HKSAR v. LEE HIN HOE

CACC 473/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

criminal APPEAL NO. 473 OF 2007

(ON APPEAL FROM hccc no.190 of 2006)

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Reasons for judgment

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Hon Yeung JA (giving the judgment of the Court):

Introduction

1.  The applicant (known as Lee Shing-lam, Ivan before 26 June 2005 when he changed his name to Lee Hin-hoe by deed poll) appeared before Wright J and a jury together with Yip Tsang-ming (“Yip”), Lee How-kom, Maggie (“Lee”) and Chiu Wai-sum (“Chiu”) on an indictment consisting of two charges of conspiracy to defraud (the 1^st and 2^nd charges), and four charges of “money laundering” (the 3^rd to 6^th charges).

2.  The “conspiracy to defraud” charges were directed at the applicant, Yip, Lee and Chiu jointly, whereas the “money laundering” charges were directed only at Lee.

3.  The applicant pleaded not guilty to, but was unanimously convicted by the jury of, both the 1^st and 2^nd charges. The applicant had filed notices for leave to appeal against both conviction and sentence, but he did not pursue his application for leave to appeal against sentence. The application in regard to sentence was, therefore, dismissed.

4.  Represented by Mr Daniel Marash SC, the applicant only sought leave to appeal against conviction.

5.  At the conclusion of the hearing on 2 December 2008, we dismissed the application and ordered “loss of time” of two months. These are the reasons.

Background Facts

6.  In 1997, Lee (“the applicant’s sister and Chiu’s mother”) started Skin Club (Shock Treatment) Ltd (“Skin Club”) with Chiu, selling skin products by way of a “pyramid sales” scheme.

7.  Skin Club and Turbo Rich Development Ltd (“Turbo Rich”) carried on business from the same business premises at the 5/F & 6/F of Kimberly Plaza (“Kimberly premises”) rented by Lee on behalf of Skin Club in 1999 for a term of three years at a monthly rent of about $61,000.

8.  Skin Club Management Services Ltd (“SC Management”), a subsidiary of Skin Club, was incorporated in 1998 and operated, in association with Turbo Rich, also from the Kimberly premises. Other associated companies included Well Rich Group (HK) Limited (“Well Rich (HK)”) and Well Rich Group Ltd (“Well Rich Group”).  Lee was involved in all these companies as a director and/or a shareholder.

9.  In early 2000, the business of Skin Club declined and alternative “sales schemes” were introduced in the name of Turbo Rich.

10.  Beginning in July 2000 and after obtaining actuarial advice from a company called Trowbridge, Turbo Rich introduced Turbo Rich I and II plans (“the Turbo Rich plans”), which were a variation of a similar plan offered by a company called Promail. Under the Turbo Rich plans, “investors” would make a series of payments at stipulated intervals based on a sales target, nine in respect of Turbo Rich I and four in respect of Turbo Rich II.

11.  Once the sales target was achieved, the next round of Turbo Rich plans would be introduced and “investors” would be required to pay the next contribution. Upon the payment of the required number of payments, “investors” would start to receive payments in return, described as “rebates”, “bonus” or “value-added consumption”.

12.  Turbo Rich I promised “investors” a return of $103,000-odd against a payment of $10,700 and Turbo Rich II promised a return of $21,000-odd against a payment of $3,450. The returns would be paid in subsequent stages. With these huge returns, “investors” were often encouraged to “re-invest” instead of “taking profits”.

13.  Lee told “investors” that bonuses would be paid and that there was definitely no risk involved in the Turbo Rich plans as “investors’ money” would be put into Hong Kong Bank and that the generated interest would be sufficient to pay a bonus to “investors”.

14.  There would be additional recurring bonus (“commission”) on the introduction of a new “investor”. If an “investor” simply purchased more plans in his own name, there would not be any commission but if he used the names of third parties, there would be additional commission. 

15.  “Investors” also received coupons with face values equal to the amounts paid. Ten percent of the value of the coupons could be used to exchange physical goods and the remaining 90% could be used as payment for various courses organized by Turbo Rich. It appeared that similar courses were offered free of charge by Skin Club prior to the launch of the Turbo Rich plans.

16.  “Investors” attended meetings or “lectures” at which the Turbo Rich plans were explained and promoted. There were also life dynamics, dancing, Putonghua courses in which people were “psyched up” into purchasing the Turbo Rich plans so as to show that they were able to attain goals that they had set. “Investors” attending the courses were “encouraged to become emotional and share their life experiences, to laugh and to cry”.

