HKSAR v. LEE SING WAI, STEPHEN

CACC 454/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

criminal APPEAL NO. 454 OF 2005

(ON APPEAL FROM DCCC NO. 982 of 2001)

____________________________________

____________________________________

____________________________________

REASONS   FOR   JUDGMENT

____________________________________

Stuart-Moore, VP (giving the judgment of the Court):

Introduction

1.  The applicant sought leave to appeal against the activation, on 18 October 2005, of a part of a suspended sentence imposed on 21 June 2002.  At the conclusion of the hearing, we dismissed this application and now give our reasons for so doing.  We should add that the applicant made it plain to us that he no longer wished to pursue an application in relation to conviction as a result of which that application has also been dismissed.

The original offence

2.  On 21 June 2002, the applicant, aged 36, pleaded guilty in the District Court before Judge Whaley to a charge of creating a false or misleading appearance of active trading, contrary to section 135(1)(a) of the Securities Ordinance, Cap. 333.  The particulars of this offence stated that between 5 April 2000 and 20 September 2000, the applicant and Raymond Wong (D2) together with other persons intentionally created or caused to be created, or bought and sold shares in Gay Giano International Group Limited (“Gay Giano”), with the intention of creating a false or misleading appearance of active trading in Gay Giano shares on the Unified Exchange.

3.  Gay Giano was listed on the Stock Exchange.  Fifty million shares were offered to the public at $1.20 each.  The facts of the case against the applicant (referred to by the judge as the ‘4^th defendant’) and D2, who also pleaded guilty to the charge, were succinctly described by the judge before he passed sentence on 23 July 2002.  By that stage, the judge had obtained a community service report.  He said as follows:

“3. By 18 September 2000, Gay Giano’s share price had steadily increased from a sum of $3.25 per share on 8 June to end at $4.35 per share on 18 September, namely it was up 33.85 per cent just during that period of 8 June to 18 September with an average daily turnover of 3.7 million shares during that period. On 19 September 2000, the shares of Gay Giano fell 64.86 per cent from a previous close of $4.325 to $1.52 on a heavy turnover of 67.8 million shares. During the period of 19 September 2000 to 29 September, Gay Giano’s share price dropped over 74 per cent while during the same period the Hang Seng Index rose 0.57 per cent.

4. Although the trades in question, which are the subject of the charge, were not transacted under the names of the 2nd and 4th defendants, the defendants were involved in most of the trades by giving instructions to stockbrokers in trading the Gay Giano shares by virtue of powers of attorney which had been granted to them by various people.

5. During the period from 13 April to 19 September 2000, the share price was, to a very considerable extent, influenced by the defendants and other persons associated with them dishonestly creating a false or misleading appearance of active trading in the shares on the stock market. This was done by the defendants engaging in many share transactions which were not genuine in that there was, in effect, no change in ultimate ownership of the shares. The defendant, on a large number of occasions, merely traded among themselves or with other persons associated with them. This is known as “wash sale” trading.

6. An analysis of the relevant share transaction records for the relevant period shows that a large number of the wash sales were traded between accounts of individuals who, for convenience, can be described as the “Chu Group” and the 2nd defendant was responsible for many of those trades. Also, a number of wash sales were traded between accounts in the names of individuals who, for convenience, can be described as the “Li Group” and most of these were transacted by the 4th defendant. Also, a significant number of wash sales between the Chu Group and the Li Group were transacted by the 2nd defendant and the 4th defendant on behalf of the two groups respectively.

7. A total of 72,376,000 shares or 27.54 per cent of market turnover were found to be wash sales among members of the Chu and Li Groups during the period 9 June to 18 September 2000. An analysis has shown that without the share trading of these two groups, the market turnover in Gay Giano shares during that period would have been about 60 per cent less than it was.

……

9. The 4th defendant also made admissions when he was interviewed by the Securities and Futures Commission officers on 27 April last year, inter alia, to the effect that he operated accounts in the names of individuals whom he named and that he was told by the 2nd defendant during the period May to June 2000 that the 2nd defendant would conduct trade in Gay Giano shares among themselves in the names of certain individuals whom the 2nd defendant named.

10. On 18 September 2000, three brokerages requested Super Sino to settle its outstanding balances before further trades could be executed. The 2nd defendant then arranged for cheques to be deposited to cover those outstanding balances to the tune of approximately $19.5 million, which were drawn on his brother’s account at a time when that account was in fact in debit balance.

