The 2nd accused was convicted unanimously by the jury after trial of two counts of conspiracy to defraud and three counts of money laundering as follows:
Count 1, Conspiracy to defraud the SEHK;
Count 2, conspiracy to defraud POIL, its existing shareholders and its potential investors;
Count 3, dealing with proceeds, namely HK$156 million;
Count 4, dealing with proceeds, namely HK$234 million; and
Count 6, dealing with proceeds, namely 282,600,000 POIL shares.
The 3rd accused was convicted after trial by a 6 to 2 majority verdict of the jury of one count of conspiracy to defraud POIL, its existing shareholders and its potential investors, that is, Count 2, and one count of dealing with proceeds, namely HK$3 million, that is, Count 5. She was acquitted of the count of conspiracy to defraud the SEHK, that is, Count 1.
Briefly, the facts as disclosed at trial were these. In December 2009, Wong Kwan, the chairman of POIL, signed a MOU in his capacity as the director of SOL, with the owner of certain oilfields in Utah, USA, after paying a site visit to the fields.
On 12 December 2009, Wong Kwan followed up on the deal and signed a sale, purchase and development agreement on behalf of an American company, SOU, with the owner, for the acquisition of the oilfields. The price agreed was US$60 million.
At the time, SOL was the sole member of SOU, but Wong Kwan was appointed as the president, secretary and treasurer of SOU. On 4 January 2010, the investment opportunity of the oilfields was introduced at the POIL’s Board of Directors’s meeting. Five days later, on 9 January 2010, the Board of Directors approved the acquisition and on the same day, PW7, Mr Zhou Liyang, the executive director of POIL at that time, signed a sale and purchase agreement at the price of US$225 million with Wong Kwan representing CAL and the 2nd accused representing MSL as the vendors of the oilfields.
At the time, CAL and MSL each held 35 per cent and 65 per cent interest of FOL, which in turn held SOL and SOU. Both MSL and FOL were purchased by the 3rd accused on 6 January 2010 from OIL, which was a company engaged in the business of selling BVI companies. SOL was also purchased by the 3rd accused, but that was on 16 October 2009. The 3rd accused made payments in respect of the purchase of MSL and SOL from her own bank account. After the purchase of SOL, the 2nd accused became its sole shareholder, but Wong Kwan and the 2nd accused were appointed as its first directors on the same day.
On 21 December 2009, the 2nd accused was further issued with 64 SOL shares, while another 35 shares were issued to Wong Kwan. As a result, Wong Kwan and the 2nd accused then respectively held SOL shares in the proportion of 35 per cent and 65 per cent.
On 7 January 2010, both transferred their SOL shares to FOL.
As for MSL, after its purchase, the 2nd accused became its sole shareholder and the first director on 7 January 2010.
Finally, for FOL, Wong Kwan and the 2nd accused were appointed as its first directors on 7 January 2010, with 650 shares issued to MSL and 350 shares issued to CAL.
At all the material time, Wong Kwan was the sole shareholder and director of CAL.
On 25 January 2010 and 24 May 2010, POIL respectively issued an announcement and a circular concerning the acquisition of the oil fields. On 8 June 2010, a special general meeting of POIL was held, and the acquisition, together with the allotment and issue of new shares for its payment were approved.
In both the announcement and the circular, the interest of Wong Kwan in CAL, FOL and SOL was mentioned. At the same time, the following representations were made;
(1) before the investment opportunity of the oilfields was first introduced to POIL by MSL and CAL, MSL had already reached an agreement for its investment with the owner of the oilfields;
(2) MSL and its beneficial owners were third parties, independent of POIL and its connected persons; and
(3) the original acquisition costs incurred by CAL on 35 per cent interest of FOL was US$70 million.
The prosecution’s case in a gist was that the use of various BVI companies and the bringing in of the 2nd accused as the sole shareholder of SOL, SOU and MSL was to cloud the matter and to conceal that Wong Kwan indeed held 100 per cent beneficial interest in the oilfields. The prosecution further said that all three representations were false, and were dishonestly made to the SEHK and POIL, causing the former to allow the publication of the announcement and the circular on the website of the SEHK, and causing the latter to approve the acquisition and the allotment and issue of new shares for its payment.
The 2nd and the 3rd accused, the prosecution said, were parties to the two conspiracies to defraud the SEHK and POIL.
It was, however, not the prosecution’s case that there was any dishonest or improper price inflation on the part of the conspirators by reselling the oilfields to POIL from its original acquisition cost of US$60 million to US$225 million. In fact, the evidence at trial revealed that at the time, there was a report estimating the oilfields to be worth US$420 million.
On the other hand, the prosecution placed emphasis on the huge profit involved in the reselling of the oilfields to POIL, and suggested that such profit provided a motive for the conspirators to agree to defraud the SEHK and POIL in order to get the deal through.
