HKSAR v. Ma Bo Kee and Others

CACC 458/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 458 OF 2010

(On Appeal From High Court Criminal Case No. 352 of 2009)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Cheung JA (giving reasons for judgment of the Court) :

The charges and sentences

1.The 1^st applicant was convicted after trial of three offences, namely,

1) one count of conspiracy to publish a false statement, contrary to section 21 of the Theft Ordinance (Cap. 210) and sections 159A and 159C of the Crimes Ordinance (Cap. 200) (Count 1); and

2) two counts of conspiracy to defraud, contrary to common law and punishable under section 159C(6) of the Crimes Ordinance (Count 11 and 12).

2.He was also charged with another count of conspiracy to defraud (Count 2) but was acquitted after trial of this offence.

3.He was sentenced to 12 years’ imprisonment which is calculated as follows :

1) Count 1 : 6 years;

2) Count 11 : 4 years 6 months (3 years consecutive to Count 1); and

3) Count 12 : 4 years 6 months (3 years consecutive to Count 1 and 11).

4.The 2^nd applicant, who is the son of the 1^st applicant, was jointly charged with the 1^st applicant on Count 1, 11 and 12.  He pleaded guilty to these counts.  He also pleaded guilty to another count of conspiracy to defraud (Count 2).  He was sentenced to 10 years’ imprisonment which is calculated as follows :

1) Count 1 : 4 years

2) Count 2 : 5 years 4 months (4 years consecutive to Count 1)

3) Count 11 : 3 years 4) Count 12 : 3 years

concurrent with each other but 2 years of which consecutive to Count 1 and 2

5.The 3^rd applicant pleaded guilty to Count 1, 2 and 12.  In addition, she also pleaded guilty to three other counts, namely,

1) two counts of conspiracy to make false instruments (Count 3 and 13); and

2) conspiracy to defraud (Count 10).

6.She was sentenced to 9½ years’ imprisonment which is calculated as follows :

1) Count 1 : 4 years;

2) Count 2 : 5 years 4 months (3½ years consecutive to Count 1, 3 and 13);

3) Count 3 : 2 years (concurrent to Count 13 and Count 1);

4) Count 10 : 4 years 8 months (2 years consecutive to Count 1, 2, 3 and 13);

5) Count 12 : 3 years (concurrent to all sentence); and

6) Count 13 : 2 years (concurrent to Count 3 and Count 1).

7.The applicants applied for leave to appeal against sentence.  At the conclusion of the hearing we dismissed the 1^st and 2^nd applicants’ application.  We allowed the 3^rd applicant’s application, treated it as the appeal proper and reduced her sentence to 8½ years’ imprisonment.  We now give our reasons.

Facts

8.Moulin Global Eyecare Holdings Co Ltd (‘MGEH’)(formerly known as Moulin International Holdings Limited) is a publicly listed company.  MGEH and its various subsidiaries collectively formed the Moulin Group, the principal business being the design, manufacture, sale, distribution and retail of optical products worldwide.  The 1^st applicant was the founder and Chairman of the Group.  The 2^nd applicant was its Chief Executive Officer. The 3^rd applicant was its Treasurer.

9.The facts relating to the various counts are succinctly summarised by the Judge as follows :

‘ ….The conspiracy in Count 1 involved inflating the turnover of the Moulin Group, thereby giving creditors and the investing public a false view of the health of the Group.

In the annual report for Moulin International Holdings Limited for the year ending on 31 December 2003, the turnover was inflated to a figure in excess of HK$1.2 billion.  This was achieved by pretending to have made sales to four companies in North America in a total sum of $337 million; that is, 28 per cent of the turnover claimed was false.  False invoices were created to support these non-existent sales.  The job was done in the Moulin offices by means of cutting and pasting with the aid of computers and photocopiers.

Count 2 involved a conspiracy to defraud 18 banks by making 92 applications for loans between March of 2004 and April 2005, on the basis that goods had been purchased and imported when in fact nothing of the sort had taken place.  Again, false invoices were created to substantiate these non-existent transactions.  Businesses were registered and companies were incorporated to pose as the suppliers, and bank accounts were opened in their names to channel the funds back into Moulin once the banks had paid the fake suppliers.  The total amount of these loans was in excess of $466 million.

The inflow of funds into Moulin generated by this fraud required false accounting on a prodigious scale.  Payments in and out were recorded merely as temporary receipts and payments, and justified on the basis of personal loans being made when none were made.  This pretence of money-lending required the acquisition of a money-lending licence and the creation of a company called Oak Tree Investment Limited whose purpose was to channel money from the fake suppliers to Moulin Optical Manufactory Limited, the core Hong Kong company of the Group’s optical business.

