SECURITIES AND FUTURES COMMISSION v. CHUNG WAI WAH

[English Translation – 英譯本]
HCMA 779/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 779 OF 2009

(ON APPEAL FROM ESS NO. 15395 OF 2009)

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J U D G M E N T

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1.The appellant was summonsed for the offence of “performing, without reasonable excuse, a regulated function in relation to a regulated activity, namely, leveraged foreign exchange trading, carried on as a business by Glory Sky Global Markets Investment Limited when he was not licensed to do so”, contrary to sections 114(3)(a) and (9) of the Securities and Futures Ordinance.  He was convicted after trial and fined $1,500.  He now appeals against the conviction.

Prosecution case

2.  Glory Sky Global Markets Investment Limited is a company registered and incorporated in Macau (Glory Sky Macau).  Glory Sky Macau has never been permitted to conduct leveraged foreign exchange investment or financial investment business in Macau and Hong Kong.

3. Glory Sky Global Markets Limited is a company registered and incorporated in Hong Kong (Glory Sky Hong Kong).  Since 2004, Glory Sky Hong Kong has been permitted by the Securities and Futures Commission (the SFC) to carry out Type 3 regulated activity specified under the Securities and Futures Ordinance, namely leveraged foreign exchange trading.

4.Glory Sky Group Limited (Glory Sky Group), a company incorporated in Hong Kong, holds more than 99% of the shares of Glory Sky Hong Kong and Glory Sky Macau.

5.  In 2006, Mok Chi Fai, the first prosecution witness (PW1), intended to open an account with an investment company to invest in gold and foreign exchange.  Towards the end of 2006, through the introduction of a friend, he arranged to meet the appellant in a restaurant in North Point.  PW1 knew that the appellant was working for an investment company called Glory Sky, but he was not aware of the location of this company.

6.During the meeting, PW1 indicated an intention to open an account with Glory Sky to invest in foreign exchange and financial products.  As a result the appellant handled the procedures for PW1 in the restaurant.  The appellant did explain to PW1 matters such as the mode of operation of Glory Sky and how Glory Sky would deal with the profits or losses that PW1 might make.  Later, PW1 faxed to the appellant some documents such as his proof of address, etc.

7. Several days after the meeting, PW1 learned that his account had been successfully opened.  The appellant also told him the website address of Glory Sky, which was GSMAcao.com, his personal account number and login password, etc.

8.  After the opening of the account, PW1 did not know how to operate his account on the web pages and hence phoned the appellant for assistance.  The appellant taught him how to check his account status and place investment orders online.

9.  In 2007, PW1 carried out gold and leveraged foreign exchange trading through his account with Glory Sky.

10.  Eventually, when he was interviewed by the staff of the SFC, the appellant admitted that he had taught PW1 how to carry out leveraged foreign exchange trading through the website of Glory Sky Macau.

The defence case

11.  The appellant joined Glory Sky Hong Kong as an investment consultant in 2005.  Glory Sky Macau was a branch company of the Glory Sky Group.

12.  Towards the end of 2006, the appellant met PW1 through the introduction of his brother-in-law.  Since PW1 indicated an intention to open an investment account to conduct gold trading but was unwilling to pay an account opening deposit, the appellant assisted PW1 in opening an investment account with Glory Sky Macau.  He was also aware that the investment account with Glory Sky Macau could be used to conduct gold and leveraged foreign exchange trading.

13. During the meeting, the appellant downloaded an account opening application form from the website of Glory Sky Macau; when PW1 saw the data that kept flashing on the web pages of Glory Sky Macau, the appellant explained to PW1 that those were just foreign exchange data.

14.  On that day, following the instructions of the staff of Glory Sky Macau, the appellant faxed the account opening form completed by PW1 to Glory Sky Macau.  After the opening of the account, the appellant told PW1 his account number, etc.  He did not follow up the matter thereafter, nor did he obtain any benefits from it.

15.  PW1’s account with Glory Sky Macau was placed under a woman called Esther Lam, who was the appellant’s girlfriend in 2006.  They were eventually married in 2007.

Grounds of appeal

(1)The learned magistrate erred in taking this offence as one of strict liability;

(2)The learned magistrate misinterpreted the provisions in respect of the offence and changed the basis of conviction from performing to the defendant allowing or enabling PW1 to conduct leveraged foreign exchange trading;

(3)The learned magistrate erred in thinking that the appellant was performing a regulated function;

(4)The learned magistrate failed to consider “without reasonable excuse”, which was an element of the offence.

Discussion

16. Sections 114(3) and (9) of the Securities and Futures Ordinance set out that:

(3)…no person shall-

(a)   perform any regulated function in relation to a regulated activity carried on as a business.

(9) A person who, without reasonable excuse, contravenes  subsection (3) commits an offence…”

17.  Section 113(1) of the Ordinance defines “regulated function” as follows:

“‘regulated function’, in relation to a regulated activity carried on as a business by any person, means any function performed for or on behalf of or by arrangement with the person relating to the regulated activity, other than work ordinarily performed by an accountant, clerk or cashier.”

