You have all played your part in the dishonest and fraudulent running of a public company. The sums of money involved have run into billions. There has been a wholesale breach of public trust. The case involves commercial crime of the worst kind. It was persistent.
There are those in the dock who enjoyed the riches that control of a public company can bring. The money funded a privileged life. No personal need pressed, yet for commercial gain you were prepared to lie and cheat and deceive. The picture that emerges of greed and dishonesty is one, it is sad to say, that is not unfamiliar these days.
The damage that you have done extends beyond the billions that the company owed to shareholders and creditors when its rotten structure, supported by your frauds, collapsed. Your cynical disregard of the rules designed to protect creditors and investors, your manipulation of auditors, your false figures and reports damaged the confidence the public should have in the regulation of public companies.
I judge that the public will rightly demand that the courts therefore punish hard. Commercial crime on this scale is something that we have all witnessed grow in recent years. The description “white collar crime” has moved from something of an apology to a label that attaches itself to conduct that is wicked. It is conduct that hurts us all.
Your direct victims were banks and financial institutions, but they endure and they pass on the loss. Eventually, the burden falls on individual shoulders by increased costs or diminution of services or both, and it is the least well‑off who will feel that the most.
The sentences I am about to pass on those of you who directed the frauds are accordingly designed to be heavy. I deliberately go to the top end of the bracket in the circumstances of your cases, not only to punish your very serious fraud but to let those in other boardrooms of public companies know that breach of the public’s trust on this scale will not be tolerated and that long sentences of imprisonment await the guilty.
The guidelines used in these courts for cases of those who steal in breach of trust take a starting point of 10 years’ imprisonment when the sum stolen is $15 million. Whilst I appreciate that your criminal conduct was not theft, the damage of the dishonest taking of $15 million, even in breach of the greatest trust, pales into relative insignificance compared to fraud of the magnitude you undertook.
The losses that resulted from the collapse of Moulin Global Eyecare Holdings Limited currently amount to HK$4.45 billion. Creditor banks are owed $2.7 billion and investors $1.75 billion. The Moulin Group relied heavily on bank credit. Fraud had painted a false picture of the financial health of the group. When the fraud surfaced in April of 2005, banks looked for repayment. It could not be made. The companies collapsed.
I will mention that the existence of further fraud, which came out in the trial which was not indicted, need cause no defendant any concern. The gravity of the conduct in each count and the multiplicity of counts faced by the major defendants provide the court with more than ample sentencing powers, such that the full rigour of individual sentences will have to be mitigated by looking to a sensible totality. There is no need to look beyond the counts, therefore, but it is worthy of note that the view would have been bleak for you. However, it only denies you the mitigation of isolated conduct and increases nothing.
Whilst it took a sea of paper to prove the frauds, the gravamen of the conduct giving rise to each count can be summarised in paragraphs, not even pages. The conspiracy in Count 1 involved inflating the turnover of the Moulin Group, thereby giving creditors and the investing public a false view of the health of the Group.
In the annual report for Moulin International Holdings Limited for the year ending on 31 December 2003, the turnover was inflated to a figure in excess of HK$1.2 billion. This was achieved by pretending to have made sales to four companies in North America in a total sum of $337 million; that is, 28 per cent of the turnover claimed was false. False invoices were created to support these non-existent sales. The job was done in the Moulin offices by means of cutting and pasting with the aid of computers and photocopiers.
Count 2 involved a conspiracy to defraud 18 banks by making 92 applications for loans between March of 2004 and April 2005, on the basis that goods had been purchased and imported when in fact nothing of the sort had taken place. Again, false invoices were created to substantiate these non‑existent transactions. Businesses were registered and companies were incorporated to pose as the suppliers, and bank accounts were opened in their names to channel the funds back into Moulin once the banks had paid the fake suppliers. The total amount of these loans was in excess of $466 million.
The inflow of funds into Moulin generated by this fraud required false accounting on a prodigious scale. Payments in and out were recorded merely as temporary receipts and payments, and justified on the basis of personal loans being made when none were made. This pretence of money-lending required the acquisition of a money-lending licence and the creation of a company called Oak Tree Investment Limited whose purpose was to channel money from the fake suppliers to Moulin Optical Manufactory Limited, the core Hong Kong company of the Group’s optical business.
