HKSAR v. CHAN CHIN YUEN AND OTHERS

CACC 416/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 416 OF 2009

(ON APPEAL FROM DCCC NO. 683, 685, 686 & 688 of 2008)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Wright J (giving the Reasons for Judgment of the Court):

1.  The four persons whose names appear in the citation were convicted by Deputy District Judge Johnny Chan, after trial, of a single count of conspiracy to carry out false trading, contrary to ss. 295(1) and (6) and 303(1) of the Securities and Futures Ordinance, Cap. 571 and ss. 159A and 159C of the Crimes Ordinance, Cap. 200. Each applied for leave to appeal conviction and sentence. All of the applications were abandoned prior to the hearing except for the first applicant’s application in respect of conviction. At the conclusion of the hearing of that application we dismissed it and indicated that we would deliver our reasons thereafter, which we now do.

2.  The particulars of the offence read that they:

"... between the 1^st day of August 2005 and the 5^th day of September 2005, in Hong Kong, conspired together to place or cause to be placed bid and ask orders for the shares of a listed corporation, namely Asia Standard Hotel Group Ltd, with the intention that, it had, or was likely to have, the effect of creating a false or misleading appearance of active trading in respect of the securities of a listed corporation, namely Asia Standard Hotel Group Ltd traded on the stock market operated by the stock exchange of Hong Kong Limited."

3.  It was the prosecution's case that, pursuant to an agreement to conduct themselves in the manner alleged in the particulars of offence, the first applicant provided the funding necessary for the transactions which were carried out by the other three co-accused, its allegations against them including that each operated multiple accounts, 32 in all, which they had previously opened with 29 separate broking firms; during the period covered by the count their trading accounted for 60.2% of all shares in ASH which were bought and 53.39% of all shares which were sold; 30.22% of all ASH shares traded during the period were transactions between two of the three co-accused; they operated from leased premises which contained equipment suitable for conducting such transactions; and the pattern of the trading conducted by them led to the irresistible inference that it was not genuine trading but trading designed to manipulate the shares in ASH by creating a false impression of demand for those shares.

4.  Six witnesses testified on behalf of the prosecution as to factual matters: one further witness, Karl Lung, was called as an expert. There were extensive admitted facts. Statements were read under s. 65B of the Criminal Procedure Ordinance, Cap. 200. Each accused elected not to give evidence. Two defence witnesses were called as experts.

5.  It is unnecessary for us to go further into the general facts and allegations in any detail as the sole remaining ground of appeal, the first ground having been abandoned, focuses upon a narrow issue. There was no challenge by the 1^st applicant to the judge’s findings of fact. That ground  was couched in these terms:

"The conviction was unsafe and unsatisfactory as the burden was reversed onto the appellants, through the prosecution expert witness’s erroneous belief that the trading statements were records of ‘matched orders’ (sic) between the trading defendants who proceeded on the assumption that the buyer and seller were the same beneficial entity."

6.  In developing this ground before us, Mr. Boynton, who appeared on behalf of a co-accused in the court below, refined the argument to the point where it became apparent that the true complaints were, first, that Mr. Lung, had misinterpreted documentation that had been made available to him and which formed the basis of his opinion which was evidenced by the way in which he defined the phrase "matched trades"; and, second, Mr. Lung had based his opinion and subsequent testimony on an assumption of guilt rather than the presumption of innocence thereby, as we understand the submission, unfairly and wrongly reversing the burden of proof.

7.  The first submission amounted to nothing more than a quibble over the use of a phrase which the witness applied to a particular category of transactions. That same phrase had been used by other witnesses but with a different connotation. Mr. Lung testified that his meaning when he used the phrase "matched trades" was, the judge found, trades in which both the buyer and seller were one of the three co-accused who had carried out the trading.  Another prosecution witness, Shek Kam-por, used the phrase, according to his evidence, to mean transactions that were matched through the Automated Matching and Execution System of the Stock Exchange. This latter definition also was used by one of the defence experts, Peter Randall.

8.  It was clear from the comprehensive and very detailed Reasons for Verdict that the judge was fully aware of the distinction between the definitions attributed by different witnesses to the same phrase. He then went on to conclude that nothing turned on this difference, with which we agree, saying:

"536.    It appears to me that when Lung referred to the term "matched trades"... he was referring matched trades as trades where the beneficiary of both the buyer and seller are the same entity... That is Lung's definition of the term. Lung's definition of the term "matched trades" is different from [Shek Kam-por] who referred to "matched trades” as transactions that were matched under the Automated Matching and Execution System of the Stock Exchange. It is true that when Lung considered [named exhibits] he had in mind his definition of "matched trades" when he saw the term mentioned thereby PW6.