Count 3, a conspiracy to make false instruments in the Spring of 2004, reflects the fact that false airway bills were created in an effort to demonstrate that the false sales to the four North American companies had occurred when they had not.  This was in response to inquiries from auditors who were interested to investigate them.  The conspiracy played its part in the successful duping of whose auditors who signed off on the accounts with an unqualified opinion.

……

Count 10, another conspiracy to defraud banks, occurred between September 2004 and April 2005, and involved obtaining 59 loans from six banks in a total sum in excess of $224 million.  The basis of the loans was that goods had been sold and exported to five customers when no such thing had taken place.  Again, false invoices were created by cutting and pasting to substantiate these non-existent sales.

It was the case that from late 2002 auditors were asking questions about the sales to the four North American companies and the personal loans that the consequent false accounting required.  They were met with lies.  Those auditors, Ernst & Young, having been successfully misled in 2004 concerning the 2003 accounts, were again met with the same lies and breach of a promise to discontinue the personal loans in the following year.

They could not accept the position, and rather than have them resign, the Moulin management terminated their appointment and turned to Deloitte’s.  They started an audit on 1 March 2005 and by the end of the month had exposed false airway bills and the frauds in the counts summarised thus far.  They resigned and a firm of accountants called CCIF were appointed.  The collapse then came in June 2005.  This sets the scene for the remaining counts.

Count 11 reflects a conspiracy to defraud based on trying to mislead Deloitte’s by lying to them about the four North American companies, the fake companies purporting to have sold to Moulin and the false personal loans, as well as supplying them with false documents in support of those lies.

Count 12 reflects a similar conspiracy to defraud based on trying to mislead CCIF by lies concerning the four North American companies and the use of false documents in support, as well as by sending two men to North America to pretend to be representatives of those companies who truly traded with Moulin.  The 10th defendant was one of those men.

Count 13, a conspiracy to make false instruments in April to May of 2005, involved the creation of false airway bills designed to show sales to the four North American companies by cutting and pasting as before.  They were used to show CCIF.’

The Judge’s view of the 1^st applicant

10.The Judge used a starting point of 13 years but reduced it to 12 years due to the 1^st applicant’s admissions and sensible conduct of the trial.

11.This is what the Judge said about the role of the 1^st applicant :

‘ …. You were the founder of the company and you remained its Chairman until the end. ..…. I have no doubt that the day-to-day running of the frauds was the responsibility of your son, the 2nd defendant, and your sister-in-law, the 3^rd defendant. However, I am equally sure that the part you played in the fraud in Count 1 was an essential one. You had the power to stop it; you gave it your blessing.

A recorded meeting in April 2004, recorded digitally so we can listen to it now, revealed that you played an active part in lying to the auditors Ernst & Young, thereby successfully promoting this conspiracy. It was luck, late in the day, that revealed that recording, setting at nought your attempt to suggest the meeting was in English and you could not follow it.

I do find it to be an aggravation in your case that you recruited friends and relatives to the fraud, playing on their loyalty to you.  You involved them and exposed them to prosecution, with no reward to them.  You sent Chan Kong-ngai to North America to pose as a customer.  He was given immunity, as were others, such as Leslie Hui who created false invoices.’

The Judge’s view of the 2^nd applicant

12.In respect of the 2^nd applicant, the Judge took a total starting point of 15 years after trial.  This is what the Judge said about the 2^nd applicant :

‘ ……You were the Chief Executive Officer. You knew what was going on. You played a full part and you must also therefore bear major responsibility.’

The Judge’s view of the 3^rd applicant

13.The Judge also took a starting point of 15 years after trial in respect of the 3^rd applicant. This is what he said about the 3^rd applicant :

‘ ….You were the treasurer at Moulin. The execution of the frauds was under your control, as were the staff who carried out the considerable work that they involved.

….

I appreciate that you face more counts than your co-accused and that you are the only senior figure to face responsibility for the export loans.  That is balanced, though, by the fact that you were not on the board of directors and that there were defendants above you in a position to control you.  It also reflects the fact that you were not a blood relative of the Ma family and were thus distanced from the family trust and the fruits of the fraud.  I also remember that you are not a qualified accountant and you left school early to work in Moulin.

