HKSAR v. Tsang Pui-yu, Shirlina
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DCCC 326/2013 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CRIMINAL CASE NO 326 OF 2013 ----------------------
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--------------------- Reasons for Sentence --------------------- 1.Defendant, you have pleaded guilty to one offence of fraud, contrary to section 16A of the Theft Ordinance, Cap. 210. You admitted the brief facts and I convicted you. The facts were as follows:- 2.The Royal Bank of Scotland was appointed by the Hong Kong Monetary Authority as one of the recognised dealers and primary dealers of Hong Kong Government Bonds, Exchange Fund Bills, Notes, collectively as bonds, in July 2009. You were employed by RBS in May 2004, becoming a trader of the emerging market desk. Your role was to trade various securities for RBS including bonds and to observe the rules imposed on you in carrying out your duties. If your trading activities resulted in losses, those losses would be suffered by RBS. You were responsible for marking all your trading positions at the prevailing fair market prices on a daily basis and recording profits and losses in the RBS computer system. 3.On 13 October 2011, your supervisor, TK, conducted a review of the portfolios of traders under his supervision. In view of market events prior to the review, TK expected losses in your portfolio. However, that was not the case. Further investigation showed a mis-pricing of certain bonds in your portfolio. In brief, you engaged in the following types of irregular conduct:-
4.Generally, a trader would enter into a trade with a counter-party by agreeing the trade terms such as the relevant securities, the notional amount and the purchase price over the phone or through electronic platform. Once a trade is concluded, a trader is required to enter the agreed terms of the trade into the computer system. The system then generates an electronic ticket to the back office processing platform for settlement. 5.Between July and October of 2011, you entered false details of the bonds trades in the RBS system. For example, you named a counter-party who had not agreed to make a trade or where a counter-party had agreed to make a trade, you entered a price and/or a nominal amount that did not truly reflect the terms of the trade that had been agreed. You inputted these irregular trade entries as either a fresh trade or as an amendment of an existing trade. You were able to do this because the bonds trading market does not have a practice of same day validation of bond trades. Settlement of trades in the bonds trading market does not occur immediately and would only be matched on settlement date which would be a date agreed between counter‑parties, typically up to two days after the trade date at the discretion of the individual traders. 6.You booked irregular trades to reflect the profit and loss account and/or lower your risk position before the cut-off time, which is 7 pm in Hong Kong. When RBS’s systems calculated a trade books profit and loss or risk position, you then either cancelled or amended the entries before trade settlement to avoid detection by the bank’s systems. As a result, you made irregular use of cancellations and amendments of the bonds trades to show false profit and loss in your account and/or a false risk position on RBS systems at the end of a trading day. 7.Between August 2011 and October 2011, you entered eight false transactions of the bonds into the computer system which you later cancelled before they were settled. Details of the eight transactions and effect on the flash profit and loss are shown in the brief statement of facts. I do not intend to read through they, they are well-understood. Between July and October 2011, you entered false information in relation to eight transactions of bonds into the computer trading system which you later amended the volume of products and/or price before settlement. Details of the eight transactions and effect on the flash profit and loss are listed and that is at page 4, again I do not intend to go through those, those have been gone through. Mis-marking of the bonds 8.All traders must mark to market their trading books to the prevailing market prices on a daily basis and recording a profit and loss via RBS systems. Between mid-2010 and 14 October 2011, you artificially inflated the volume of the trading books in the RBS computer system by either 1) marked the price of the bonds in your portfolio, or 2) marked down the cost of the bonds to clear your short-term position in your portfolio. Significant discrepancies were found in respect of nine bonds in your portfolio. As you were required to submit a flash profit and loss summary which is an estimate prepared by each trader of their profit and loss position to the front office management at the end of each trading day, you would also mis-state flash profit and loss making it consistent with the mis-marked end of day position in the computer system. 