537.     I do not think the difference between PW6 and Lung over the definition of the term makes a material difference at the end. Firstly, it is obvious from the tenor of Lung’s evidence that all along Lung accepted as much as PW6 did that the trades... were matched under the Automated Matching and Execution System of the Stock Exchange. Lung is not disputing the evidence of [Randall] that under the Stock Exchange of Hong Kong's algorithm, trades are automatically matched on a price/time priority and it is not possible deliberately to strike a bargain i.e. execute a trade with another specific trader. At the end, Lung was saying no more than that given the assumption of collaboration, the trades referred to... were matched in that for each of these trades the beneficiary of both the buyer and seller were... amongst the three traders.

538.     DW2 identified that there were 765 trades in ASH shares between D2, D3 and D4 during the relevant period... PW2 calls these trades "cross trades". As said, Lung describes these trades as "matched trades"..."

9.  The second issue arose from a briefing note which had been prepared for the purpose of instructing Mr. Lung in the preparation of his expert report. That commenced with the following paragraph:

"Between 1 August 2005 and 5 September 2005 3 traders... traded among themselves almost exclusively in Asia Standard Hotel Group Limited ("ASH" stock code: 0292) shares, systematically pushing up the share price from $1.06 to $1.89 (a 78.3% increase). Each of the three traders employed 8 to 12 brokers to deal in the stock and collectively accounted for 60.2% of the total market  buy and 53.39% of market sell during that period"

10.  In those instructions, the "Scope of work" he was asked to perform was "To comment on the trading activities of the three traders in the ASH shares... on the assumption that they were acting in collaboration." He was asked to explain the basis of his views.

11.  This submission ignored three fundamentals. First, it is commonplace, a matter of routine, for expert witness to be asked to prepare an opinion based upon an assumption or a series of assumptions. The nature of any assumption in no way vitiates the expert’s opinions which are, of course, of relevance to the trial only if the underlying assumptions of proven to be true.

12.  Second, the second paragraph of the briefing note spelt this out to Mr. Lung thus:

"The issue of whether the 3 traders had acted in concert, pursuant to some agreed-upon plan to manipulate the price of ASH shares, is one for the investigation team to prove. For present purposes, however, the independent expert is asked to assume that there is evidence that the traders acted as a team. Of course, observations within the expert’s field of expertise that might indicate whether or not the trading of the 3 traders showed signs of being linked or cooperative would also be welcome."

13.  Third, the judge demonstrated himself to be properly aware of the necessity for the prosecution to prove the existence of the conspiracy by way of evidence other than that of Mr. Lung and that it was only once he was satisfied that a conspiracy existed that he would be entitled to rely upon Mr. Lung's expert opinion. He said:

"485.    It is obvious that the expert evidence of Lung would be of no value if at the end of the day the prosecution fails to prove that the three traders were acting in collaboration. It is only if the prosecution is able to prove that the three traders were acting in collaboration that Lung's opinions, which are based on the assumption of collaboration, can get off the ground."

That was an inference he was entitled to draw. The evidence of the existence of the conspiracy was extensive and compelling.

14.  The judge then identified, at some length, the various aspects of the evidence which he had already rehearsed which led him to say:

"523.    The only irresistible inference I can draw on the evidence before me is that during the relevant period D1 to D4 collaborated together in trading in ASH shares. I also infer that the four defendants were acting together pursuant to an agreement to which each of them was a party..."

15.  Only then did the judge turn to consider the effect of Mr. Lung's evidence. When doing so he concluded:

"535.    Given my findings that the four defendants were collaborating, it follows that Lung's analysis is based on a solid foundation..."

16.  One further matter, raised in the course of the submissions to us, deserves comment. It was suggested that the provisions of s. 295(5) of the Securities and Futures Ordinance “defined”, respectively,  in s. 295(5)(a) a “wash order” and in s. 295(5)(b) and (c) a “ matched order” and that, in some manner, the judge had become confused as to which type of conduct the prosecution relied upon. In essence, this was an attempt to blend the abandoned ground of appeal into the sole ground of appeal.

17.  However, that is not the effect of that subsection which simply describes conduct which, if proven, is to be regarded as having or being likely to have the effect of creating a false or misleading appearance which in turn is conduct prohibited by s. 295(1). The judge was aware of the evidential assistance provided by s. 295(5) but, in terms, eschewed it, specifically expressing himself as being satisfied that, without resorting to those provisions, the evidence established that the accused were attempting to increase the turnover or liquidity of ASH shares and consequently investors’ or speculators’ interest in the stock.

18.  There was no merit in this application.