Count 3, a conspiracy to make false instruments in the Spring of 2004, reflects the fact that false airway bills were created in an effort to demonstrate that the false sales to the four North American companies had occurred when they had not. This was in response to inquiries from auditors who were interested to investigate them. The conspiracy played its part in the successful duping of whose auditors who signed off on the accounts with an unqualified opinion.
Count 9 involved money-laundering on the part of the 9th defendant in March 2005 in the sum of $1.5 million. The sum passed through a bank account he had helped to open at the request of the 2nd defendant. The sum was the proceeds of a false import loan.
Count 10, another conspiracy to defraud banks, occurred between September 2004 and April 2005, and involved obtaining 59 loans from six banks in a total sum in excess of $224 million. The basis of the loans was that goods had been sold and exported to five customers when no such thing had taken place. Again, false invoices were created by cutting and pasting to substantiate these non-existent sales.
It was the case that from late 2002 auditors were asking questions about the sales to the four North American companies and the personal loans that the consequent false accounting required. They were met with lies. Those auditors, Ernst & Young, having been successfully misled in 2004 concerning the 2003 accounts, were again met with the same lies and breach of a promise to discontinue the personal loans in the following year.
They could not accept the position, and rather than have them resign, the Moulin management terminated their appointment and turned to Deloitte’s. They started an audit on 1 March 2005 and by the end of the month had exposed false airway bills and the frauds in the counts summarised thus far. They resigned and a firm of accountants called CCIF were appointed. The collapse then came in June 2005. This sets the scene for the remaining counts.
Count 11 reflects a conspiracy to defraud based on trying to mislead Deloitte’s by lying to them about the four North American companies, the fake companies purporting to have sold to Moulin and the false personal loans, as well as supplying them with false documents in support of those lies.
Count 12 reflects a similar conspiracy to defraud based on trying to mislead CCIF by lies concerning the four North American companies and the use of false documents in support, as well as by sending two men to North America to pretend to be representatives of those companies who truly traded with Moulin. The 10th defendant was one of those men.
Count 13, a conspiracy to make false instruments in April to May of 2005, involved the creation of false airway bills designed to show sales to the four North American companies by cutting and pasting as before. They were used to show CCIF.
Ma Bo-kee, would you stand please. You were the founder of the company and you remained its Chairman until the end. You fall to be sentenced on Counts 1, 11 and 12. The jury acquitted you on Count 2. I have no doubt that the day‑to‑day running of the frauds was the responsibility of your son, the 2nd defendant, and your sister-in-law, the 3rd defendant. However, I am equally sure that the part you played in the fraud in Count 1 was an essential one. You had the power to stop it; you gave it your blessing.
A recorded meeting in April 2004, recorded digitally so we can listen to it now, revealed that you played an active part in lying to the auditors Ernst & Young, thereby successfully promoting this conspiracy. It was luck, late in the day, that revealed that recording, setting at nought your attempt to suggest the meeting was in English and you could not follow it.
I do find it to be an aggravation in your case that you recruited friends and relatives to the fraud, playing on their loyalty to you. You involved them and exposed them to prosecution, with no reward to them. You sent Chan Kong‑ngai to North America to pose as a customer. He was given immunity, as were others, such as Leslie Hui who created false invoices.
You lack the mitigation of a plea of guilty. I add nothing to your punishment by reason of your attempt to lie your way out of responsibility for Count 1, but you must not look to me for any sympathy. The spectacle of you, letting others take the blame whilst denying your own involvement, was a deeply unattractive one. You would have cut a very different figure if you had shouldered even some of the blame and had the decency thereby to look to help those that you had put in jeopardy. I see in your conduct a shameful selfishness and dishonesty.
The maximum sentence for publishing a false statement contrary to section 21 of the Theft Ordinance is 10 years’ imprisonment. Your conspiracy to contravene the section has to be regarded as grave, given the enormous inflation of the turnover and the message that it sent to the public. I judge 6 years to be the correct sentence.