17.  “Investors” were told of a business plan, in the form of the purchase and development of a building with facilities, which would be available to all of them.

18.  There was no dispute that Turbo Rich, using monies from “investors” but in the name of Well Rich (HK), purchased a property at Albion Place, 12-12A Hau Fook Street, Kowloon (“the property”) for $55.6 million in April 2001. The property was sold in early 2004 for $62.3 million. However, one “investor” – PW4, Chan Chu Hing said that “it was only at the opening of the building that she had been told by the second accused (“Lee”) that the building had nothing to do with the Turbo Rich members”.

19.  “Investors” were also told that Turbo Rich was a sound and secure company, as it had investment funds of $10 million with the Hong Kong Bank.

20.  As a means to promote the Turbo Rich plans, Deloittes, an international accounting firm, was initially said to have devised or drawn up or checked the Turbo Rich plans. Such assertions met strong objection from Deloittes, which commenced legal proceedings against Turbo Rich, resulting in the publication of a press notice that Deloittes was not engaged as Turbo Rich’s professional advisers and had not issued any report on the Turbo Rich plans.

21.  According to Deloittes, they were only engaged by SC Management to consider the profitability of the plans based on the data and assumptions provided by SC Management and to calculate the number of “investors” required in order to achieve a target profit of $10 million. Deloittes in fact did not understand the operation of the plans and had no means to ascertain the figures provided by SC Management.

22.  The Turbo Rich plans sold well initially with at least $181 million being collected from over 8,400 “investors”. However, the sales became more difficult when news reached the public that the police had raided the premises of Promail in December 2000. Early “investors” who put their money into the Turbo Rich plans were able to get the promised returns.  They were encouraged to re-invest in Turbo Rich III where they too eventually suffered financial loss.

23.  The Treasury Accountant, who had examined the account documents of Turbo Rich, concluded that Turbo Rich did not engage in any remunerative business other than selling the Turbo Rich plans.

24.  According to the Treasury Accountant, in order for the Turbo Rich plans to be feasible, either each of the 8,400 “investors” had to acquire hundreds to millions of units or thousands to millions of new “investors” had to be recruited so that Turbo Rich would receive sufficient money to meet its payment obligations. However, the more “investors” that Turbo Rich recruited, the more money that Turbo Rich had to pay them.

25.  The Treasury Accountant concluded that there would be, at some stage, insufficient “investors” to generate enough money to pay the promised “returns” and the Turbo Rich plans were bound to fail. They were simply not viable.

Prosecution Allegation

26.  It was the prosecution case that the Turbo Rich plan was a typical scam that relied on a “pyramid” of “investors” who contributed money to a fraudulent program.

27.  They were not viable business plans because of the absence of any genuine underlying business capable of producing profits to pay “investors” the generous dividends that they had promised. The huge payout to existing “investors” could only be met with income from the re-investment of existing “investors” and the investment of new “investors”, whose numbers would have to be increased significantly at every next layer in order to obtain sufficient money to meet the payment obligations promised under the plans.

28.  As long as money kept flowing in, existing “investor” could be paid with the new money, but colossal liabilities were accumulating at the same time. Eventually, there were bound to be insufficient new “investors” and sooner or later, the plans would collapse, thus exposing “investors” to risks of their economic interest.

29.  In so far as it was represented to “investors” that they would invariably receive “dividends” or profits generated by genuine business, such representations were false. The prosecution further suggested that when “investors” were told that the scope of the Turbo Rich plans were designed with actuarial assessment and that Turbo Rich had invested $10 million in funds at the Hong Kong Bank, such representations were false.

30.  The prosecution case was that the whole scheme, including the initial suggestion that Deloittes had designed the Turbo Rich plans, was part of a scheme to defraud “investors” and that the applicant was a party to the fraudulent scheme.

Evidence Against the Applicant

31.  Apart from evidence showing the existence of a fraudulent scheme, the prosecution alleged that the applicant was a guilty party by showing his connection/involvement with Turbo Rich and its associated companies.

32.  The applicant was a shareholder and a director of Turbo Rich and Well Rich (HK). He was also one of the signatories of Turbo Rich’s account with Hong Kong Bank from July 2000 and one of the signatories of Well Rich’s account with Citibank from August 2002.