9.RBS has a monitoring system called Independent Pricing Verification. The IPV process is undertaken twice a month at mid-month and at end of the month respectively. At each of these times, RBS would obtain prices published by two independent brokers, namely ICAP Limited and Nittan Capital Limited. The average of these two quoted prices is compared to the prices of the relevant securities recorded in RBS’s systems, including those inputted by you. If the price varies for a particular position and is material, the trader is required to provide an explanation for the discrepancy. If a variance is of £500, that is Pounds Sterling, is identified, this may result in an adjustment of the trader’s profit and loss for that day. 10.As RBS is one of the market-makers of the bonds and one of the active participants in the trade of bonds, ICAP and Nittan would use the price quoted by you as their market price occasionally. You were aware of the identification of the brokers used by RBS and the IPV and knew when the IPV was to be conducted. You circumvented the IPV by providing false prices of the relevant bonds to the persons who were responsible in updating the prices listed by ICAP and Nittan on or around the IPV date. The prices published by these two brokers were similar to the mis-marked prices in your bonds book. This assisted you to conceal your mis-marked position from RBS and mis-marking activities concentrated across a limited number of bonds, mis‑marking in four bonds positions and your portfolio accounted for 77 per cent of the total mis-marking as of 14 October 2011. The mis-marking of the bonds portfolio does not necessarily indicate you had incurred losses thereon but you could use the inflated value to conceal the losses which you incurred in trading in other financial instruments. 11.The combined total of your mis-marking as against fair market value of the relevant bonds as at the last applicable relevant IPV date was HK$199,936,600. Benefit gained and loss suffered by RBS 12.The effect of entering false information into RBS systems was to generate a fictitious profit and loss that enabled you to disguise the losses that you had caused to RBS by the actual trades you had entered into. Apart from taking into account of the bank’s overall performance, RBS will also take into account a trader’s annual performance review, rating and assessing the amount of bonus. The financial performance is an important consideration. For the year 2008 to 2009 and 2010 to 2011, you were awarded $1,761,828.78 bonus. As of 14 October of 2011, after revaluing your bonds against Nittan market prices, it was found that a loss of £19.5 million pounds sterling had been lost, that is approximately HK$238 million and that had to be adjusted in your portfolio for the mis-marking and irregular use of cancellation amendments. If you had not disguised the losses, RBS would have discovered them earlier and taken steps to prevent further losses. 13.After TK discovered this misconduct on 14 October 2011, he spoke twice to you on the telephone. You said you had lost approximately US$7 million and a lot of money from March onwards. Another supervisor spoke to you that day and you admitted doing wrong. You said after your brother passed away in March, you were very upset and the market was poor. You lost a lot of money in the Hong Kong dollar interest rate swaps. You made false entries to conceal these losses. RBS terminated your employment and you were arrested on 17 October 2011. 14.You are a lady of clear recording having no previous convictions. Mr Choy then entered mitigation on your behalf. He began by producing a receipt which showed that you had returned the entirety of the bonus of over $1 million that you had received from RBS. The prosecution also confirmed that this was the position. He said you accepted the numbers were huge and he did not seek to trivialise the matter. He sought to emphasise the human side, saying the trading room was a place of enormous pressure. Mr Choy emphasised your plea of guilty and that you are highly remorseful now for what you have done. He said he hoped to show you to be a person of positive good character. 15.Dealing first with your background, he said you were born in Hong Kong but the family moved to Canada in 1990. You are 42 years of age. After graduating from the University of Toronto with a degree in economics, you returned to Hong Kong to work and provide for your family. You are married with no children. The family is a close-knit one. Your father is 76 and residing in Canada. Due to poor health, he could not come to court, however, your mother who is 69 is here today. You have an elder sister who has been receiving medical treatment for seven years for depression. Your younger brother unfortunately died in 2011. That affected you greatly as you were very close. I will return again to that matter. 