The conspiracies to defraud in Counts 11 and 12 reveal determined attempts to mislead the auditors. It was thoroughly dishonest and was designed to cover extensive and serious fraud. I judge that in each case a sentence of 4½ years’ imprisonment is called for.
The three matters were distinct and sequential, and on the face of it attract consecutive sentence, but that would create too great a total. The live question in your case is fixing the right total. In doing so, I bear in mind the mitigation that is available to you. I remember your age at 67 and an industrious life with one conviction with a lenient sentence long ago. I also honour the verdict of the jury on Count 2 and make allowance for the disparity that follows between you and the 2nd and 3rd defendants.
Given your controlling position as Chairman, I take, after the mitigation, a starting point of 13 years. However, I will reduce that to 12, as I indicated to your counsel in the pre-trial stages of the case that there would be a discount available for sensible admissions and sensible conduct of the trial, concentrating on real issues. That happened. I give you the discount.
Accordingly, your sentence is 12 years’ imprisonment. There will be 6 years on Count 1, 4½ years on Counts 11 and 12. Three years of those latter two sentences on 11 and 12 will run consecutively to Count 1 and to each other. Eighteen months of each of those sentences will therefore be running concurrently to the rest. Twelve years is a heavy sentence but it is designed to be for your part in very serious corporate fraud. You can sit.
I turn to you, Ma Lit-kin. You pleaded guilty to Counts 1, 2, 11 and 12. You were the Chief Executive Officer. You knew what was going on. You played a full part and you must also therefore bear major responsibility. I take the same starting points for Counts 1, 11 and 12 as I did in the case of your father. Additionally, I have to fix a starting point for Count 2, the import loan fraud. The false import loans amounted to $466 million. I judge this conduct to be graver than that in Count 1 and I take a stating point of 8 years.
Your plea to Count 2 was entered after the case was opened to the jury. Nonetheless, I will give you the standard one‑third discount for all of your pleas. The sentences are therefore these: 4 years on Count 1; 5 years and 4 months on Count 2; 3 years on each of Counts 11 and 12.
As I have said, commercial crime on this scale has to be met with a sentence at the top end of the bracket. I judge the top end to be 15 years after trial. It follows that you must go to prison for 10 years. I will achieve that total by ordering that 4 years on Count 2 run consecutively to Count 1. That makes 8 years. The sentences on Counts 11 and 12 will run concurrently to each other, and that of those 3-year concurrent sentences, 2 years will run consecutively to the sentences on Counts 1 and 2. The total is 10 years. You can sit down.
Michelle Lam, you were the first to plead guilty and did so to Counts 1, 2, 3, 10, 12 and 13. You were the treasurer at Moulin. The execution of the frauds was under your control, as were the staff who carried out the considerable work that they involved. I take the same starting points for the counts common to those defendants I have sentenced. They are, of course, your brother-in-law and nephew.
Additionally, in your case, I have to sentence for the export loan fraud in Count 10 and the two conspiracies to create false documents in Counts 3 and 13. The false export loans totalled $224 million. I will take a starting point of 7 years’ imprisonment after trial. For the conspiracy to create the false airway bills for two accounting years to hide the false sales to the four North American companies, I take starting points of 3 years.
After the discount for your pleas the sentences are these. Count 1, 4 years; Count 2, 5 years 4 months; Count 3, 2 years; Count 10, 4 years 8 months; Count 12, 3 years; Count 13, 2 years. I shall take the same overall starting point as I did for the 2nd defendant of 15 years.
I appreciate that you face more counts than your co-accused and that you are the only senior figure to face responsibility for the export loans. That is balanced, though, by the fact that you were not on the board of directors and that there were defendants above you in a position to control you. It also reflects the fact that you were not a blood relative of the Ma family and were thus distanced from the family trust and the fruits of the fraud. I also remember that you are not a qualified accountant and you left school early to work in Moulin.
Finally, whilst hurting no one else in the dock thereby, I would not accept that the export loan fraud was your sole responsibility. There is no evidence that you benefited directly from the fraud, and, indeed, the picture I have of you is of you living modestly. Your monthly salary at the end was $37,000 a month. You held no shares.