Finally, whilst hurting no one else in the dock thereby, I would not accept that the export loan fraud was your sole responsibility.  There is no evidence that you benefited directly from the fraud, and, indeed, the picture I have of you is of you living modestly.  Your monthly salary at the end was $37,000 a month.  You held no shares.

I have considered whether I should distinguish your sentence from that of the 2nd defendant.  I believe it right to do so, but very modestly.  I accept that you came back to the jurisdiction knowing you faced arrest when there was a choice not to do so.  It is also the case that you offered to give evidence against accomplices.  I appreciate that in the end that came to nothing, due to the position of your nephew.  The credit thus has to be very limited but I accept that you did your best in regard to the others.

The extent of your role in the fraud drives your sentences to the ceiling of a 15-year starting point.  You arrived there along with the 2nd defendant but by a slightly different route.  I cannot allow my wish to distinguish between you to result in too great a shortfall from that point. Otherwise you would be under-sentenced.  I am conscious therefore that the distinctions I make could be described as symbolic rather than real.  However, I judge that the right overall sentence in your case is one of 9½ years’ imprisonment.’

Overview

1) Nature of offence

14.The fraud committed in this case was of a large magnitude and covered a lengthy period of time.  The amount involved was staggering.  The annual report of a publicly listed company was falsified when nearly one third of its reported turnover of HK$1.2 billion was based on fictitious sales.  The frauds were perpetrated with a view to increase the turnover and maintain the share price of the Moulin Group, thereby giving creditors and the investing public a false view of the health of the group.  Bogus companies were set up to conduct false sales.  24 banks were defrauded when loans in excess of $690 million were obtained from them based on the fictitious sales.  When auditors were raising questions about the accounts, they were provided with false information and false documents.  The loss suffered by the banks and the investors amounted to HK$4.45 billion.  No restitution has been made since the collapse of the group.

15.The total lack of commercial probity demonstrated by the senior officers of a publicly listed company undermines the credibility and reputation of Hong Kong as an international commercial centre.

16.The statutory maximum for the offence of conspiracy to defraud is 14 years’ imprisonment.  The maximum sentence for publishing a false statement contrary to section 21 of the Theft Ordinance is 10 years which by virtue of section 159C(1) and (4) of the Crimes Ordinance is taken to be the maximum sentence in respect of a conspiracy to commit that offence. 

17.This case can be described as a fraud of the worst kind.  This Court observed in Attorney General v. Dominic Cheung Kai-man [1987] HKLR 788 (a case of conspiracy to defraud) that in the case of serious fraud which may be regarded as the worst kind, consideration of the appropriate sentence should start at or near the statutory maximum for a single offence after conviction following trial.  Within this band are cases that involved a breach of trust in the multi-million dollar range by a person in a senior and responsible position and with an element of public impact.

18.In HKSAR v. Fu Chu Kan and others (香港特別行政區與傅柱根) CACC 104/2007 this Court further observed that other aggravating features are the period over which the fraud has been perpetrated (see, for example, Barrick (1985) 81 Cr App R 78) and the number of persons, both within the company and outside it, which the prime mover has drawn into dishonest activity.

2) Delay

19.The applicants complained about delay in the prosecution which took more than five years to proceed from the time the fraud was first reported to the Police in June 2005 to the trial on 28 September 2010.  However this is a complex case.  As Mr. David Leung and Ms Clara Ma for the respondent explained, the case involved 13 charges and 10 defendants.  There were altogether 64 prosecution witnesses named on the indictment.  The committal bundles consisted of 102 volumes of documents totalling over 30,000 pages.  In the course of investigation, more than 300 persons were interviewed.  Twenty overseas depositions were taken from different jurisdictions including the United States, Canada, Germany and the United Kingdom.  In terms of the banking evidence, a total of 50 bankers’ affirmations from 30 different banks involving over 5,000 transactions had been obtained.  Over twenty different commercial premises were searched which led to the seizure of over 4,000 items of exhibits.  The tracing of fund flows in respect of the bogus loans applications took a considerable period of time.

20.We do not consider that there was excessive or unusual delay which may justify a separate ground for reduction of the sentences of the applicants.

The 1^st applicant’s appeal

21.Mr. Charles Chan, counsel for the 1^st applicant, argued that there was disparity in the sentence of the 1^st and 2^nd applicants.  He argued that the 1^st applicant’s sentence was based on a 13-year starting point in respect of three offences while the 2^nd applicant’s sentence was based on a 15-year starting point in respect of four offences.  Three of these offences namely, Count 1, 11, 12 are identical and the 4^th one, namely, Count 2 carried a starting point of 8 years’ imprisonment.  As the Judge had found the culpability of the 1^st and 2^nd applicants on Count 1, 11, 12 was the same, the difference of only two years in their sentences means that the Judge had not given sufficient recognition to the fact that the 1^st applicant had been acquitted of Count 2 which carried a substantial starting point of 8 years’ imprisonment.

