 [2009] 1 HKC 88.  Mr Duncan submits that there were exceptional circumstances.  The scheme was created by his superior and defendant was just to follow without private gain.  However, as a licensed person and director of the company, defendant knew full well the scheme would defeat the accounting purpose and in breach of trust imposed by his client and the company.

23.Even if the defendant were not to have private gain, there must also be business benefit from such underwriting exercise which in turn ran in favour of defendant both as a director and dealer.  The facts disclosed that the defendant did take an active and important role in the whole exercise, not only from opening accounts while maintaining full control for all practical purposes, but also from initiating offer letters and returning the acceptance letters purportedly signed by respective clients.

24.The nature and substance of fraud was serious and sophisticated.  The duration ran from early 2006 to September 2007 intermittently. The respective clients were also exposed from unnecessary risk of actual placement of shares when called upon to do so where in fact that they did not genuinely consent. 

25.All in all, I do not view that community service order nor suspended sentence a suitable option. However, as to the length of sentence, the defendant had pleaded guilty and is ready to make full restitution, and with reference to the cases of HKSAR v Cheung Mei Kiu [2006] 4 HKLRD 776 and HKSAR v Lee Lai Kit Kitty CACC379/2008, for sentences for a range of amount between 250,000 to 1,000,000, 2 to 3 years’ imprisonment; less than $250,000, less than 2 years’ imprisonment.

26.Taking into account all the above matters, I assess that for Charges 1 and 2, the starting point of which be made 12 months’ imprisonment, that be reduced to 8 months each upon guilty plea.  For Charges 3 and 4, each 18 months’ imprisonment, be reduced to 12 months upon guilty plea.

27.However, as there were special circumstances on the papers which justified a lenient view to be taken of the facts, the sentence of Charges 1 and 2 be further reduced to 7 months; for Charges 3 and 4, further reduced to 10 months.

28.On totality principle, though each offence was separate and distinct, the modus operandi were the same.  The defendant had pleaded guilty and full restitution be made, I therefore order that Charges 1 and 2 be made concurrent; Charges 3 and 4 also be made concurrent; and that only 2 months from Charges 1 and 2 be made consecutive to Charges 3 and 4.  Therefore, the sentences are as follows:

Charges 1 and 2: 7 months’ each;

Charges 3 and 4: 10 months’ each;

For Charges 1 and 2 of 7 months, only 2 months be made consecutive to Charges 3 and 4, that makes a total sentence of 12 months’ imprisonment. So for all the charges, the total sentence for the defendant is 12 months’ imprisonment.

29.I also make an order of payment out of 591,356 deposited by the defendant from the court to Quam Securities Company Limited as compensation.