HKSAR v. SIT YI KI AND OTHERS

HCCC 115/2021

[2024] HKCFI 1937

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL CASE NO 115 OF 2021

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REASONS FOR SENTENCE

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1.  The defendants were convicted after trial of one joint count of ‘conspiracy to carry out false trading’, contrary to sections 295(1), (6)  and 303(1)  of the Securities and Futures Ordinance, Cap.571 (“SFO”), and sections 159A and 159C of the Crimes Ordinance, Cap.200.

2.  Particulars of the offence are that, between 9 March and 7 September 2016, the defendants conspired together with SUEN Man, HO Ming-hin (“Nelson Ho”)  and other persons unknown, to place or cause to be placed bid and ask orders for the securities of a listed corporation, namely Ching Lee Holdings Limited (“CL”), with the intention that, it had, or was likely to have, the effect of creating a false or misleading appearance of active trading in the company’s shares.

3.  The jury’s verdicts against D1 and D3 were unanimous, that against D2 was by a majority of 8 to 1.

SUMMARY OF FACTS

4.  300 million shares of CL, essentially a construction company, were scheduled to be listed on the Growth Enterprise Market board by way of placement, with 29 March 2016 as the first trading day, at $0.283 per share.

5.  295.98 million shares, being 98.66% of the placement shares, were allotted to 8 placees (“the major placees”).  The remaining 4.02 million shares were allotted to 108 placees (“the minor placees”).

6.  All of the placees, be they corporate entities or individuals, were introduced to SBI China, one of the joint bookrunners and joint lead manager of the listing, by Nelson Ho and Suen Man, the named co-conspirators.  Nelson Ho himself was one of the 8 major placees.

7.  The 108 minor placees each sold all of their own placement shares on the first trading day, at the end of which  CL shares closed at $2.26, which was close to 8 times the placement price.

8.  The shares price of CL went as high as $5.98 on 13 July, being about 21 times the placement price.

9.  On 6 September, CL closed at $4.87.

10.  On 7 September, the last day of the relevant charge period, CL share price abruptly collapsed by 90% and closed at $0.45 per share.

11.  Subsequent analyses conducted over the historical trading data of CL shares by the Securities and Futures Commission (“SFC”)  uncovered circumstantial evidence to suggest that the trading in CL shares by the major placees, the minor placees, and 156 securities accounts (collectively as ‘the Group’), might have been done in concert, and that they were done for the purpose of raising the share price and creating the false impression of liquidity.  The evidence include,

(a)  The 156 accounts bought about 78% of all shares bought in the 5 month period from 30 March to 6 September;

(b)  The 156 accounts sold about 78% of all the shares that were sold;

(c)  About 61% of all the trades were between the 156 accounts;

(d)  Not counting trades between the 156 accounts, about 90% of the remaining trades had one of the 156 accounts as the buyer or seller;

(e)  Despite the heavy trading by the 156 accounts, which was close to one billion shares in total, their collective shareholding position in CL did not really change, varying between 700,000 shares bought, and 4.56 million shares sold;

(f)  Collectively the 156 accounts net sold only 2.14 million shares over the 5 month period;

(g)  The trading of the Group did not make economic sense, in that there was a net trading loss of about $3.7 million even without counting trading costs.

12.  The market expert found that the 156 accounts had net sold a total of 193.76 million shares on the market on 7 September, significantly driving down CL share prices.  There was no market sentiment or negative news that could explain this collapse.  It is his opinion that, from the first trading day until 7 September 2016, the trading by the Group, “had the effect of not only raising the price of shares of Ching Lee…but also had the effect of creating the impression the shares of Ching Lee were widely traded and liquid.”

13.  The expert’s opinion is based on the assumption that the Group was in fact under common control.  The circumstantial evidence that allowed the jury to find that Nelson Ho, Suen Man, D1, D2 and D3 were all connected to the trading of CL shares in that period, and that the only reasonable inference was that the trading of the Group in CL shares had been done under common control included the following. 

Nelson Ho and Suen Man entering the placement picture

14.  Investigation led the SFC to SBI China.  According to their Responsible Officer, Mr. Kenny Wong, all 116 of the placees for CL shares were introduced to SBI China by Nelson Ho and Suen Man, the two co-conspirators.

15.  D1 was identified by Kenny Wong as the person whom he had met through Nelson Ho.  She was the person who provided Kenny Wong with the draft list[1] of placees before the placement, which closely matched the eventual actual list of placees.  D1 also liaised with him on CL listing matters.  His perception was that D1 was acting like a secretary to Nelson Ho.

Isidor (“Izzy”)  Subotic of Eden

16.  Kenny Wong disclosed that before the listing, Nelson Ho had brought a foreigner to meet with him.  This foreigner had introduced himself as “Izzy Subotic”, and that he was from some fund company.  Izzy Subotic said to Kenny Wong that he hoped CL shares would do well, that it would get bigger and then be able to distribute dividends.

17.  Email communications between Kenny Wong and a person named ‘Sarfraz Munshi’, an investment manager of a Beaufort Securities Limited with an address in the United Kingdom, which were copied to “izzy Subotic <izzy@edeninvestmentsltd.com> , showed that this Izzy Subotic wanted to “place an order for $60 million in the Private Placement IPO of Stock 8318”[2], which was the stock code of CL shares.

18.  Izzy Subotic signed his email as the CEO of ‘Eden Investments Ltd’.  It was he who introduced ‘Sarfraz Munshi’ to SBI China and Kenny Wong through the email communications.  Eden Investments Limited would later become one of the 8 major placees.

David Subotic and 4 of the major placees

19.  Investigations also brought the SFC to Yuanta Securities (HK)  Company Limited, one of the securities firms where a number of the 116 placees had opened trading accounts in.

20.  Mr. Wu, the director of Yuanta, remembered one ‘David Subotic’ visiting him at his office, talking about opening a series of company or family accounts for their family fund.  6 company accounts were eventually opened and they were all connected to this David Subotic.