22.In our view the 12-year imprisonment imposed on the 1^st applicant is clearly appropriate.  The 1^st applicant as Chairman of a publicly listed company had allowed the annual report of the company to contain false and misleading information concerning its turnover.  He was also involved in misleading the auditors by the provision of false information and false documents.  He actually recruited friends and relatives to the fraud.  A heavy sentence is justified.

The 2^nd applicant’s appeal

23.The 2^nd applicant argued that the fraudulent scheme in respect of Count 2 was already in place when he first joined the group.  He was not the inventor and he did not instruct the staff to do so.  He submitted that the Judge had mistakenly thought that he was the prime mover.  He had initially not pleaded guilty to Count 2 but eventually agreed to do so when the prosecutor persuaded his wife that he might lose the benefit of the one third discount on the other counts if he wished to contest Count 2.

24.We are of the view that the sentence of the 2^nd applicant, be it individually or in total, is appropriate and reflected the gravity of the offence.  The 2^nd applicant played a leading role in the fraud.  He had pleaded guilty to Count 2.  He did not say that he was being misled in pleading guilty to it.  In any event he was the Chief Executive Officer of the group and he should not have allowed the fraud to continue.

The 3^rd applicant’s appeal

25.The difference in sentence between the 2^nd and 3^rd applicants is six months.  In our view the 3^rd applicant has a legitimate complaint that the sentence imposed on her is manifestly excessive.

26.The 3^rd applicant is the sister of the ex-wife of the 1^st applicant.  She was employed by him when he started his business in about 1980.  At the time she was very young, having received only primary education.  She continued her study during evenings and reached the Form 5 level but failed to pass the public examination.  She could not speak or write English.  Over the years she had been following the 1^st applicant when he built up his business.  By the time the business collapsed in 2005, she was the Treasurer of the group, earning HK$37,000 per month.  She was in charge of the Finance and Accounting Department with a number of junior staff assisting her.  The 3^rd applicant was not blood-related to the Ma family.  She had no equitable interest in MGEH, nor was she a member of the board of directors.

27.The 3^rd applicant conceded that she had actively taken part in the various fraudulent schemes, the subject matter of the charges she had pleaded guilty to.  But at same time, it has to be recognised that she was not the one who designed the schemes.  It was the 2^nd applicant who set up the four bogus American companies which were used to create false trade volumes.  It was the 1^st and 2^nd applicants who selected bogus representatives of these bogus overseas companies and devised the manner in which the scheme should be carried out.  It was the 1^st applicant who directed her to set up bogus companies to facilitate the creation of bogus transactions to support the applications for credit facilities from the banks.

28.In our view the 3^rd applicant was not the ‘operational strategist’ or the ‘financial ringmaster’ of the fraud (see HKSAR v. Fu Chu Kan and Others).  This was conceded by prosecuting counsel in the Court below.  The 3^rd applicant was someone who followed the orders by reason of her ‘blind loyalty’ to the Ma family.

29.In addition, the following grounds of mitigation should be recognised :

1) She had provided assistance to the liquidators at a very early stage after the collapse of the company;

2) She returned to Hong Kong voluntarily to assist in the investigation;

3) She was the first applicant to offer the pleas of guilty to the charges;

4) She had provided assistance to the prosecution after she had indicated her guilty pleas.

5) There is evidence of ‘positive good character’.

30.In our view a greater discount in her sentence should be given, having regard to her role and the mitigating circumstances.  The appropriate sentence of the 3^rd applicant should be 8½ years’ imprisonment.  The individual sentences imposed by the Judge remained unchanged.  We will simply order one year of the sentence for Count 10 to be served consecutive to the other sentences imposed by the Judge

Conclusion

31.The 1^st and the 2^nd applicants’ applications were accordingly dismissed.

32.The 3^rd applicant’s application was allowed as indicated.

Mr David Leung, SADPP and Ms Clara Ma, PP of Department of Justice, for the respondent

Mr Charles J. Chan, instructed by Cheung & Yip, for the 1^st applicant

The 2^nd applicant appeared in person

Mr Bernard Chung, instructed by F. Zimmern & Co., for the 3^rd applicant