33.  There were “investors” saying that the applicant was the head of Turbo Rich’s training department, conducting elite courses and potential skill courses, the purpose of which was to sell the Turbo Rich plans. According to the witnesses, the applicant encouraged people to buy plans by saying “it was possible to improve oneself through the sale of plans, by setting goals and by achieving them”.

34.  One witness said, “we were told to be successful. Successful meant buying plans, prove your ability as a person to do thing”, and “After the 1^st defendant (“Yip”) gave lecture, the 3^rd defendant and the 4^th defendant (“the applicant”) would encourage members to show their potential skill, to go for it, to get rich by buying more plans.”

35.  Another witness described the applicant as part of Turbo Rich’s senior management. Yip, in his evidence, said the applicant gave talks to encourage people to think that Turbo Rich was safe and had a good prospect in order to persuade them to buy the Turbo Rich plans.

36.  Yip also said that the applicant had a final say on how course coupons could be used and how many points or coupons were needed for a course, apart from helping with the sales of Turbo Rich plans. Yip said the applicant was one of the bosses in Turbo Rich and had given him instructions on what to say to “generate emotion”.

37.  There was evidence that the applicant received $5.8 million in total from Turbo Rich, mostly from the proceeds of the sale of the property in 2004. On such evidence, the prosecution suggested that the only reasonable inference was that the applicant was a party to the conspiracy to defraud “investors” of the Turbo Rich plans.

The Defence

38.  Yip was the only defendant who gave evidence. His defence was that Lee, whom he trusted unquestionably, had misled him. Yip emphasized that he and his girlfriend had purchased a large number of the Turbo Rich plans in the names of a company and other family members. He said that the applicant was not involved in designing the Turbo Rich plans.

39.  Yip’s girlfriend, under cross-examination by the prosecution, said that she purchased the Turbo Rich plans because Lee had told her that, (1) the plans had been designed by Deloittes; (2) there would be a lot of other businesses generating income; and (3) Turbo Rich had invested $10 million with Hong Kong Bank.

40.  Another of Yip’s witnesses, Mr Roy Kwok, accepted that if enough plans could not be sold, then a new round could not be opened, as there would be no money. He also accepted that the earlier one got into the scheme the more likely it was to be paid.

41.  The applicant, Lee and Chiu did not give evidence and did not call any witness. There was no explanation as to why Lee and the applicant were paid $9 million and $5 million respectively from the sales proceeds of the property when it was “investors” who had paid the initial purchase price.

42.  It was contended on their behalf that the Turbo Rich plans were simply a method of raising cash in the short term in order to make long-term investments, which could secure the position of the “investors”. Reference was made to possible business plans, including the purchase and development of a building into a “Ginza type” building and the public listing of Turbo Rich. The suggestion was that the Turbo Rich plans were genuine business plans.

Grounds of Appeal

43.  Mr Marash SC, counsel for the applicant, did not accept that there was a fraudulent scheme whereby “investors” were defrauded of large sums of money, although he did not argue this point enthusiastically.

44.  Mr Marash referred to some vague business proposals or plans of Turbo Rich. He also mentioned the purchase of the property. However, Mr Marash had to accept that no business could have generated sufficient profits to meet Turbo Rich’s payment obligations under the Turbo Rich plans. The jury had clearly, and rightly, rejected the suggestion of any genuine business investment plan.

45.  Mr Marash then suggested that even if there was indeed a fraudulent investment operation that involved promising or paying abnormally high returns (“profits”) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business, there was insufficient evidence to link the applicant to the fraud when the witnesses all said that he was only in charge of the training department, which provided elite courses of character enhancement for “investors”.

46.  Mr Marash emphasized that the applicant was not involved in devising the Turbo Rich plans, as he was not present in meetings with Deloittes or Trowbridge. Mr Marash also emphasized that there was no evidence linking the applicant to the misrepresentations made to “investors”, or showing that he was aware of the falsity of those misrepresentations.

47.  Mr Marash suggested that the judge should have ruled that the applicant had no case to answer, as without Yip’s evidence, no reasonably jury, properly directed, could have convicted the applicant.

48.  Mr Marash then argued that the judge had failed to direct the jury of the important evidence favourable to the applicant that he was not involved in the meetings with Deloittes/Trowbridge or with the initial decision to sell the Turbo Rich plans.

