HKSAR v. CHEUNG KA CHUN AND ANOTHER

DCCC 465/2017

[2018] HKDC 481

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 465 OF 2017

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Reasons for Sentence

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1.  D1 pleaded guilty to 2 charges of fraud and D2 pleaded guilty to one charge of conspiracy to defraud.

Summary of facts

Charge 1: against D1 only

2.  In July 2015, the victim X in charge 1 received a cold call from someone offering a personal loan. X visited the office of this cold caller company and was met by one Ken Chow.

3.  Ken Chow told X that in order for X to be able to take out the personal loan, X had to settle a premium first to complete the procedure.

4.  On 17^th July, Ken Chow brought X to a finance company in Central for X to borrow $550,000. Of that sum, $503,000 was handed over to Ken Chow for loan restructuring to be done on X’s behalf.

5.  In August 2015, X visited the office of Hui Tong International Accounting Firm for ‘loan referral services’.

6.  Hui Tong was established in June 2014 with D1 as the sole proprietor. The firm ceased business on 22^nd June 2015.

7.  Despite the firm having ceased business, X was greeted and handled by D1 at the registered office of Hui Tong. X submitted supporting documents and signed loan application forms. D1 claimed that he would help X to restructure his existing debts by combining them into one.

8.  D1 later informed X that X could obtain a personal loan of $200,000 from a finance company while Hui Tong would charge $7,000 as handling fees.

9.  On 13^th August, D1 brought X to a finance company in Mongkok. There X signed a loan application for $206,000. A check for $200,000 was given to X after deduction of fees.

10.  D1 brought X to cash the check and then brought X back to the finance company again to pay a ‘legal charge’ of $10,000. X was then left with $190,000.

11.  Of that $190,000, D1 told X to hand over $157,000 (the charge amount) to him so that D1 can use the money to arrange for debt restructuring on behalf of X.

12.  D1 told X that Hui Tong will help X to apply for a bank loan in order to combine all of X’s existing debts into a single debt with a lower interest rate at 0.3%.  D1 claimed that the restructuring will be done in one to two weeks’ time.

13.  D1 also claimed that the cold caller company had not arranged any debt restructuring for X.

14.  The restructuring never happened and X reported the case to the Police on 16^th September 2015.

15.  It was not until 23^rd September 2015 when X visited the office of Hui Tong again that D1 issued a receipt for $150,000 as purported consultancy fees.

Charge 2: against D1 only

16.  Mr Ling, the victim in charge 2, was in financial trouble as he was unable to meet with mortgage payments on his property. A charging order had been registered against the property by Yvonne Credit Service Co Ltd as a result.

17.  In June 2015, Mr Ling received a cold call from a person claiming to be a bank staff offering a low interest personal loan.

18.  On 11^th June, Mr Ling attended the office of Hui Tong and was greeted and handled by D1. D1 suggested that Mr Ling should first obtain a personal loan to settle certain payments, and then Hui Tong would help Mr Ling to mortgage his property to cover that personal loan.

19.  D1 said the consultancy fee will be $143,575 (the charge amount), but that it will only be charged if the mortgage application was successful and secured.

20.  On 17^th June 2015, Mr Ling obtained a personal loan as suggested by D1 from a finance company. Mr Ling received a check for $79,925 after deductions for outstanding payments. Mr Ling cashed the check and handed over the cash to D1, because D1 told him that the money will be for future payments to the finance company.

21.  On 31^st July 2015, Mr Ling was told by the solicitors firm that he was entitled to a surplus of $143,575 after his repayment of the original mortgage and credit card payments. A staff of Hui Tong told Mr Ling to use that money to settle the consultancy fees to Hui Tong. Mr Ling did as he was told.

22.  In October 2015, Mr Ling found out that Hui Tong had closed and reported the matter to the Police.

Charge 3: conspiracy to defraud against D2 only

The case of Mr Yeung

23.  Mr Yeung, a victim in charge 3, received a cold call from a Ms Law calling on behalf of Hui Tong International Wealth Planning Centre in late July 2015, who claimed to be able to help arrange a mortgage loan of $2.2 million.