21.  The companies used to open those accounts with Yuanta were Eden Investments Limited (“Eden”), HK Ray Power Ventures Limited (“Ray Power”), Celestial Merchant Limited (“Celestial”), 360 HK Limited (“360 HK”), Eastmore (HK)  Limited (“Eastmore”), and Mighty Edge Limited (“Mighty Edge”).

22.  In the eventual placement, Eden, Ray Power, and 360HK were each allocated 49.5 million CL shares, while Celestial was allocated 18.26 million shares.  They were 4 of the 8 major placees.

Seizure of materials

23.  On 23 May 2017, about 8 months after the CL share price collapse, the SFC searched the premises of D1, D3, Nelson Ho and others.  Three mobile phones of D1 were seized.

24.  On 23 January 2018, another 8 months later, the SFC searched the premises of Suen Man and others.

25.  On 26 June 2018, the SFC and ICAC jointly searched the premises of D1, Nelson Ho and others.

26.  Between June 2018 and January 2019, the SFC reviewed the materials seized in the 3 search operations and interviewed numerous individuals.

27.  As a result of the investigations, the SFC found that there is circumstantial evidence to prove that Nelson Ho, Suen Man and the 3 defendants were all connected to each other, that they were each connected to at least some of the 156 securities accounts, and that they were linked to the trading of CL shares through those accounts.  They decided that the evidence supported a charge of conspiracy to conduct false trading.  Nelson Ho, Suen Man, D1, D2 and D3 were charged accordingly.

The Action Plan

28.  The circumstantial evidence in support of there being common control in the trading by the Group included what the prosecution labelled as “the Action Plan”.

29.  On 22 March 2016, 7 days before trading commenced, D1 sent an email to Nelson Ho with 3 attachments: “Schedule_8338.pdf”, “分佈”, and “attachment(1)(1).xls”.

30.  The “attachment(1)(1).xls” spreadsheet contained a list of the placees and their corresponding securities firms and CL share allocation, both in shares and monetary value.  There is also a list of the contact persons and phone numbers of some of the securities firms.  The list matched closely to that of the actual placement results as announced on 24 March 2016.

31.  The “分佈” spreadsheet appears to be a list of the margin positions with various securities firms.

32.  The “Schedule_8338.pdf” (P146(2))  file is the document referred to as the Action Plan, as inserted below:

33.  Based on bank records, exactly $16,646,819 had been transferred to Nelson Ho and Suen Man from Eden or the Subotic family, as set out in the first stage of the Action Plan under “23/3/2016”.  The signatories of the Eden bank account were Isidor and David Subotic, being the Izzy and David that Kenny Wong of SBI China and Mr. Wu of Yuanta had met.  The money so transferred was for funding the subscription of CL shares, and for buying back CL shares from the minor placees on the first trading day.  Stage 1 was executed.

34.  Although Stage 2 did not specify which shares, on 29 March 2016, Ching Lee was the only share on the GEM board to be listed and traded, which was its ‘1^st trading day’, the only reasonable inference must be that the Action Plan was referring to CL shares.

35.  According to historical trading data, on that day, all 108 minor placees of CL shares sold their shares at above $1.50 per share.  12 of them sold during the Pre-opening session, 94 sold during the continuous trading session.  Total trading activity that day was 51.3 million shares, with a turnover of $51.3 million.  Stage 2 was executed.

36.  Stage 3 of the plan sets a daily $7 million trading target, at a range of $1.47 to $1.55.  The fund was to provide an email address “for us to send the daily statement in the evening after each trading day”.

37.  Average daily trading was at more than 9 million shares from 30 March to 11 May, and 4 million shares from 12 May to 6 September.  The share price exceeded the trading price range, and daily reporting on trading had in fact been done.  Stage 3 was executed, with over achievement.

38.  Different to Stage 4 of the Action Plan, trading by the 156 accounts went beyond 6 April 2016 and went on to 7 September 2016, when the Group abruptly net sold a total of 193.76 million shares on the market, triggering the collapse in CL shares, with the share price closing at $0.45.

39.  Despite the date being later than as stated in the Action Plan, money was in fact found to have been ‘returned to the fund’.  Bank records show that $2 million was transferred from D3’s account to Eden; $2 million was transferred from one of the 156 securities account holders’ bank account to D3’s wife, which was then transferred to Eden’s bank account 2 days later.  Nelson Ho also transferred $5 million to Eden on 7 and 13 October.  Stage 4 was executed.

The loan

40.  Alongside the trading in CL shares to create the false appearance of active trading, the conspiracy also involved the use of CL shares as collateral to borrow money.  Since the liquidity of a share is one of the factors to be considered by the borrower, the false active trading played a part in the successful application for the loan.

41.  This loan was taken out by Mighty Edge, one of the companies linked to the name David Subotic, the person who met with Yuanta’s Mr. Wu mentioned above.

42.  The loan agreement, pledge agreement, and the addendum to the agreement were all signed by a person named Lau Yik Kwan on behalf of Mighty Edge as an authorized signatory.

43.  This Lau Yik Kwan belonged to a WeChat group where the participants discussed trading of CL shares.  Among the members of the group are Nelson Ho and D1.

44.  Although Lau Yik Kwan owned shares in Mighty Edge, he was not the beneficial owner of those shares under his name.  By a declaration of trust dated 19 May 2016, Lau Yik Kwan declared that one share of his in the books of Mighty Edge was held in trust for Isidor Subotic absolutely.  The address of Isidor Subotic is stated as “10 Blaine Drive, North York, Ontario, M3B 2G4, Canada”.

45.  Isidor Subotic was a member of the Subotic family that controlled Eden, which provided the $16 million startup money to Nelson Ho and Suen Man for the trading in Ching Lee shares in accordance with the Action Plan.  He was also most likely to be the Izzy Subotic who met with Kenny Wong of SBI China and who said he was interested in the placement of CL shares.