Insofar as the role of the 2nd accused was concerned, the evidence revealed that apart from being the shareholders and directors of MSL, FOL and SOL, and apart from signing the respective agreements with POIL, she was also the one who arranged for the money and the shares she received from POIL as part payments for the acquisition to be channelled back to Wong Kwan and CAL.
As for the 3rd accused, the evidence revealed that apart from being responsible for the purchase of the BVI companies, and for making two such payments, she also acted as a witness to sign on the instrument in respect of the transfer of MSL’s POIL shares to CAL, which shares were issued to MSL pursuant to the acquisition.
During her video-recorded interviews with the ICAC, the 3rd accused also admitted taking instructions from Wong Kwan to prepare the purported account dealings between Wong Kwan and the 2nd accused, including payments made to and from the different parties in relation to the acquisition.
It was also an admitted fact that certain documents said to bear the names of Wong Kwan and the 2nd accused, and purporting to be the original agreements signed between MSL and CAL in relation to the acquisition were found in the room where the 3rd accused worked at POIL.
Mitigation of the 2nd Accused
The 2nd accused, previously of a clear record, is aged 46 and was born in the mainland. She received education up to lower secondary level. She was divorced but was remarried in January 2004. Her husband is a mainlander.
In mitigation, Mr Wong, SC, for the 2nd accused laid emphasis on the point that there was no evidence about any economic loss being caused to anyone.
Further, Mr Wong said that as there was the estimated value of the oilfields being at a much higher price, the investment made by POIL was well-protected.
Mr Wong also sought to rely on the fact that as much was agreed by the 2nd accused during the trial, thereby saving the court’s time, such should be taken into account in the 2nd accused’s favour.
Mitigation of the 3rd Accused
The 3rd accused, also previously of a clear record, is aged 45 and is married. She started to work after finishing Form 5 education. Mr Kwok, SC, said in mitigation that this is a single fall from grace for the 3rd accused, stressing that she came from a humble background, and had worked hard all her way through from a receptionist to the deputy financial controller of POIL.
The court’s attention was also invited to the letters and certificates of donations produced, which were said to have evidenced the fact that the 3rd accused is a person of good nature, being ready to offer assistance to her family and friends whenever required.
The court noted that in the 3rd accused’s own letter, she expressed her remorse, saying that she foolishly committed the present offences because of her long-term working relationship with Wong Kwan, and because of her greed.
Further, Mr Kwok urged this court to pass a lenient sentence on the 3rd accused as her role was relatively minor and her culpability, as found by the jury, was only limited to agreeing to defraud POIL, its existing shareholders and its potential investors, not the SEHK.
It was also stressed that the 3rd accused committed the present offences largely because of her misguided loyalty to Wong Kwan, for whom she had worked for over two decades.
Sentencing Considerations
For the offence of conspiracy to defraud, Section 159C(6) of the Crimes Ordinance, Cap 200, stipulates that any person convicted of this offence shall be liable to imprisonment for 14 years.
In HKSAR v Fu Chu Kan & Ors, CACC 104/2007, 24 July 2009, unreported, the Court of Appeal commented that for the 1st defendant in that case, as he was the prime mover of the fraud that had gone on for three years, which involved many millions of dollars, giving rise to a real risk of loss to the investors, who had been tricked into subscribing for shares, and was the one who had recruited others to join in the conspiracies, deceiving the Stock Exchange, the 10 years’ imprisonment imposed on him was not a day too long. And had the sentences been longer by a year or two, the court would not have upset them.
A similar sentiment was expressed by the Court of Appeal in HKSAR v Chiu Chick Kei & Ors [2013] 5 HKC 21, where a starting point of 10 years for each of the two conspiracies to defraud, including one to defraud the SEHK, was said to be unassailable.
In the case of Chiu, the Court of Appeal observed that the defendants were guilty of ambitious frauds on a grand scale and that they had each embarked upon a profoundly serious course of conduct, making the case very close to a worst case situation which would be deserving of the maximum sentence prescribed by the law, namely 14 years.
I have also considered the case of HKSAR v Cheng Kelly Kit Yin [2014] 4 HKLRD 34, in which case the Court of Appeal stated that:
“The absence of any realistic risk of loss to the victim is clearly a relevant factor for purpose of sentence.”
But that it is a factor to be taken into account as part of the whole factual matrix only.
Returning to the present case, although much has been said about the lack of evidence concerning any actual economic loss, at trial, there was evidence from the independent non-executive directors and the shareholders of POIL about how they regarded it as important each of the representations made in the announcement and the circular, and how they would feel being cheated if the particulars contained therein were untrue.