49.  Mr Marash also complained about the judge’s failure to correct errors in the closing address of prosecuting counsel, who suggested that there was evidence to show that the applicant was involved in designing the Turbo Rich plans, when in fact there was none.

50.  Mr Marash suggested that the judge was wrong to direct the jury that they could take into consideration evidence that the applicant received $5.8 million when most of the money came from the sale of a building owned by Well Rich (HK) three years after the last date of the conspiracy, and that the balance represented a payout from his own investment in Turbo Rich I.

51.  Mr Marash said the judge had failed to deal with evidence supporting the applicant’s case sufficiently when there was no indication that the applicant had made any misrepresentation to any of the “investors” or was aware of the falsity of the misrepresentations set out in the 1^st and 2^nd charges. He suggested that the applicant’s connection/involvement with Turbo Rich and Well Rich (HK), properly analysed and understood, was not relevant to the fraudulent scheme to defraud “investors”.

Discussion

52.  The principle behind the fraudulent scheme or similar schemes is to exploit the naivety of “investors”. In order to entice new “investors”, abnormally high short-term returns are offered. The high returns that the scheme advertises and pays require an ever-increasing flow of money from “investors” in order to keep the scheme going. In order to obtain sufficient money to meet payment obligations under the plans, existing “investors” are encouraged to re-invest and new “investors” have to be recruited to buy more plans.

53.  One reason that the scheme initially works well is that early “investors” – those who actually got paid the large returns – quite commonly reinvest or keep their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much – they simply have to send statements to “investors” that show how much they have earned by keeping the money in what looks a great place to get a high return. They also try to minimize withdrawals by offering new plans to “investors”, often where money is then frozen for a longer period of time.

54.  The selling of the plans to both existing and new “investors” is therefore an important facet of the scheme to enable it to work.

55.  On the prosecution case, the applicant’s role as a promoter of the Turbo Rich plans was an essential one to ensure the success of the fraudulent scheme.

56.  The applicant was in charge of training, conducting elite courses for the “investors”, to enhance their “character development”. The prosecution’s case was why it should be that the applicant was concerned with the character development of “investors”. When Mr Marash suggested that the applicant was only involved in “training” when “investors” “were encouraged to become emotional and share their life experience, to laugh and to cry”, he under-estimated the evidence that the purpose of such “training” was to “psyche up” people into purchasing the Turbo Rich plans in order to demonstrate that they were able to attain goals that they had set for themselves.

57.  There was evidence from “investors” that the Turbo Rich plans were explained and promoted at the “lectures”. The applicant encouraged “investors” to be successful and “successful meant buying plans”. The applicant encouraged “investors” “to show their potential skill, to go for it, to get rich by buying more plans”.

58.  A staff member of Turbo Rich testified that the applicant gave talks to members of staff about how to sell the Turbo Rich plans and how they should answer people who asked about the plans.

59.  It was of course agreed that the applicant was a shareholder and director of both Turbo Rich and Well Rich (HK). He was also one of the signatories of their accounts.

60.  Turbo Rich and Well Rich (HK) were vehicles engaged in the perpetration of the conspiracy in question. The applicant’s connection/involvement with those companies, as director/shareholder and a signatory to their accounts, was certainly relevant, irrespective of the extent of such connection/involvement as revealed by the evidence.

61.  Whether the applicant in fact signed any cheque on the Turbo Rich accounts, the fact that he was in a position to control the funds in the accounts suggested that he was, as Ms Draycott SC (counsel for the respondent) put in her written submissions, “a trusted insider”.

62.  Mr Marash tried to belittle the applicant’s receipt of $5.8 million, saying that the money mainly came from the sale of a building owned by Well Rich (HK) and that the applicant only received the money years after the “charge period”.

63.  Mr Marash had conveniently ignored the undisputed fact that the purchase price of the building originated principally if not entirely from Turbo Rich, or to be more precise, from “investors” who purchased the Turbo Rich plans, and it was Turbo Rich which purchased the building in the name of Well Rich (HK). The property was purchased in 2001 with monies contributed by “investors” although it was only disposed of in 2004, with the net proceeds going to Lee and the applicant, and eventually being dissipated and not returning to any of the “investors”.

64.  Mr Marash conceded that he could not think of a legitimate reason for the applicant to be paid this large sum of money.

65.  The applicant’s receipt of a large sum of money generated by the fraudulent scheme, albeit only after the “charge period”, was cogent evidence of his involvement in it. The fact that of the $5.8 million, a small part could be returns on the applicant’s legitimate investment did not, in our view, make any difference.