46.  This declaration of trust by Lau Yik Kwan in favour of Isidor Subotic was actually found from D1’s home.  D1 was also the person who had sent the certificate of incorporation of Mighty Edge, as well as the Bank of Communications certificate dated 19 August 2016 to a chat group where Lau Yik Kwan was a member.  This bank certificate was the same one that Lau Yik Kwan had provided to Equities First, the lender company, as supporting document for the loan.

47.  According to bank records, Lau Yik Kwan and Isidor Subotic were the only 2 authorized signatories of the Bank of Communications account in the name of Mighty Edge.  In the bank records, Isidor Subotic is recorded as having a Hong Kong ID/Passport number of GK 684189, and residential address is stated, as far as is legible, as “10 Blaine dr North York On.  M3B 2G4”, which is the address of Isidor Subotic as stated in the Declaration of Trust above.

48.  In gist, HK$30 million was lent by Equities First (US)  to Mighty Edge on 1 September 2016, with 30 million CL shares as collateral.  On that day, CL shares were trading between $5.47 and $5.55.  The market value of the collateralized shares was, therefore, at least $164.1 million.  This was 6 days before the collapse of the CL share price.

49.  As a result of the collapse, the loan was terminated.  However, due to the presence of a ‘non-recourse’ clause in the loan agreement, the only recourse Equities First had against Mighty Edge upon their inability to repay the loan was to sell the collateralized shares.

50.  It is the market expert’s finding that Equities First suffered an overall loss of $8,256,400 from Mighty Edge’s default.  They were able to sell 2.8 million shares at $3.39 per share from 5 to 7 September, thereby mitigating their loss.

51.  Meanwhile, from 5 to 12 September 2016, Mighty Edge had transferred a total of HK$148.61 million to Eden.

52.  With the return of huge sums of money to Eden, it would appear that at least one of the objectives of the conspiracy had been achieved, with each of the defendants playing a role in it.

Circumstantial evidence against D1

53.  D1’s role was that of an assistant to the top level masterminds including Nelson Ho and Suen Man.  She was connected to the 156 securities accounts that were used in the manipulation of CL shares.  She herself had conducted some trading in CL shares.

54.  As an example of her connection to the 156 accounts, a spreadsheet[3] containing some of the 156 securities firm names; the corresponding names of individuals and companies including Nelson Ho , D1, Lau Yik Kwun, and Mighty Edge next to the firm name; and the corresponding account numbers, passwords, phone number, email address, email passwords for the accounts (worksheet 2 工作表2), was found in two of D1’s mobile phones.

55.  Worksheet 6 of the same spreadsheet contains the names of security firms, names of the account holders, the corresponding name of banks, the savings and current account numbers, and online logins and passwords to those accounts.  The securities account numbers and some of the corresponding information listed in worksheet 2 and 6 can be matched to some of the 156 accounts.

56.  The only reasonable inference to be drawn from D1’s possession of these spreadsheets, and therefore the information inside, must be that she was keeping a record of the accounts being used to trade in CL shares, and that in turn allowed the jury to infer that she was part of the conspiracy she is being charged with.

57.  In addition to materials found in D1’s mobile phones, emails found in her sityiki@gmail.com account also evidenced her participation and role in the conspiracy.

58.  Among the emails were 104[4] sent from the email address eastcom168@gmail.com to hktradeops@gmail.com. The eastcom168@gmail.com address is linked to D1 by way of a private company Eastcom Financial Investment Services Limited (“Eastcom”).  Company Registry records show D1 as the director and shareholder of half of the total 10,000 shares in the company.  The phone number belonging to D1, and email address of eastcom168@gmail.com are found in the records of Eastcom.  Lau Yik Kwan, the person who applied for the Mighty Edge loan, was owner of the other 5,000 shares in Eastcom.

59.  These 104 emails had attachments of trading records of a stock with code “8388”.  Although different to the stock code of Ching Lee “8318”, upon comparison, the trading records largely corresponded to that of CL shares on the relevant dates.  It is the only reasonable inference that the attachments were in fact daily trading records of CL shares.

60.  The attachments included the trading data of CL shares recorded in a spreadsheet found in the desktop computer of Suen Man at his office.  The Suen Man spreadsheet recorded trading data in some of the 156 accounts.  Those data are in turn incorporated into the 104 email trading data attachments and sent to hktradeops@gmail.com.

61.  There is no evidence as to who owns or uses the hktradeops@gmail.com account.  Nelson Ho did send this email address in the WeChat group[5] consisting of himself and D1, on 29 March 2016 (the 1^st trading day of CL), to D1.  That was the only mention of this email address in the entire 3524 counters of WeChat record between them that spanned from 23 November 2014 to 6 October 2016.  

62.  All these record keeping and consolidation was necessary in order to monitor and maintain the CL shares trading by the 156 accounts under common control, and they form part of the circumstantial evidence that allowed the jury to infer that the 156 securities accounts were tools used by the conspiracy to create a false appearance of active trading, and that D1 was part of that conspiracy.

The case against D3

63.  In relation to D3, one of the 108 minor placees, an excel spreadsheet was found from D3’s laptop computer seized at his home, which contained trading data of CL shares in some of the 156 accounts, including those set against the name ‘suen’, being Suen Man the co-conspirator.

64.  Some of the data contained in this spreadsheet can be matched with records in the spreadsheets found in D1’s phone.

65.  The evidence show that D1 and D3 have the same trading records for CL shares conducted by various of the 156 accounts.  This is part of the circumstantial evidence that allowed the jury to infer that D1 and D3 were connected to each other and were part of the conspiracy.

66.  In D3’s laptop was another excel spreadsheet recording trading data covering the period January to September 2016.  It is an end of month value balance for each of the securities account listed.

67.  In this spreadsheet are a total of 42 securities accounts under the name “captain000”, with 18 of them being able to be cross-referenced to a securities account in D3’s name.  Based on this circumstantial evidence, the jury was invited to infer that references to “captain” in the text communications between D1 and D2 are actually references to D3.