24.  On 7^th August, Mr Yeung attended the registered office of Hui Tong of D1 and submitted some documents to a Mr Chan and a Ms Law there. A handling fee of $100,000 was demanded. There was no mention of the requirement of any guarantee money.

25.  On 10^th August, Mr Yeung visited Hui Tong’s office again. Mr Chan offered to arrange a mortgage loan of $2.2 million with the Public Bank on condition that Mr Yeung borrowed the same amount from a finance company (Yvonne Credit Service Co Ltd) first. Mr Yeung was to pay the first interest payment to Yvonne Credit and then the Public Bank will take over the mortgage of $2.2 million from them. Mr Yeung believed them.

26.  On 17^th August, Ms Law and Mr Chan brought Mr Yeung to Yvonne Credit where Mr Yeung signed a loan application form. They then went to a law firm in Central to collect the checks.

27.  Mr Yeung received a check for $719,360 after deductions for legal costs and paying off some existing debts.

28.  Ms Law and Mr Chan accompanied Mr Yeung to have the check cashed in Central and then brought Mr Yeung to the office of a company called Well Done.

29.  Ms Law told Mr Yeung that they had to use the services of Well Done instead of Hui Tong because Hui Tong did not have the licence to make the necessary loan arrangement.

30.  Ms Law then claimed that the Public Bank required him to pay a guarantee money of $600,000 as a condition to approving the mortgage loan of $2.2 million. Mr Yeung believed her and handed over $600,000 to Ms Law, Mr Chan and another man known as Mr Lam.

31.  On the following day, Mr Yeung visited the office of Hui Tong where he was met by Ms Law and signed a service cancellation agreement. Ms Law provided a receipt for $600,000 being the consultancy and service fees issued by Well Done to Mr Yeung.

32.  On 31^st August, Mr Yeung visited the same law firm in Central and was told that they had used the $1.4 million to settle his existing debts. The balance of $251,618.29 was deposited into Mr Yeung’s Citibank account.

33.  On 8^th September 2015, Ms Law contacted Mr Yeung saying that the guarantee money that was paid was not enough and an additional $200,000 was required by the Public Bank. Mr Yeung visited the office of Well Done at 2 pm on the same day and handed over the amount in cash to Ms Law and D2.

34.  Mr Yeung was told that the money was guarantee money for the low-interest loan which will be approved within a month. The money will be refunded to Mr Yeung in due course.

35.  On 15^th September 2015, D2 sent a WhatsApp message to Mr Yeung saying that they had paid the first instalment to Yvonne Credit on behalf of Mr Yeung.

36.  However, upon checking, Mr Yeung found that the Public Bank had never granted him any mortgage loans. Meanwhile, Ms Law and D2 were not able to be contacted anymore. Mr Yeung reported the case to the Police on 16^th October.

37.  The Public Bank’s records show that Mr Yeung had applied for a mortgage loan of $650,000 and was granted a loan of $670,000. There was no record that Hui Tong or Well Done had made any loan applications on Mr Yeung’s behalf.

The case of Ms Wong

38.  On 26^th October 2015, Ms Wong, another victim in charge 3, received a cold call from a person claiming to be a staff member of HSB offering a low interest rate mortgage. The person told Ms Wong to attend the office of Well Done at 6^th floor Po Cheong Commercial Building in Prat Avenue for follow up action.

39.  Ms Wong attended the office the following day. There a Mr Cheung told her about details of the mortgage and asked her to pay a guarantee to Well Done in order to demonstrate that she had the ability to repay the debt.

40.  Another staff member, a Mr Law, brought Ms Wong to a finance company to borrow $1.3 million. The full amount was then handed over to Mr Cheung in cash.

41.  On 28^th October, Mr Cheung called to ask Ms Wong if she was interested in obtaining another mortgage loan since she had two properties under her name. Mr Cheung said a loan for $2.5 million can be arranged but a guarantee money of $600,000 had to be paid first.