66.  In the light of this undisputed evidence from the prosecution alone, it was a bold attempt to make a no case submission, which was rightly rejected by the judge.

67.  In his defence, Yip testified and gave damning evidence against the applicant, as recognised by Mr Marash. Yip said that the applicant was one of the bosses in Turbo Rich and had given him instructions on what to say to generate emotion, apart from helping with the sales of the Turbo Rich plans. Yip also said that the applicant gave talks to encourage the “investors” to think that Turbo Rich was safe and had a good prospect in order to persuade them to buy the Turbo Rich plans.

68.  In a conspiracy to defraud, different conspirators can join in at different stages of the conspiracy and can have different roles to play.

69.  The applicant might not have himself made any false representation to “investors”. There might not be direct evidence showing that the applicant had a part to play in designing the Turbo Rich plans. The applicant might not have been directly involved in seeking actuarial advice from Trowbridge, or have been present at discussions with Deloittes in connection with the Turbo Rich plans. That did not mean that the applicant was not a party to the conspiracy or that he was unaware of the false representations and/or the discussions.

70.  In any event, the issue was not whether the evidence against other conspirators also existed in the case against the applicant. The issue was whether the prosecution evidence against the applicant was sufficient to lead to an irresistible inference that the applicant was a party to the conspiracy to defraud “investors”.

71.  The jury was aware of the evidence against the applicant and whether there was any uncertainty or misunderstanding in the evidence of some of the witnesses, the judge reminded the jury that they must decide what evidence they would accept. They were reminded that counsel’s speeches and the judge’s review of the evidence were not evidence. The judge expressly mentioned:

“Equally, if in the course of my review of the evidence, I appear to express any views concerning the facts, to emphasise a particular aspect of the evidence, do not adopt those views unless you agree with them. If I do not mention something which you think is important, you should have regard to it, and give it such weight as you think proper. When it comes to the question of facts of this case, it is your judgment alone that counts.”

72.  Defence counsel had corrected prosecuting counsel’s “error” that the applicant was involved in designing the Turbo Rich plans. Such “error”, even if it existed, was barely relevant in view of the defence case that the Turbo Rich plans were in fact genuine business plans.

73.  It was not the prosecution case against the applicant that he himself made misrepresentations to “investors” although, according to Yip, the applicant did encourage some “investors” to think that Turbo Rich was safe and had a good prospect in order to persuade them to buy the Turbo Rich plans.

74.  The misrepresentations, as set out in the particulars of the charges, were made by others, principally Lee. There was no evidential basis for the judge to deal with “which false representations the applicant made, or agreed to be made” as suggested by Mr Marash. However, those misrepresentations were acts done in furtherance of the conspiracy, made by alleged co-conspirators, and were therefore admissible against the applicant.

75.  We failed to see how it could be argued, as a ground of appeal against conviction that the judge had failed to direct the jury on certain “crucial evidence” or to correct certain mistakes by counsel in her closing addresses.

76.  We did not agree with Mr Marash’s criticisms of the judge’s direction to the jury. We were of the view that the judge’s direction to the jury was correct, fair, reasonable and adequate. This was particularly so when the applicant’s defence at trial, made only through cross-examination and by way of submissions, was not that he was not involved in the Turbo Rich plans at all, but was that the plans were a legitimate method of raising cash in the short term in order to make long-term investments.

77.  On overwhelming evidence, the jury was perfectly entitled to conclude that there was a conspiracy to defraud “investors” in the Turbo Rich plans and to infer that the applicant was a party to the conspiracy, bearing in mind also the absence of any evidence from the applicant to explain, contradict or refute the powerful case against him.

Conclusion

78.  We did not find the conviction against the applicant in any way unsafe or unsatisfactory. The applicant was clearly a guilty party to the conspiracy to defraud “investors” with the Turbo Rich plans. He was rightly convicted and his application for leave to appeal against conviction was therefore dismissed.

79.  The application was so unmeritorious and devoid of any possible arguable ground that we called upon Mr Marash to address us as to why a “loss of time” order, pursuant to s 83W of the Criminal Procedure Ordinance Cap 221, should not be made. Having heard Mr Marash, we were satisfied that this was an appropriate case to make such an order. Accordingly, we ordered that two months of the time that the applicant had spent in custody awaiting these proceedings should not be counted towards the sentence he is serving.