68.  The above 2 spreadsheets found from D3’s computer included 77 accounts which were part of the 156 accounts, and they had traded in CL shares (amongst other shares)  in the 5 month charge period.

69.  The trading records that were found in D3’s laptop are also linked to records found in Suen Man’s computer.  The CL shares trading records of some of the 156 accounts found in D3’s spreadsheets were then incorporated into the record found in Suen Man’s computer, which were then incorporated into the combined record found in the 104 emails, which were then sent to hktradeops@gmail.com via sityiki@gmail.com , D1’s email account, at the end of each trading day.

70.  The above is part of the circumstantial evidence that allowed the jury to infer that D3 was part of the charged conspiracy.

The case against D2

71.  The evidence against D2 is based mainly upon the voluminous communications between her and D1 in WhatsApp and WeChat records found from D1’s phone.  Circumstantial evidence showed that those communications were in fact between the two of them.

72.  Despite codes being used in their communications when discussing the quantity and prices of shares being traded, by comparing the figures mentioned in the chats to actual CL share trading records, it can be seen that they were in fact communicating over the trade of CL shares by entities linked to the 156 accounts, including that of “captain”.

73.  In the communications, D2 received trading instructions from D1 and acted as a go between to relate those instructions to those among the 156 accounts.  She collected and collated the trading data received from those accounts and supplied them to D1, who then incorporated all the data she had received on the Group’s trading on CL shares into elaborate spreadsheets, and reported to the fund in accordance to the Action Plan by sending those spreadsheets to hktradingops@gmail.com.  Through such communications with D1 on the trading of CL shares, D2 had played a role in the conspiracy.

74.  Based on all the circumstantial evidence, the jury had, as indicated through their verdicts, found that the prosecution had proved that D1, D2 and D3 were part of the conspiracy as charged.

PREVIOUS CONVICTIONS

75.  D1 and D2 are of previously clear record.

76.  D3 has one previous conviction back in 1991, when he was found guilty of having been in breach of s.80(1)  of the Securities Ordinance, Cap.333.  The information laid against him was that he on 27 September 1990 sold securities through the Stock Exchange, namely 40,000 1992 Warrants in International Tak Cheung Holdings Limited, whilst not having a presently exercisable and unconditional right to vest the said securities in the purchaser of them.

77.  Given the lapse of time and the seemingly minor nature of the offence as reflected in the penalty, I have not taken this conviction into consideration when deciding on the proper sentence against D3.

BACKGROUND AND MITIGATION

D1’s background and mitigation

78.  D1 is 33.  She worked as a personal assistant in various financial firms after graduating with a Bachelor of Commerce (Accounting and Finance)  degree in 2013 until 2017, when she started to assist her father with his interior renovation business.  She also went into red wine retailing in Shanghai, travelling frequently between Hong Kong, Shanghai and occasionally Australia.

79.  D1 met her boyfriend in Shanghai in around 2017.  Their son was born in February 2020.  D1 was diagnosed with post-partum depression.  D1 suffered a miscarriage in July 2023, worsening her physical and mental wellbeing.  She continued to take care of their son full time, relying on the boyfriend and his family’s support.

80.  D1 eventually found employment in March 2023, working as an accounting officer for a financial company.

81.  Mr. Li in his mitigation submissions pointed out that D1 was 24 at the time of the offence, and had only been working for about 3 years since graduating from university.

82.  It is Mr. Li’s submission that D1 was not the mastermind of the conspiracy, that the documents found in D1’s mobile phones and her email account were “records prepared upon Nelson Ho’s behest.” (Para 26 of Mr. Li’s Submissions).

83.  He says there is no evidence to suggest that D1 had any control over the 156 target trader accounts, nor “the ultimate course upon which the conspiracy was to be carried out.”

84.  Mr. Li refers to WeChat messages between Nelson Ho and D1 showing Nelson Ho giving instructions to D1 on multiple occasions as to how shares should be traded.

85.  Mr. Li says that for the messages where D1 appeared to have sent instructions to different parties regarding the pricing or trading of shares, D1 was not the origin of the instructions, that she was simply relaying the instructions she received from Nelson Ho or others.  Mr. Li repeated what he said when he addressed the jury in his Closing Speech, that what D1 did was consistent with her role as a secretary of Nelson Ho.

86.  Mr. Li points out that, as accepted by the market expert witness Mr. Tobias Heskster, Eastmore was an entity with ties to the Subotic family, which was the primary driving force behind the “dumping” of Ching Lee’s shares on 7 September 2016, and they also stood to gain the most out of this operation.

87.  Mr. Li points out that, D1 herself only sold 160,000 Ching Lee shares on 7 September to clear her position, while Eastmore had sold about 70 million odd shares.  D1’s 160,000 shares constituted 0.08% of the 193.76 million shares sold by the Group that day.

88.  Mr. Li points out that while Nelson Ho and Suen Man had disappeared, D1 chose to remain in Hong Kong to face the investigation and eventual prosecution.

89.  Mr. Li submits that D1 “was a responsible, albeit naïve, young lady who was regrettably caught up in a scheme far larger and more sinister than she could have anticipated; she was merely a small cog in a large machine, used and abandoned by the orchestrators, left to rot in their wake.”

90.  Mr. Li relies on delay of prosecution as a factor in mitigation.  He points out that the first search operation was conducted 7 years ago, but D1 was only charged 4 years ago.  D1 was never interviewed by the SFC in relation to the present case, only for other matters.  D1 was left in suspense after the first search operation.

91.  During the period before she was charged, D1 had reasonably expected that she would not be charged and had moved on to start a family with her boyfriend.

92.  It is Mr. Li’s submission that some allowance should be made for the delay between the first investigation with D1 and the date of trial.

D2’s background and mitigation

93.  D2 is 36 and was 28 at the time of the offence.  She was diagnosed with panic disorder in December 2017 and was put on medication.  She has been receiving psychotherapy since March 2018.

94.  D2, her husband, son and D2’s father live together.  D2’s mother passed away in September 2022 after suffering a heart attack.