42.  Since Ms Wong did not have the money, Mr Cheung brought her to Shun On Finance Limited to borrow $600,000. Ms Wong handed over the full amount in cash to Mr Cheung, who said the application will be completed in mid-January 2016.

43.  Ms Wong had been unable to contact Mr Cheung since 31^st December 2015.

44.  Ms Wong had been given two receipts by Well Done. One was for $1.3 million, supposedly being for Well Done to obtain a mortgage loan from HSB on behalf of Ms Wong on or before 5^th January 2016. The other receipt was for $600,000, on condition that Well Done would obtain a mortgage loan from HSB on or before 17^th January 2016.

Arrests and cautioned interviews

45.  The office of Hui Tong was raided on 26^th November 2015 and D1 was arrested on the premises. D2 was arrested on 2^nd February 2016.

Under caution, D1 claimed the following:

46.  D1 would give phone numbers to his staff for cold calls. If clients were interested, D1 would interview them at their office and would pass the client’s information to finance companies for loan applications.

47.  If the applications were successful, he would ask the client to go to the finance companies to collect the loaned amount.

48.  He would then charge 10-30% of the loan amount from the clients as handling fees. If client would like to have loan restructuring, D1 would refer the case to solicitors firms and they would earn some handling fees.

49.  D1 claimed that he was the only person responsible for the running of Hui Tong and its associated companies.

Previous convictions

50.  D1 has one previous conviction in 2017 for possession of dangerous drugs. He was fined $5,000.

51.  D2 also has one previous conviction in 2005 for trafficking in a dangerous drug when he was sentenced to 7 years’ imprisonment. He was released from prison for that offence in 2009.

52.  Given the nature of the convictions in both D1 and D2’s case, and the timing of the conviction in D2’s case, I find that their criminal records should not be regarded as an aggravating factor and their sentences will not be enhanced on this basis.

Mitigation

53.  Ms Chu for the defendants very helpfully prepared a written mitigation for the defendants.

D1’s mitigation

54.  D1 is 24, born in Hong Kong and is the younger of 2 children. He is married and lives with his parents and wife in Tuen Mun.

55.  D1 was educated up to Form 3 level. He worked as a delivery worker for a few years after quitting school and until he was 19, when he started to work as a fitness trainer before he was recruited for the present offence. Since his arrest, D1 has been working as a delivery worker earning $15,000 per month.

56.  The defendant’s father works as a manager in a logistic company while his mother is a full time housewife. D1’s wife works as a clerk.

57.  I heard in mitigation that it was a man called ‘Dick Kong’ who was D1’s ex-supervisor when he worked as a fitness trainer in 2013 that recruited D1 for the frauds.

58.  Dick trained D1 and then asked him to set up Hui Tong with all the necessary capital, cold call lists, training and staff.

59.  D1 claims that although he was listed as the sole shareholder and director of Hui Tong, he was not the mastermind of the frauds. It was Dick Kong who had full control of Hui Tong.

60.  D1 was the salesperson responsible for ‘persuading’ the victims to sign the consultancy agreements and pay the consultancy fees.

61.  D1 would receive a share of 20% of the consultancy fee as a reward.

62.  I was told that D1 had provided a non-prejudicial statement to the Police and had given them the address of the said Dick Kong. Upon inquiry, Ms Khubchandani for the prosecution informed the court that the Police had been unable to locate the man.

63.  I was also informed that D1 is ready and willing to compensate the two victims in charge 1 and 2 for the amount that was paid to Hui Tong, namely, $157,000 and $143,575.

D2’s mitigation

64.  D2 is 31, separated from his wife and is living with his parents in a public rental unit.

65.  D2 was born in mainland China and is the older of 2 children. The defendant came to Hong Kong in 1998 to be reunited with his family. He has a younger sister who is a university graduate and works as a biomedical engineer.

66.  The defendant’s parents are retired and supported by D2 and his sister.

67.  D2 was educated in Hong Kong up to Form 4 level. He worked as a delivery worker after he quit school. He began using dangerous drugs after associating with some bad peers at work. This eventually led to his commission of the offence of trafficking in a dangerous drug and his only previous conviction.