16.Mr Choy then took me through the main points of some of the letters of support. He referred me first to the letter from your parents. This mentions the close relationship between yourself and your late brother. It speaks of how you cared for him throughout his illness, it speaks of you as a filial daughter who had even bought them a home in Canada. The second letter is from your elder sister who again speaks more of the illness and cancer of your brother and how you took care of him and the effects of his death. There then followed further letters from friends and colleagues, all spoke well of you and the shock they felt that you would commit such an offence as this. Each opined that it was out of character. Your husband also wrote, again painting a very positive picture and explaining how these events led to him becoming depressed and having to give up his work. 17.Mr Choy then turned to your job at RBS where you commenced employment in 2004. He explained to me your duties and the long hours you worked at the bank and then at home. Also, the change in style of management after RBS acquired ABN AMRO, the pressure you were under in the trading room and the competition between traders. He referred to the Hong Kong Bond market. He then produced to me a file of press cuttings showing how courts in other jurisdictions had dealt with similar offences. Whilst conceding they were not binding on this court, they were in fact in the nature of press cuttings rather than formal reports, so of very limited use. 18.The first was the notorious case of Nick Leeson whose losses of £827 million brought down Barings Bank. He was sentenced to 6½ years’ imprisonment in Singapore in 1995. He then referred me to Toshihide Iguchi. Daiwa Bank suffered losses of over a billion US dollars, he received 4 years’ imprisonment in 1997. Then the case of Jérome Kerviel. A French bank suffered a loss of €4.9 billion. He was eventually sentenced to 3 years’ imprisonment, 2 years suspended and he had to repay the €4.9 billion. 19.Having regard to Mr Choy’s mitigation, especially his reference to the profound effect the death of your brother had on your mental condition and the pressure of work, I adjourned at this point for a psychological report. That report is now before me and accepted by yourself. It confirms important aspects of case and recommends psychological treatment to assist you with mood management in the future. Mr Choy stressed that the death of your brother and pressure of work led to depression and the mental state in which you committed this offence. He said this was a colossal misjudgement by yourself. He also made the point that you were not saying there was widespread systematic entry of false information by all traders, just that you had seen it done on occasions by others. Mr Choy then completed his mitigation by summarising the main points: the remorse that you show as demonstrated by your plea of guilty and the cooperation with the bank at the time of discovery; the repayment of your bonus and your positive good character which is shown by the letters. He asked me for leniency on your behalf. 20.I turn now to the sentence. This is an extremely serious offence which led to the Royal Bank of Scotland suffering losses of £19.5 million Sterling, that is approximately HK$238 million. For certain, if you had not covered up the true position, the bank would still have lost a sum of money but not as much as was lost. The fraudulent actions that you undertook prevented the bank from having full knowledge of the losses and the ability to mitigate those losses. Whilst I am slow to lay blame as I do not have all the facts of the working structures at RBS, it certainly appears on the face of it that there should have been more supervision of yourself. There should have been more support, there should be more checks and balances to guard against the fraudulent schemes that have been employed to obscure what the true trading position was. This is especially so given the examples in other jurisdictions which Mr Choy referred to. With regard to the press cuttings of similar cases in other jurisdictions, I am obliged to Mr Choy but do not find them particularly helpful. They are but press cuttings giving limited, unchecked versions of events. Two are from the 90’s prior to the banking crises that we have seen recently, one in 2008 when the crisis was just emerging, and if I remember correctly, that case was one where the whole sum was repaid. These were different times, different conditions and different jurisdictions. 21.I have noted the contents of all the letters provided and do take the positive comments into account when arriving at a sentence. It is to your credit and a matter of mitigation that the falsely earned bonus has been returned but that is but a small percentage of the losses the bank has suffered. I note your clear record and the achievements in your professional life before your fall from grace. 22.This, of course, is a type of breach of trust because effectively you were deceiving your employer to cover your shortcomings. Also, this is not a case of you personally taking from the bank, all losses were unintended and unplanned. You were simply acting in order to cover, as I said, your shortcomings. You had the bank believe that you were successfully trading when you were not successfully trading. Your acts led to enormous losses by RBS. 23.I do note and take into account the mental anguish caused by the death of your brother and the stress of work which led to depression and your failure to fully comprehend the enormity of what you were doing. I note also that you will never commit such an offence again because with this conviction you will never be able to work in the banking industry again. Taking all matters into account, I take as a starting point 6 years and 3 months’ imprisonment, that is 75 months. For your plea of guilty, you will receive one-third discount. You will go to prison for 50 months.
Please refer to CACC349/2013 for the relevant appeal(s) to the Court of Appeal. |