95.  D2’s 2 year old son has been diagnosed with traits of Autism Spectrum Disorder (“ASD”)  and requires treatment and training.

96.  D2 graduated from Monash University in Australia with a Bachelor of Commerce degree majoring in Accounting and Finance in 2010.  Around that time her father’s business went into difficulties and her parents separated.  As a result of the stress, D2’s younger brother who was 20 at that time started to show symptoms of bipolar disorder and had to be hospitalized for one month.

97.  To support her family, D2 gave up continuing with her studies and worked as an accounting clerk for her father, who was eventually declared bankrupt in 2012.  D2 herself began to suffer panic attacks from the stress.

98.  D2 started working as an insurance agent in 2013 and became an account executive of China Industrial Securities International Financial Group Limited in 2015, receiving a modest salary.  It would appear that D2 was holding the same job at the time of the present offence.

99.  From 2017 onwards, D2 worked as an executive assistant at Hong Kong Jockey Club, earning $40,000 per month.

100.  D2’s former superior when she was working as an insurance agent wrote in support of her as a person with integrity, as someone who always had the clients’ best interest in mind.

101.  D2’s lifelong friend wrote to inform the court that D2 is a person who never took shortcuts and had repaid money she borrowed from her in a timely manner, after D2 had taken the initiative to make up a detailed repayment plan.

102.  D2’s current colleague wrote to say that D2 was always ready and willing to assist her colleagues.

103.  D2 would also regularly visit a Buddhist centre to spend time with elderlies.

D3’s background and mitigation

104.  D3 has just turned 62.  Upon completing Form 5 education, he worked different jobs, eventually becoming a broker in 1988 when he was around 26.  He started investing in real estate business in mainland China in 2000 when he was 38.  It would appear that D3 was conducting his mainland China real estate business during the commission of the present offence.

105.  D3 sold all his mainland business in around 2018 when he was 56 and used the proceeds to invest in stocks.  He became a shareholder in two securities firms in Hong Kong, Sino Capital and China Time.  He held those shares until 2020 and 2018 respectively, suffering a loss of about $4 million.

106.  D3 had been retired since 2020, living on his savings.  He resides with his wife, their 32 year old son and 30 year old daughter.

107.  D3’s children are financially independent.  D3 supports his wife, 92 year old mother, and 70 odd year old eldest sister.

108.  D3’s assets have been frozen since July 2019 by way of an injunction obtained by the SFC against him.  He has since been relying on monthly withdrawal to support himself and his family.

SENTENCING

109.  The maximum sentence for the present offence is that of a fine of $10,000,000 and 10 years’ imprisonment.

SENTENCING PRINCIPLES

110.  There are no sentencing guidelines for the present offence.  Given the unprecedented scale of false trading to be conducted under the conspiracy, it may not serve much purpose to compare the sentences in past cases where the defendants were charged under the same section of the SFO.

111.  Be that as it may, I find that I can still be assisted by those cases in relation to the general applicable principles when sentencing similar offences.

112.  In HKSAR v Fu Kor Kuen FACC 4/2011, the appellants were convicted after trial in the District Court of 20 charges of false trading contrary to s.295(1), and were sentenced to 2 years 9 months and 3 years’ imprisonment by the trial judge, respectively.

113.  The appellants were day traders who had engaged in trades between themselves with the objective of earning the commission rebates that were on offer, and were “not seeking to profit from the exercise of skill in selecting investments, or from favourable movements in the market… The profits they sought were generated by their own activity; not by changes in market prices”.  This “circular trading” took place over 20 days.

114.  Their appeals against conviction was dismissed by the Court of Appeal. 

115.  In relation to their appeal against sentence, the Court of Appeal confirmed that the “judge was correct to identify the primary objective of the false trading provisions to be directed at the fact of market manipulation itself”, rather than to focus on the proof of loss to other investors in consequence of the offences.

116.  The Court states that,

“60. As a significant financial services centre, those interests, [of the community that the market for securities should be real and genuine, free from manipulation], are of considerable importance to Hong Kong. Misconduct that threatens those interests jeopardises Hong Kong’s reputation for integrity in its markets. Contravention of those provisions is to be treated seriously.”

117.  The Court, however, found that the sentence of 2 years’ imprisonment imposed for each charge was manifestly excessive, and that the appropriate sentence for each of the 20 charges was 15 months’ imprisonment.  Having taken into consideration mitigating factors, the total sentence of imprisonment for the 1^st and 2^nd applicants was reduced to 1 year 8 months, and 1 year 9 months respectively.

118.  The applicants were granted leave to appeal to the Court of Final Appeal against their convictions.

119.  The Court of Final Appeal was asked to decide on the proper application of the statutory defence provided in s.295(7).  In the process, the Court conducted a detailed analysis of the state of mind required for the commission of the offence under s.295.  The appeal was allowed and the sentences, which were not discussed at all in their Judgement, was set aside.

120.  Given the very different factual background, both in terms of nature and scale, of the commission of the offence in Fu Kor Kuen, the sentences imposed there cannot be properly compared to any sentence to be imposed in the present case.  I find, however, the Court of Appeal’s findings that the integrity of the stock market must be maintained, and that contravention of s.295(1)  is to be treated seriously are sentencing principles applicable to the present case.

121.  In the District Court case of HKSAR v Chan Chin-yuen DCCC 683/2008, the 4 defendants were convicted after trial of one count of conspiracy to carry out false trading in relation to ASH shares under the same sections of the SFO and Crimes Ordinance as the present case.

122.  It was found that, during a 36-day period in 2005 (26 trading days), the defendants had acted pursuant to an agreement that “D2, D3 and D4 would play the roles of traders whereas D1 would be responsible for the financial aspects of the trades in ASH shares.  Amongst other things, D1 would allocate funds between the accounts of D2, D3 and D4 to ensure that each of them has sufficient funds to settle sums due to the brokers acting for D2, D3 and D4.”[6]

123.  D1 provided the funds for the other defendants’ trading in the targeted company’s shares.  D2, D3 and D4 engaged a total of 32 brokers in their trading. The court found that the defendants wanted to increase the liquidity of ASH shares through trading amongst themselves, with the intention that the implementation of the conspiracy would have or likely to have the effect of creating a false or misleading appearance of active trading in ASH.