68.  D2 was diagnosed with drug induced schizophrenia and mental and behavioural disorder in 2008. As a result, he served out his sentence in Siu Lam Psychiatric Centre.

69.  Following his release, D2 defaulted on his regular treatment between 2009 and 2011 and maintained poor compliance to medications and psychiatric follow-up treatment.

70.  D2 suffered a relapse in November 2016 (after his arrest in February) and was admitted to United Christian Hospital before being transferred to Kowloon Hospital for compulsory admission. He currently maintains medications and regular follow-up treatment at Yung Fung Shee Psychiatric Centre.

71.  D2 has been working as a licensed Metal Scaffolder with an average monthly income of $26,000 since February 2018.

72.  On behalf of D2, it was said that in order to increase his income, he agreed to act as a shareholder and director of ‘Well Done’ with a monthly reward of $5,000. He was not required to participate in the daily business of Well Done. However, he would receive an additional $500 each time he was asked to show up and have a meeting with potential clients at the office of Well Done.

73.  D2 claims that his involvement in the scam was limited and that he had very little knowledge about the fraud.

Sentencing considerations

74.  The maximum sentence for both fraud and conspiracy to defraud, on conviction upon indictment, is that of 14 years’ imprisonment.

75.  As Ms Chu pointed out in her written mitigation, there is no tariff sentence for the present offences.

76.  Ms Chu referred to the cases of HKSAR v Tsoi Shu and others [2005] 1 HKC 51 and the District Court case of HKSAR v Lai Kin Hang Erwin and others, DCCC 312/2016 to suggest that a starting point of 4 years’ imprisonment may be appropriate.

77.  In Tsoi Shu, the applicants were charged with conspiracy to defraud investors via loco London silver fraud. The mode of operation was for the companies to advertise for job vacancies of translators or supervisors. Applicants who were taken on were trained in silver trading. They were then persuaded to open their own trading accounts. They would have some initial success in trading that would invariably turn into losses later on.

78.  The victims were then encouraged to invest more to recover the losses. The losses were not recovered and their funds would be exhausted.

79.  In considering the sentences imposed on the different applicants who undertook different roles in the scams, the Court first of all identified the relevant principles when sentencing a loco London silver fraud case. For the purpose of the present case, the most relevant one is that the scams were found to be heartless scams depriving gullible victims of their savings and that such conduct is meant to be deterred.

80.  In the loco London cases, the first thing that the fraudsters targeted was the victim’s hope for making a profit. In the present case, the defendants targeted people who are already in some kind of financial difficulty or would like to be able to find a way to ease their financial burden.

81.  In the case of victim X in charge 1, I was told by Ms Chu that X was someone who is mentally challenged. There is, however, no evidence to suggest that D1 knew about this when he committed the offence. It would not be fair to D1 to enhance his sentence on this basis without further proof of his knowledge of X’s condition.

82.  Nevertheless, the defendants exploited the need or even desperation in the victims and imposed more hardship on them by tricking them into borrowing more money from finance companies so that they could steal from them money that they did not have in the first place.

83.  I find the schemes employed by the defendants despicable and such conduct must be deterred.

84.  The frauds are not only heartless scams depriving gullible victims of their savings, they actively cause the victims to incur more debts while thinking that they were being helped to reduce or restructure their debts.

D1’s sentence

85.  In relation to D1, I find that he played a major role in the two frauds. Even if he had been recruited by this Dick Kong earlier on, by the time D1 was committing the frauds on X and Mr Ling, D1 was in independent control of the operations. As he told the Police, he had been trained.

86.  As Ms Chu stated in her submissions, the defendant accepts that he played a pivotal role in the schemes.

87.  The scams are pre-meditated and much planning and organisation had gone into them. The fraud in charge 1 lasted around 3 months, while the one in charge 2 lasted about 5 months. They were not simple one-off incidents.

88.  I note that according to the summary of facts, D1 did not appear to have engaged the help of others in the commission of the two offences. This is of course to be viewed in the light of what was disclosed in mitigation, which is that a Dick Kong was the mastermind of the operation, that D1 was responsible for persuading victims to sign the consultancy agreements and pay the fees, and that D1 would receive 20% of such fees as a reward.