11. On the strength of those cheques which had been presented, the brokers concerned continued to execute buy orders given by the 2nd defendant on 18 September 2000. All the cheques were dishonoured when they were presented to the bank and some security houses were subsequently forced to sell the Gay Giano shares in their accounts to endeavour to meet the margin requirements.

12. On 19 September 2000, the Gay Giano share price fell to a low of 76 cents and after the crash of the Gay Giano shares, sums totalling nearly $49 million were owed to brokers as a result of the crash.

13. It is further part of the agreed facts that market manipulation distorts the natural market forces, thus giving misleading impressions regarding both the price of and the genuine level of interest in a share. When members of the public read a price quotation of a share listed on the Stock Exchange of Hong Kong, they are entitled to believe that the price is determined as a result of actual sales between persons dealing at arm’s length in a free and open market. Market manipulation sends a misleading message to the public who, as a result of such, may be attracted to purchase a share only to subsequently discover that they have paid an over-inflated price and/or they are trapped in an investment for which there is very little genuine demand other than at a knock-down price.” (Appeal bundle pp. 25-28)

4.  The judge took into account a number of matters advanced in mitigation including, in particular, the applicant’s plea of guilty which had resulted in a considerable saving in time and cost.  The judge also took into account that the applicant’s involvement had only begun in July 2000.  It was conceded on behalf of the applicant that he had been motivated by greed.

5.  A table of 13 previous cases of a similar kind, dating back to September 1993, was handed to the judge by prosecuting counsel indicating that in all these cases non-custodial sentences had been imposed.  In a more recent case, still the subject of an appeal, there had been custodial sentences.  In the light of this information, the judge remarked:

“18. I was somewhat surprised at the relative leniency of the sentences which have been handed down in the past, bearing in mind the extent to which members of the public who buy and sell shares are put at risk by conduct of the sort which the defendants were guilty of in this case.  However, I do note that the maximum sentence provided by the ordinance for this offence is 2 years’ imprisonment and a $50,000 fine.  And also, as Mr Kwok I think fairly observed, if the legislature was unhappy with the level of sentences which have been imposed by the courts up to now, it was always open to it to do something to rectify the situation.

19. However, I must also bear in mind that I was informed by Mr Ryan that the number of brokerages involved in this case was 20 and the number of brokerage accounts involved was 30, and these were, on both counts, far more than were involved in the previous cases, as illustrated by the table.” (Appeal bundle pp. 29-30)

6.  The judge later went on to deal with the applicant’s criminal record consisting mainly of offences involving dishonesty.  He referred also to the community service report describing the applicant as seeming “to have acquired no insight into his own problems”.  The report, therefore, did not recommend a community service order.  The judge then concluded that a 9-month sentence of imprisonment, suspended for 3 years was appropriate.  The consequences of committing a further offence punishable with imprisonment were explained to the applicant.  In addition the applicant was disqualified from becoming, amongst other things, a director of a company for a period of 5 years, pursuant to section 168D of the Companies Ordinance, Cap. 32.

The fresh offence

7.  All might have been well for the applicant so far as this sentence was concerned save that, on 7 October 2005, he pleaded guilty before Mr Tallentire, sitting at Kwun Tong Magistrates’ Court, to a charge brought by the Securities and Futures Commission (the SFC) of “failing to comply with the requirement to attend before an investigator on 25 September 2003 without reasonable excuse” (the SFC offence).  This offence related to the investigation of dealings in the shares of Essex bio–Technology Limited, contrary to section 33(12)(c) of the Securities and Futures Commission Ordinance, Cap. 24 and was committed in breach of the suspended sentence imposed by Judge Whaley.  The applicant was fined $15,000 on 7 October 2005 for the fresh offence.  The learned magistrate then referred the case back to the District Court for consideration as to whether action should be taken on the breach of the suspended sentence caused by the applicant’s commission of the SFC offence approximately 14 months after the suspended sentence had been imposed.

8.  On 18 October 2005, the applicant’s counsel submitted to Judge Whaley that there was no jurisdiction to activate the suspended sentence imposed on 23 July 2002 because the date of the conviction for the most recent offence, as opposed to its commission, fell outside the 3-year period of the suspension.  Defence counsel relied for this contention on a decision in the Court of First Instance on 5 August 2005 in HKSAR v Ali Amjad, HCMA 689/2005 to which we shall later have to return.  The judge ruled against this submission and activated the suspended sentence, reducing its length to only 6 months.