124.  D2, D3 and D4 did in fact trade very heavily in ASH shares, accounting for 60.2% of all the bought shares, and 53.3% of all the sold shares in the period.

125.  30% of the trades were matched trades between D2, D3 and D4 themselves.  On 12 of the trading days in the period, their day trades accounted for over 50% of the daily turnover.

126.  ASH share price increased by 78.3% during the period, but dropped dramatically immediately afterwards.  The court found that, although D2, D3 and D4 might have made some unrealized profit, the amount could not be quantified.  Furthermore, it appeared that much of the profit had evaporated when the share price of ASH suffered the dramatic drop after the period.

127.  In his Reasons for Sentence, Deputy District Judge Johnny Chan (as he then was)  referred to the Magistracy Appeal case of The Securities and Futures Commission v Choy Wai Zak and Another, HCMA 264/2002.

128.  There the 1^st appellant was found guilty after trial of two charges of intentionally creating, or causing to be created, a false or misleading appearance of active trading in Hong Kong Parkview Group Limited shares on the Stock Exchange of Hong Kong, contrary to sections 135(1)(a)  and 139 of the Securities Ordinance, Cap. 333, which had since been repealed.  The maximum sentence was 2 years’ imprisonment.

129.  In gist, the 1^st appellant had set up two accounts that traded between themselves with no change in the beneficial ownership of the shares, which was himself.  The trading gave the investing public the impression of a rising price and that those transactions between his own accounts were genuinely conducted at arm’s length.

130.  The 1^st appellant also conducted trades with the 2^nd appellant, setting a new benchmark price for the shares while taking up a substantial percentage of all trading in the shares.

131.  The trial magistrate took into account that the offences were committed in an unsophisticated way, sentenced the 1^st appellant to 2 consecutive terms of 4 months’ imprisonment, and ordered him to pay costs of $26,000.  The term of imprisonment was observed to be 1/6 of the maximum sentence by Lugar-Mawson J who heard the appeal.

132.  Lugar-Mawson J remarked that,

“The offences involved an intentional deception of the investing public, leading the public to believe that the shares were being more actively traded than they really were.”

133.  A chart setting out the number of cases to date was put before the trial magistrate.  While the number of total cases was comparatively small overall, Lugar-Mawson J remarked that it had to be remembered that this offence was one that could “only be committed by a very narrow section of the public”.

134.  The following paragraph was quoted by DDJ Chan in his sentence in Chan Chin Yuen:

“19. What has to be borne in mind is this…market manipulation is a serious offence. It is one the legislature has chosen to penalise by providing for a sentence of immediate imprisonment of 2 years’ imprisonment. It is an offence that strikes at the fair and honest operation of the securities market. It is not a victimless crime; its victims are all other members of the investing public. It is an offence that can lead to large profits for the offender and to as equally large losses to the investing public. And, perhaps most importantly, it is an offence that necessarily involves those who commit it doing so by deception and dishonesty.”

135.  I find these words most apt and equally applicable to the present case, bearing in mind that here the maximum sentence is 10 years instead of 2.

136.  The Securities and Futures Commission v Zou Yishang HCMA 859/2005 is another case where the appellant was convicted after trial of the same, now repealed, offence in Choy Wai Zak.

137.  Here the appellant operated five trading accounts held at different brokerage firms, with one account being in the name of his wife, and four being in the name of a company of which he was the controlling director and shareholder.

138.  The accounts were used by him to trade in shares of the company Dynamic Holdings Limited, with no change in beneficial ownership in the shares, referred to as wash sales in the judgment.  The trades created a false impression of active trading in Dynamic shares.

139.  He had conducted about 40 transactions on 11 days during a period of six weeks.  The wash sales had a total nominal value of over $7 million and accounted for a significant percentage of the market’s turnover in that 11 days.

140.  In considering the appeal against sentence, and on the issue of previous sentences imposed in other cases, the Court of Appeal[7] said this,

“49. The appellant firstly argues his sentence was wrong in principle as it departed from the “usual” sentences imposed for this offence which were generally non-custodial. We do not think, however, that it can be said that the present offence would normally attract a non-custodial sentence. The offence is of a nature which may vary enormously from case to case in terms of the method of creating a false impression of active trading and the degree of success in creating that false market impression. The context in which that is done will also be of relevance in determining sentence. Nor do we think that comparisons with sentences in other cases are of great assistance. The important principle is that the appellant be sentenced on the facts of the present case and that is a principle the magistrate apparently followed.”

141.  The Court also made the following remark about how deterrent sentences may be justified in appropriate cases:

“51. The protection of the integrity of the stock market is an important public concern in Hong Kong and deterrent sentences, depending on the facts of an individual case, are justified.”

142.  One other case that DDJ Chan had referred to in Chan Chin Yuen is the Western Australian Supreme Court case of Scook v The Queen (2008)  A Crim R 164; [2008] WASCA 114.

143.  There the appellant was convicted after trial of 158 counts of false trading.  The counts concerned trading on the Australian Stock Exchange in shares in a company, which was found to have been intended or likely to create, a false or misleading appearance of active trading in those securities on a stock market, and prohibited by the relevant Australian legislation[8] similar to s.295 of SFO, with a maximum penalty of a fine of AUS$20,000 or 5 years’ imprisonment or both.  The appeal against sentence was dismissed.