89.  The only reasonable inference from what was put forward in mitigation must be that D1 was not acting alone in the two scams and that there were others involved. D1 must be sentenced on this basis.

90.  Bearing in mind all the circumstances, in relation to charge 1 and 2, I find that a proper starting point is that of 4 years and 3 months’ imprisonment for each of the two charges.

91.  For the defendant’s restitution, I will reduce this sentence by 3 months’ imprisonment. The reason why I have not granted a higher reduction is because the harm suffered by X and Mr Ling is not limited to the amount they had been defrauded by D1 and Hui Tong. As Ms Chu very fairly pointed out in her written mitigation, “the victims…suffered losses in the sum of $300,575 as consultancy fees and also the extortionate interests they had to pay for the transitional loans arranged for them by the scammers”.

92.  As for the defendant’s willingness to assist the Police by providing them with the name and address of Dick Kong, even if assuming that the defendant is telling the truth, nothing had come of the information and I do not think the defendant should be given a discount on this basis. This refusal is also based on my earlier finding that the defendant had independent control over, and had played a pivotal role in, the two scams.

93.  D1 is, therefore, sentenced to 32 months’ imprisonment on each of charge 1 and 2 after granting him the full one-third discount for his timely plea of guilty.

Totality

94.  The two offences involved two different victims. They had gone on in parallel, with the offence in charge 1 taking place 2 months after the offence in charge 2 had commenced.

95.  They cannot be regarded as one single transaction.

96.  Taking a step back, I order that 10 months of the sentence in charge 2 to be served consecutively to the sentence in charge 1, the balance to be served concurrently.

97.  D1 is sentenced to a total of 42 months’ imprisonment for charges 1 and 2 after plea. I also make the following compensation orders. D1 to compensate the sum of $157,000 to X of charge 1 and the sum of $143,575 to Mr Ling of charge 2, to be paid within 7 days from today.

D2’s sentence

98.  I turn now to the sentencing of D2.

99.  First of all, it was never suggested by Ms Chu that D2’s psychiatric condition played any part in his commission of the offence.

100.  According to the summary of facts, D2 only appeared in the defrauding of Mr Yeung at a later stage. Ms Law and Mr Chan were the main characters who were dealing with Mr Yeung. D2 was accompanying Ms Law when Mr Yeung handed over $200,000 to them as guarantee money.

101.  D2 said to Mr Yeung that the $200,000 was to be used as guarantee money so that the Public Bank would approve the low-interest loan. D2 was the one who sent the WhatsApp message telling Mr Yeung that they had paid the first instalment to Yvonne Credit on behalf of Mr Yeung.

102.  In relation to the other victim Ms Wong, it was Mr Cheung and Mr Law who were the characters dealing with the victim. There is no mention in the summary of facts that D2 had dealt with Ms Wong.

103.  According to Ms Chu’s written mitigation, it is D2’s position that he only acted as the shareholder and director of Well Done because he was being paid a monthly sum to do so. He committed the offence only because he wanted to make an additional $5,000 per month and $500 per meeting. He received no other benefits from the fraud.

104.  The victims in charge 3 suffered total losses of $2.7 million as ‘guarantee money’ paid. They also suffered the extortionate interests for the transitional loans that they were tricked into taking out with the finance companies.

105.  Similar to the case of D1, the conspiracy targeted people in need and under financial pressure. The conspiracy took place over a 4-month period. The scams were pre-meditated, well planned and executed.

106.  I do accept that D2’s role appears not to have been a major one in the conspiracy. But I find that the sentence must have the necessary deterrent effect towards those who might be tempted to allow themselves to be used in such a criminal conspiracy in order to earn some money.

107.  I will adopt a starting point of 4 years’ imprisonment.

108.  Although I do sympathize with the defendant’s psychiatric condition, I do not find that his personal circumstances are such as to warrant a further discount in sentence.

109.  There being no other mitigating factors other than his timely plea, D2 is sentenced to 32 months’ imprisonment after granting him the full one-third discount.