I have considered whether I should distinguish your sentence from that of the 2nd defendant. I believe it right to do so, but very modestly. I accept that you came back to the jurisdiction knowing you faced arrest when there was a choice not to do so. It is also the case that you offered to give evidence against accomplices. I appreciate that in the end that came to nothing, due to the position of your nephew. The credit thus has to be very limited but I accept that you did your best in regard to the others.
The extent of your role in the fraud drives your sentences to the ceiling of a 15-year starting point. You arrived there along with the 2nd defendant but by a slightly different route. I cannot allow my wish to distinguish between you to result in too great a shortfall from that point. Otherwise you would be under-sentenced. I am conscious therefore that the distinctions I make could be described as symbolic rather than real. However, I judge that the right overall sentence in your case is one of 9½ years’ imprisonment.
I will achieve that by ordering that both 2-year sentences on Counts 3 and 13 run concurrently to each other and to the sentence on Count 1 with which they form a whole. Three and a half years of the sentence on Count 2 will run consecutively to Counts 1, 3 and 13. Two years of the sentence on Count 10 will run consecutively to the sentences on Counts 1, 2, 3 and 13. The sentence on Count 10, where your role was not prominent, will be concurrent to all the other sentences.
Finally, before leaving your case, it is right to note that lack of personal gain is a mitigating factor. But it has to be remembered that to the victims of the massive fraud it is no solace that they were cheated by someone on the cheap. If the motive was not direct personal enrichment it must have been the promotion of a company, known to be unworthy of it, gaining something to which it was not entitled. And gain can take more forms than just money in your pocket. You can sit down.
Lam Chun-wai, the jury convicted you on Counts 2, 3, 10 and 13. You are the nephew of Michelle Lam, the 3rd defendant. You are in a very different category from those I have thus far sentenced. You were employed as a clerk at Moulin, and thereafter by one of those fake friendly companies used in the import loan fraud. The move reflected your aunt’s trust in you and her use of you.
No one suggests that you made anything from the criminal involvement. You were just paid your salary. It was $6,500 per month. Whilst in both jobs, you helped create the false invoices necessary for the false import and export loans. You cut and pasted, designed and organised. In addition to that relatively humble role, you were placed in the fake company to field possible queries from the banks involved. Whether you ever did so was not established by evidence. You were there available to pose as a party with a legitimate trading relationship with Moulin.
Once departed from Moulin, you still returned to their offices to help in the creation of the false invoices and it is also the case that you were there in both the 2004 and 2005 exercises to create false airway bills in respect of the false trading with the four North American companies. Whilst your sentence must be very much less than those major players in the frauds, it remains the fact that the jury decided that you knew what was going on, yet still played your part.
It is the fact that commercial crime does need donkey work. The bosses, by choice or capability, do not do it. In that sense, your part, though small in moral terms, was essential. I can appreciate how through family loyalty and a desire to hang on to your job and not cause trouble you became involved. Whilst the size of the fraud was always going to make this a case that came to court slowly, I can in your case give some weight to the fact that this has been hanging over your head for five years.
Those responsible for the grand design must live with the inevitable pace of such cases. I will add here that I find there to have been no fault as regards the pace at which the case proceeded. It followed the pattern that our system and procedures dictate. Of course, I would commend something speedier but that would require root and branch change to both system and procedure.
You must go to prison. Suggestions made that following orders at work in order to keep your job may excuse such conduct as yours cannot be allowed to take root. You facilitated serious fraud and you knew it. You cannot expect, therefore, to keep your liberty.
Count 2 reflects the most serious criminal conduct by you. It embraced the making of the false invoices and your availability to deal with inquiry by the defrauded banks. I expect that the subsequent making of false instruments merged all into one in your mind. I shall pass sentences of 2 years’ imprisonment on Counts 2 and 10. The extent of the operation in Counts 3 and 13 was less and therefore I will pass sentences there of 18 months.