144.  The Australian Court of Appeal cited the following passage from Brown v The Queen (2006)  202 FLR 98 when considering the appeal against an overall sentence of 3 years’ imprisonment:

“[I]t seems to me that [the sentence of fines totalling $30,000] was lenient. A person who, as the appellant did, deliberately and dishonestly engages in behaviour which he expects will mislead the market, is behaving in a manner which has the potential adversely to affect many members of the community and has the potential to undermine confidence in the share market, which is an important institution in the function of the economy. Further, it is ... behaviour which is difficult to detect. There are some similarities with fraud upon the revenue in those respects. In my view, it would have been open to her Honour to have imposed a term of imprisonment, although the term would be of relatively short duration having regard to the mitigating factors to which I have already referred.”

145.  The Court in Scook found that on their reading of the above passage, “the court had flagged that a sentence of imprisonment was the only appropriate disposition”[9].

146.  Last but not least, on the need for deterrence, the Court said this:

“The appellant’s offending is at a high level of seriousness of offences of this type. As the sentencing judge found, it involved considerable effort and guile on the appellant’s part for its implementation, was done with the intention of increasing the share price and thus the appellant’s profit and with the intention of misleading the investing community.

147.  The nature and seriousness of the offending in this case requires that significant weight be given to the sentencing objective of general deterrence.  There must be a strong incentive to deter others from committing white collar offences of this type.  In such circumstances, reduced weight is given to matters personal to the offender...”

148.  Again, I find these words most apt, and I do adopt them.

149.  In summary, I find that in the circumstances of the present case, immediate custodial sentences are necessary for general deterrence, and that the sentences must be linked to the circumstances of the commission of the offence, including the scale and sophistication of the carrying out of the conspiracy.

FINDINGS APPLICABLE TO ALL THE DEFENDANTS

150.  This is a sophisticated, intricate, meticulously planned and executed conspiracy.  But for the relentless efforts of the investigators, the perpetrators might have gotten away with it.

151.  The scale of the false trading in the conspiracy is vast and involved an international element in the form of the ‘Subotic’ family, who appear on the available evidence to have ties with Canada and the United Kingdom.

152.  At the time of sentencing, the masterminds behind the conspiracy and those at the highest level are still at large.  Nelson Ho and Suen Man have absconded.  The people who operated under the surname of ‘Subotic’ are nowhere to be found, and most likely will never be located.

153.  In addition to the monetary loss suffered by Equities First, there is also the losses suffered by those who had thought they were taking part in genuine trading of CL shares.  Those losses, monetary and otherwise, are practicably unable to be ascertained and unquantifiable.

154.  Then there is the damage to Hong Kong’s reputation as a global finance centre.  A fair and efficient stock market is the prerequisite to maintaining our competitiveness in the region.  The proper maintenance of this asset of ours is of paramount importance for the people of Hong Kong, and part of the duty of the judicial system.  Even those who do not engage directly in stock trading will inevitably be affected by any failure in the integrity of the stock market as its insidious effect trickles down the financial chain.

155.  From the evidence, it would appear that rules and regulations have since been tightened to ensure that false trading of this scale will be less likely to happen again.

156.  Given the serious nature of the conspiracy, and the scale of the false trading, I find that general deterrence and punishment are the most important sentencing considerations in this case.

MAXIMUM SENTENCE

157.  I had invited parties to address me on the imposition of the maximum sentence before I heard mitigation.  Having considered the applicable legal principles and the facts of the case, and the individual role of each of the defendants, I find that, despite the scale and sophistication of the conspiracy, none of the 3 defendants should be visited with the maximum sentence.

DELAY

158.  All 3 defendants seek a reduction in sentence on the ground of delay in prosecution.

159.  In the case of HKSAR v Chiu Chi Wing, CACC 243/2012, the Court of Appeal endorsed the judgment of Buss JA in Scook v The Queen, referred to above, where the following factors were identified as relevant to delay as a mitigating factor:

“37. The seven factors identified by Buss JA, which were stated not to be intended to be exhaustive or inflexible, were:

‘First, delay is not, of itself, a mitigating factor.

Secondly, delay will not ordinarily be a mitigating factor if it has been caused by difficulties in detecting, investigating or proving the offences committed by the offender, and the period of the delay is reasonable in the circumstances.

Thirdly, delay will not ordinarily be a mitigating factor if it is caused by the offender’s obstruction or lack of co-operation with the State, prosecuting authorities or investigatory bodies, but the offender’s reliance on his or her legal rights is not obstruction or lack of co-operation for this purpose.

Fourthly, delay will not ordinarily be a mitigating factor if it results from the normal operation of the criminal justice system, including delay as a result of the offender or a co-offender exercising his or her rights; for example, interlocutory appeals and other interlocutory processes.

Fifthly, delay may be conducive to the emergence of mitigating factors; for example, if, during the period of delay, the offender has made progress towards rehabilitation or other circumstances favourable to him or her have emerged.

Sixthly, delay (not being delay of the kind described in the second, third and fourth guiding principles)  will ordinarily be a mitigating factor if:

(a)  the delay has resulted in significant stress for the offender or left him or her, to a significant degree, in ‘uncertain suspense’; or

(b)  during the period of delay the offender has adopted a reasonable expectation that he or she would not be charged, or a pending prosecution would not proceed, and the offender has ordered his or her affairs on the faith of that expectation.

Seventhly, delay caused by dilatory or neglectful conduct by the State, prosecuting authorities or investigatory bodies may result in a discount of the sentence that would otherwise be imposed on the offender, if the court thinks it an appropriate means of marking its disapproval of the conduct in question.’”

160.  In the present case, the summonses against the defendants, as well as Nelson Ho and Suen Man were issued on 16 July 2020, which was 3 years 10 months from the last date of the offence.

161.  The case was committed to the Court of First Instance for trial at Eastern Magistracy on 24 May 2021.

162.  The original trial dates were to be 17 April to 30 May, 2023.

163.  On 25 November 2022, the Court informed parties that the original trial dates had to be vacated, and new trial dates were set, with 22 April 2024 as the commencing date.

164.  Considering the factors referred to above, I find that the complexity of the case is such that it was not unreasonable that it took 3 years and 10 months from the last date of the commission of the offence to the issuing of the summonses against the defendant.