18.As can be seen from the provisions, the prosecution must prove that the appellant performed, without reasonable excuse, a regulated function in relation to a regulated activity carried on as a business.

19.  In respect of the first ground of appeal, counsel for the appellant mainly took issue with what the learned magistrate said at paragraph 24 of her Statement of Findings:

“The only issue in dispute is whether PW1 made it clear to the defendant that that he would use his account to carry out leveraged foreign exchange trading.  PW1 already agreed that his memory of the conversations in this regard was not clear.  I find PW1 to be an honest and reliable witness and I accept his evidence.”

Counsel for the appellant submitted that that being the case, in the absence of other evidence to show that the appellant had an intention to allow PW1 to use or that he knew that PW1 would use that account to conduct leveraged trading, the magistrate in convicting the appellant must have taken this offence as one of strict liability.

20. I respectfully disagree.

21. The learned magistrate was only of the view that in respect of whether he had made it clear to the appellant that he would use the account to carry out leveraged foreign exchange trading, PW1’s memory was not very clear.  However, the learned magistrate considered that there was other evidence in this case to show that the appellant had performed a regulated function in relation to a regulated activity.

22. . The learned magistrate made the following statements at paragraphs 26 and 29 of her Statement of Findings:

“26. …The defendant was aware that the account with Glory Sky Macau could be used to conduct leveraged foreign exchange trading.  Even if PW1 did not disclose to the defendant that he would carry out leveraged foreign exchange trading, the defendant did enable PW1 to carry out a regulated activity.”

29.According to the undisputed evidence, the business of Glory Sky Macau included leveraged foreign exchange trading.  The defendant opened for PW1 an account that could be used to conduct leveraged foreign exchange trading.  That account was obviously related to a regulated activity.  …”

23. Whether PW1 would use that account to carry out leveraged foreign exchange trading was not an element of the offence which the prosecution must prove.

24.As mentioned above, what the prosecution must prove was that the appellant had performed a regulated function in relation to a regulated activity without reasonable excuse.  The evidence of the case showed that:

(i)    The appellant knew that PW1 was interested in opening an investment account to invest in gold and foreign exchange;

(ii)  The appellant knew that Glory Sky Macau carried on business in gold and leveraged foreign exchange trading;

(iii)    The appellant gave PW1 an account opening application form of Glory Sky Macau in respect of a financial products and foreign exchange investment account; PW1 also filled in his personal particulars on the documents in the presence of the appellant;

(iv)    The appellant asked PW1 to furnish documents such as his proof of address later;

(v)  The appellant explained how Glory Sky Macau would handle the profits or losses that PW1 might make in respect of his investment;

(vi)    The appellant successfully faxed the account opening documents to Glory Sky Macau for PW1;

(vii)  The appellant knew that PW1’s account with Glory Sky Macau could be used to conduct gold and leveraged foreign exchange trading;

(viii)    Later the appellant also taught PW1 how to carry out leveraged foreign exchange trading on the website of Glory Sky Macau.

25.  Such evidence showed that the appellant was fully aware that he was performing a regulated function.  The learned magistrate did not take this offence as one of strict liability.

26. Regarding the second ground of appeal, counsel for the appellant mainly took issue with what the magistrate said at paragraph 26 of her Statement of Findings, “did enable PW1 to carry out a regulated activity” and in her oral reasons for verdict, “allowing PW1 to do such speculation”.

27.  As set out above, the magistrate was satisfied that the appellant had carried out many acts which amounted to “performance”.  The consequence of those acts of “performance” was “allowing” or “enabling” PW1 to engage in leveraged foreign exchange trading.  The learned magistrate did not change the basis of conviction from “performing” to “allowing” or “enabling” PW1 to carry out leveraged foreign exchange trading.  She only used words like “allow” and “enable” to explain the consequence of the “performance”.

28. I totally disagree with the third ground of appeal, which is that the actions of the appellant were no different from those performed by an accountant, clerk or cashier in carrying out their work.  Surely a clerk or a cashier would not so casually bring with him a notebook computer and proceed to a restaurant to meet a client, to explain the deposit requirement, download an account opening application form, open an investment account for a client, or even demonstrate to the client how to conduct leveraged foreign exchange trading on the computer?

29. In respect of the fourth ground of appeal, it can be seen from the record of interview that the appellant was fully aware that he was not qualified to perform any regulated function in relation to a regulated activity carried on as a business.  He fully understood what he could and could not do.  I do not see that he had any reasonable excuse at all.

30.  I find nothing unsafe about the appellant’s conviction.  The appeal lacks merits.  It is dismissed.

Translated by the Judgment Translation Unit of the Judiciary and approved by Mr. P. Y. Lo, Barrister-at-law.