The application

9.  The grounds of appeal advanced by the applicant were effectively twofold.  Firstly, he repeated the argument heard before Judge Whaley to the effect that because the SFC offence resulted in a conviction on 7 October 2005 which fell outside the 3-year operational period of the suspended sentence, it was thereby rendered incapable of being activated.  Secondly, he suggested that the judge had ignored the mitigating factors advanced on his behalf.

10.  We can deal briefly with the second of these points.  The transcript of the judge’s sentencing remarks indicates very clearly that all the important aspects of the mitigation were taken into account.  It is unnecessary to repeat what was said and the applicant indicated his awareness in these proceedings of the judge’s remarks in this regard.  Indeed, it was the combination of mitigating factors which caused the judge to reduce the term of imprisonment to 6 months from the initial term of 9 months’ imprisonment.

11.  More importantly, dealing with the judge’s power to activate a suspended sentence in the circumstances we have described, section 109B(1) of the Criminal Procedure Ordinance, Cap. 221 provides that:

“(1) A court which passes a sentence of imprisonment for a term of not more than 2 years for an offence, other than an excepted offence, may order that the sentence shall not take effect unless, during a period specified in the order, being not less than 1 year nor more than 3 years from the date of the order, the offender commits in Hong Kong another offence punishable with imprisonment and thereafter a court having power to do so orders under section 109C that the original sentence shall take effect.” (Emphasis added)

12.  The power of the court on conviction of a further offence to deal with the suspended sentence is covered by section 109C(1) which provides as follows:

“(1) If an offender is convicted of an offence punishable with imprisonment committed during the operational period of a suspended sentence or if, during such period, he breaks a condition imposed under section 109B(3)(a) and either he is so convicted by or before a court having power under section 109D to deal with him in respect of the suspended sentence or he subsequently appears or is brought before such a court, then, unless the sentence has already taken effect, that court shall consider his case and deal with him by one of the following methods －

(a)   the court may order that the suspended sentence shall take effect with the original term unaltered;

(b)   it may order that the sentence shall take effect with the substitution of a greater or lesser term for the original term;

(c)   it may by order vary the original order under section 109B(1) by substituting for the period specified therein a period expiring not later than 3 years from the date of the variation; or

(d)   it may make no order with respect to the suspended sentence,

and a court shall make an order under paragraph (a) of this subsection unless the court is of opinion that it would be unjust to do so in view of all the circumstances which have arisen since the suspended sentence was passed, including the facts of the subsequent offence, and where it is of that opinion the court shall state its reasons.” (Emphasis added)

13.  Finally, of relevance to this case, the provisions of section 109D(2) are that:

“(2)   Where an offender is convicted by a magistrate of an offence punishable with imprisonment and the magistrate is satisfied that the offence was committed during the operational period of a suspended sentence passed by the Court of First Instance or the District Court -  (Amended 25 of 1998 s. 2)

(a)   the magistrate may, if he thinks fit, commit him in custody or on bail to the court having power to deal with him in respect of the suspended sentence; and

(b)   if he does not, shall give written notice of the conviction to the clerk of the court by which the suspended sentence was passed.” (Emphasis added)

14.  Plainly, the SFC offence, which carried a maximum sentence of 6 months’ imprisonment on summary conviction, was committed during the 3-year operational period of the suspended sentence and the judge had power to activate that sentence by reason of the breach.

HKSAR v Ali Amjad disapproved

15.  However, an argument was put before Judge Whaley, which has been repeated by the applicant in his written submission to us that, in the light of the decision in HKSAR v Ali Amjad, HCMA 689/2005, the relevant date which will determine whether a suspended sentence can be activated is not the date on which the fresh offence is committed but the date upon which the conviction for this new offence is recorded.  This is what was decided in a recent magistracy appeal in the Court of First Instance, the judge having been persuaded to this effect by counsel representing the respondent, on behalf of the Department of Justice.

16.  All that we need to say in this regard is that the decision in Ali Amjad was plainly in error and is not to be followed.  The construction of the relevant sections in paras. 11 to 13 (above) in the Criminal Procedure Ordinance is plainly designed to target the date of the commission of the fresh offence for the purposes of deciding whether there has been a breach of the suspended sentence.

17.  In fairness to the applicant in the present proceedings, it became apparent that his application for leave to appeal was based upon the somewhat optimistic hope that the conclusion reached in Ali Amjad was to be preferred to the District Court judge’s approach.  As we have indicated, the judge was right to have declined to follow the judgment in Ali Amjad.  Accordingly, there being no merit in the application, we dismissed the application.