Moreover, while the shareholders admitted that they had not read the announcements or the circular, and also that they were unaware of the representations at that time, both confirmed that for this type of documents, and for an announcement made by a listed company, they would have expected the information to be true and accurate as well as having been checked.
This is clearly illustrative of how important the information released by a listed company is to the shareholders and to members of the public.
Equally, the SEHK, being part of the monitoring and regulatory system of our stock market, is where members of the public, including any potential investors, expect to get true and accurate information about the business carried out by listed companies. No doubt, the public place trust and faith in such materials like a listed company’s announcement and circulars, and in the publications appearing on the website of the SEHK.
On this aspect, the witness from the SEHK stated that it is a requirement in the listing rules that the information contained in the announcement of the circular of a listed company should be complete and accurate, for such documents are published for the benefit of members of the public so that they could make fully informed decisions in relation to the trading of the shares of a listed company. In other words, documents like the announcement and circular in this case, which are published on the website of the SEHK, do have an impact on the integrity of our stock market.
It is not difficult to imagine how such false information relating to a listed company’s activities could mislead the public, especially in respect of activities like a very substantial acquisition, as was the case here.
Hong Kong is a world-renowned international financial centre, and the regulatory regime that has been put in place concerning stock trading and listed companies is no doubt an important factor of its success. To conspire together to defraud the SEHK by supplying false information to it is a vice that may well destroy potential investors’ and the general public’s confidence in the stock market.
What is evident from the above is that those who have agreed to defraud a listed company or the SEHK is seeking to interfere with the decision-making process of the listed company on the one hand, and to undermine the proper operation of the SEHK on the other. Both conspiracies have impacts on the general public, not only on private individuals.
Also of importance is that in this case, it is clear from the evidence that POIL was very weak financially prior to the acquisition of the oilfields. A number of witnesses spoke of this problem, and of the danger of POIL going to be delisted at that time. In such circumstances, agreeing to use dishonest means to cause POIL to approve the acquisition of the oilfields and to issue new shares for the acquisition so that the company could, on its face, be resurrected, was a particularly evil act, for the simple reason that given POIL was already in dire financial circumstances, any substantial acquisition should be carefully planned, and any decision should be a well-informed one, rather than one based on a fraud being practised on the company.
It has been suggested in mitigation that the three false representations did not matter much, for there was the estimated value of the oilfields being at US$420 million, whereas the purchase price was only US$225 million.
I can deal with this quickly. As I have mentioned, the vice of these conspiracies lies not only on any actual economic loss to POIL, but on how a listed company was dishonestly led to make a decision concerning a very substantial acquisition, especially at a time when the company was in dire financial situation. Another grave consequence, as I have set out above, is the harm such a conspiracy to defraud the SEHK might cause to the general public and our stock market.
Sentencing in this case: The 2nd Accused
Thus, in all the circumstances of this case, and having considered the 2nd accused’s role as outlined above, I consider that a starting point of 7 years for each of Counts 1 and 2 to be appropriate.
In respect of the offence of money laundering, the relevant sentencing factors were identified in HKSAR v Boma [2012] 2 HKLRD 33.
Having considered the facts of this case and the property involved in each of Counts 3, 4 and 6, I am of the view that a starting point of 7 years is appropriate for each of those money laundering counts.
Although the 2nd accused was previously of a clear record, I do not regard this as a mitigating factor of any force, given the serious nature of the present offences.
As there is nothing which would warrant any reduction in sentence, the 2nd accused should serve a term of 7 years for each of the counts she has been convicted by the jury.
However, having considered the totality principle, and that all the subject matters in respect of the counts arose from the same set of facts, I order that all the terms in respect of Counts 1 to 4 and Count 6 are to be served wholly concurrently, making a total term of 7 years.
Sentencing in this case: The 3rd Accused
As for the 3rd accused, having considered her role in the conspiracy to defraud POIL as outlined above, I am of the view that a starting point of 5 years is appropriate.
However, I should mention that although her role was not that of a prime mover, it should not be forgotten that she was a party to the conspiracy to defraud the very company in respect of which she was working at that time, and so there was the element of a breach of trust.
Moreover, anyone joining a criminal agreement intending that it be carried out is a culpable party, irrespective of how significant or less significant the part he or she intends to play in the actual enterprise.
In respect of the money laundering count, that is, Count 5, I consider that a starting point of 4 years to be appropriate.
Again, although the 3rd accused was previously of a good character, such is not of any assistance to her in the face of these serious offences. As there is nothing which would warrant any reduction in sentence, she is to serve a term of 5 years for Count 2, and a term of 4 years for Count 5.
However, having considered the totality principle, and that these two offences arose from the same set of facts, I order that her sentences for Counts 2 and 5 be served wholly concurrently, making a total term of 5 years.