165.  I find also that the period of July 2020 to the day when the case was committed on 24 May 2021 was the result of the normal operation of the committal system, which included time requested by counsel for review of material and advising a defendant.

166.  I find, however, that the delay between the committal date in 2021 and the actual trial commencement date in April 2024 is a delay which none of the defendants, nor the prosecution had contributed to.  Such delay must have resulted in significant stress for the defendants, and they must have been in a state of ‘uncertain suspense’ for about 3 years.

167.  As such, I will grant the defendants a reduction in their sentences on the basis of delay in prosecution.

INDIVIDUAL FINDINGS AND STARTING POINTS

D1

168.  D1 worked closely with Nelson Ho and Suen Man, who were at the top level of the conspiracy.  She also had a supervisory role over D2.  Given her significant role, and bearing in mind the scale of the conspiracy, which involved an international element, and the need for general deterrence, I will adopt a starting point of 7 years’ imprisonment against D1.

169.  For the delay in prosecution, I will reduce this starting point by 4 months.

170.  I find that the personal circumstances of D1 do not warrant any further discount, and that there are no other mitigating factor that would allow me to lower this sentence.

171.  As such, D1 is sentenced to 6 years and 8 months’ imprisonment after trial.

D2

172.  I find that D2 was operating at a lower level of involvement compared to D1 and D3.  She never traded in any CL shares herself.  Her role was to take instructions from D1, relate those instructions to some of the 156 account holders, collect and collate the trading data from them, and report back to D1.

173.  For her role, I will adopt a starting point of 5 years’ imprisonment.

174.  For the delay in prosecution, she is granted a 4-month reduction.

175.  I find that the personal circumstances are such that the sentence will have a big impact on her child with special need, and I will grant her a further discount of 4 months.

176.  As such, D2 is sentenced to 4 years and 4 months’ imprisonment.

D3

177.  D3 was one of the minor placees. He continued to trade in CL shares after selling his placement shares on the first trading day.  He collated trading data from some of the 156 accounts.  He was ‘captain’.  I would adopt the words used by Mr. Mak in his mitigation submissions, and find that D3 was ‘under the wings of Suen Man’, one of the top level conspirators.

178.  Furthermore, D3 had assisted to transfer money back to Eden, the company closely linked to the ‘Subotic’ personnels, even utilizing his wife’s bank account in the process, suggesting D3’s level of involvement was higher than that of D2, and at least on par with D1.

179.  I will, therefore, also adopt a starting point of 7 years’ imprisonment, which is reduced by 4 months for the delay in prosecution.

180.  I do not find D3’s personal circumstances sufficient ground to grant him any discount in sentence.

181.  As such, D3 is sentenced to 6 years and 8 months’ imprisonment.

INVESTIGATION COSTS

182.  The prosecution applied for the recovery of investigation costs under section 184(5)  of the SFO.

183.  According to the “Direction to investigate” issued pursuant to s.182(1)  of the SFO, 46 investigators were directed to investigate the dealings of CL shares in relation to possible breaches of ss.295, 296, 299, 274, 275, 278 and 300 of the SFO.

184.  The investigation costs application is for $2,319,659.59, to be borne jointly and severally by the 3 defendants.  The figure is broken down into Staff Costs, Overhead Costs and Market Expert Costs.

185.  I have been informed, and it is not disputed, that the investigation targeted at least 20 entities.  I do not have more specific information as to how much time had been spent on investigating each of the defendants, which is entirely understandable given the scale of the false trading.  It is impossible to apportion the investigation costs among the defendants.

186.  With the passage of about 8 years since the date of the offence, and the disappearance of the named co-conspirators Nelson Ho and Suen Man, and the mysterious “Subotic” family remaining elusive, the defendants may very well be the only persons being held accountable for this crime.

187.  Having found that D1, D2 and D3 were not the masterminds of the scheme, although instrumental in the implementation of the conspiracy, to order the 3 of them bear the full costs jointly and severally might lead one to feel a sense of unfairness.

188.  Furthermore, the defendants are each facing a long term of imprisonment, as well as separate civil proceedings, with injunctions against their assets in place.  An investigation costs order against them will likely result in a crushing outcome for them.

189.  Just as to ask the three the defendants to bear the full costs would be unfair, it would also not be proper for me to arbitrarily decide on a figure they each should bear in relation to investigation costs.  There is insufficient material for me to engage in such an exercise, assuming that this is possible in the first place.

190.  Taking a step back, I find that I will exercise my discretion and decline to make an order as to investigation costs under s.184(5)  against the defendants.

FINES

191.  I was reminded by the prosecution that the court has power to impose a fine on the defendants upon their conviction, in addition to a term of imprisonment.

192.  Based on the necessarily substantial amount of time and effort the defendants had each put into the execution of the conspiracy, I find it inconceivable that they did not in one way or another profit from their criminal acts.

193.  That being said, in deciding whether to impose a fine in addition to a lengthy sentence, I must take into consideration the principle of totality.

194.  The sentences imposed on the defendants are the heaviest of its kind so far.  I find that the imprisonment alone would be sufficient for the purpose of general deterrence and punishment without an additional fine.

195.  As such, I will exercise my discretion and not impose a fine on the defendants.

SECTION 303(2) PENALTIES

196.  Under s.303(2)  of the SFO, in addition to the term of imprisonment imposed, the court may make further orders against the offending person.  Such orders include those that would prevent the person from being a director etc. of any corporation, and from dealing in any securities etc. for a period not exceeding 5 years.

197.  Taking into consideration the length of the terms of imprisonment imposed, and the 5 year time limit on the duration of the orders under s.303(2)(a)  and (b), I find that the imposition of such orders would not serve much material purpose, and as such will exercise my discretion not to do so.

FINAL SENTENCE AFTER TRIAL

198.  D1 is sentenced to 6 years and 8 months’ imprisonment.

199.  D2 is sentenced to 4 years and 4 months’ imprisonment.

200.  D3 is sentenced to 6 years and 8 months’ imprisonment.