I judge an overall sentence of 2 years adequately reflects the help you gave to those involved in the four conspiracies, whilst acknowledging the obvious mitigation that I have rehearsed. I shall achieve that by ordering that all the sentences run together concurrently. That is designed to be a merciful sentence and it specifically acknowledges the fact that you made extensive and sensible admissions in the trial and allowed your counsel to conduct your defence responsibly.
I will add that before I heard the mitigation advanced on your behalf I had a higher sentence in mind. I wonder if I have been too generous to you. However, the figures work in both directions. Whilst the billions cannot be forgotten, that $6,500 per month that you were paid provides a mighty balance to it in your favour. You can sit.
Wong Ka-ho, I have to deal with you on Count 9 only. You were a friend of the 2nd defendant. You were at school together. He got you into this trouble. You let him persuade you to help in setting up a company, recruiting your wife and her sister to be the directors and shareholders. They opened two bank accounts. The purpose of one of them was to funnel funds in the course of the import loan conspiracy.
You helped in all of this. The amount that went through the bank account in question was just over $1.5 million and it occurred between 4 and 5 March 2005. It related just to one import loan. I will deal with you on the basis that you never knew what was going on but that there existed reasonable grounds for a belief that one of the scenarios as to the provenance of the funds was that they were the proceeds of an indictable offence. I will also deal with you on the basis that you received no reward for the service you rendered the 2nd defendant.
Of course, the sum of $1.5 million is but a drop in the ocean compared with the figures involved in the fraud and the subsequent collapse. It is tempting to allow too much credit for that, for it is the case that money‑laundering dealt with in the magistrates’ courts involving smaller sums still attracts immediate custody; typically when a bank account is offered up for the use of another, often for gain.
Deterring people from helping fraudsters move funds is an important tool in combating commercial crime. The sanction has to include those not in the know but willing to turn a blind eye. It is thus that, albeit with little appetite for it, I regard my public duty as requiring me to send you to prison. I shall make it for as short a term as possible consistent with that duty.
Of course, I give credit for your plea. I remember your offer to give evidence, rendered unnecessary by the pleas of the 2nd defendant. I give effect to the passage of time and the fact that this matter has been hanging over you for five years. In all of those circumstances, I am going to pass a sentence of 4 months’ imprisonment. Even given your substantial mitigation, I believe 6 months’ imprisonment after trial would still have been inevitable. You cannot be guilty of laundering $1.5 million and expect anything less. You can sit down.
Finally, I come to you, Or Tak-yim, in Count 12. Your role was to pretend to represent one of the four North American companies in Canada in order to deceive an auditor into believing that the company was a true customer of Moulin. You were a long-term former employer of Moulin living in Canada. You had worked for them for 30 years. I accept that you were approached to do a favour and that you agreed out of loyalty with no expectation of personal gain. You are not to be dealt with on the basis that your knowledge of the conspiracy or its background was any wider than that.
However, the verdict of the jury makes clear that you knew what you were doing involved deceit and dishonesty. You knew the size of the Moulin Group and must have inferred that such efforts as were being required of you would relate to a matter of some substance. It was something of sufficient gravity that an auditor was prepared to go from Hong Kong to Canada to meet you and you were prepared to risk the economic interests of others in those circumstances.
I bear in mind your age and your previous clear record and that you have lived an honest and industrious life. I also bear in mind the extensive admissions that you were party to that were made in the trial. It is also to be mentioned that you came to Hong Kong for a visit two years ago. You have an elderly mother here. If you had stayed at home, you would not have been in the dock. I doubt if you appreciated the risk you ran by coming here. You were arrested and you have been kept here, apart from your family in Canada, since then. You have been working at a congee stall for $23 an hour, living in a small room in Mongkok. Your counsel persuades me it has been miserable.
Your sentence must involve immediate imprisonment for the same reasons as related to the 9th defendant. Unlike him, though, your involvement was knowing. You will have to go to prison for 12 months. That is the least sentence I can pass and it is less than the one I originally had in mind. It is thus that the last act in these proceedings before me is sending an otherwise decent man like yourself to prison and that is just a small part of the enormous damage done by
those who carried out these frauds. |