THE QUEEN v. ERROL FISHER

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HEADNOTE

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                Hawking and unregistered dealing in securities - fraud not alleged - imprisonment not wrong in principle - 18 months and maximum fine excessive - mitigating factors - prison sentence reduced to 6 months suspended for 2 years.

IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

Magistracy Appeal No. 862 of 1986

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BETWEEN

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JUDGMENT

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1. The appellant pleaded guilty to two offences under the Securities Ordinance, namely dealing in securities without being registered as a dealer, for which he was fined $50,000, and hawking securities, for which he was sentenced to 18 months imprisonment and fined $25,000.

2. At the hearing of his appeal I varied the sentence on the first charge by reducing the fine to $25,000 and, on the second charge, by reducing the prison term to six months and suspending it for two years. I now give my reasons.

3. The appellant, who is a Canadian citizen of previous good character, had charge of the affairs of Eurasia Pacific Financial Ltd. (Eurasia), a company registered in Hong Kong on 13th May, 1986, under the Companies Ordinance, as an overseas company incorporated in Gibraltar. Its place of business was in D'Aguilar Street. The appellant represented himself as chairman of the company and, whenever he was in Hong Kong, gave instructions as such to another director and the administrative staff of Eurasia.

4. In April this year Eurasia began sending out promotion letters to individuals outside Hong Kong, in which attention was drawn to its newsletter 'Multiplying Money'. If any of these persons expressed interest, it was sent to him weekly.

5. In these newsletters the shares of a Canadian company, Intelicom, were particularly recommended and trading prices were quoted. Intelicom is registered in Vancouver and manufactures sensors, which measure the temperature of concrete. It is a bona fide company, but it is not listed on any stock exchange.

6. It was an admitted fact that Intelicom appointed Central Registration (HK) Ltd. as a sub-registrar of its shares and anticipated that its shares would be sold initially at US$0.50 and subsequently at US$1.00 per share.

7. After four issues of 'Multiplying Money' had been sent to a potential customer, a Eurasia salesman would telephone him. There were seven such salesmen, each of whom used an alias when communicating with customers. The salesmen would offer to make agreements with the customers to purchase Intelicom shares, which were the only shares they promoted. Many such agreements were negotiated, in which the customers agreed to purchase the shares at prices between US$4.00-4.75 per share.

8. Between 26th May - 26th June, the day before Eurasia's premises were raided by the police, following enquiries by the Commissioner of Securities, Eurasia invoiced 252 customers for a total of US$944,665.23 in respect of the sale of Intelicom shares. By 26th June a total of US$179,035.29 had been received from 44 customers. A further US$86,272.60 had been paid to Eurasia by 23 customers, but not yet cleared through the bank. This latter sum has been returned to the customers. The shares were sold on behalf of Atlantic Finance Ltd., Jersey, to whom the sum of US$179,035.29 was remitted. Eurasia was not registered as a dealer under the Securities Ordinance.

9. Mr. Corrigan submitted that the approach of the magistrate was entirely wrong. There was no allegation of fraud, either in the charges or the summary of facts, yet he submitted that the magistrate sentenced the appellant on the basis that he was responsible for a fraudulent scheme to sell worthless shares to an unsuspecting public. He conceded that the facts might have merited charges of fraud and pointed out that his client had been subjected to rigorous and extensive questioning by the police on this basis. Yet in the end he was not charged with fraud.

10. This legislation is apparently unique to Hong Kong. Mr. Corrigan submitted that it is essentially regulatory in nature. To impose an immediate prison sentence and the maximum fine on a first offender on charges not alleging fraud was, he said, wrong in principle.

11. The magistrate wrote a lengthy and rather emotional judgment. Mr. Corrigan castigated it, with some justification, as being in the language of investigative journalism.

12. The magistrate stated:

"I cannot sentence the defendant for fraud. But in arriving at the sentence I may use the material before me to ascertain where on the scale of criminality does this conduct deserve to be placed."

13. No exception to that paragraph is taken. But earlier he also said that Eurasia was being used to "puff up the price of a designated share until the bubble bursts". Later he said, The hallmark of any good 'share scam' is to follow as closely as possible "The legitimate operations of licensed security dealers.'' He also referred to "silver tongue financial wolves using aliases amongst the investing flock".

14. Finally came this paragraph:

"But the legislature has gone to great pains to pass new laws designed to give credibility to the finance and securities industry. It has created substantive offences carrying penalties of imprisonment and fines. Obviously to provide an effective and efficient method of prosecution without the need for large scale conspiracy trials."

15. I agree with counsel that it is not right to regard these statutory provisions as an alternative to trials for conspiracy. That is a wrong approach. These are regulatory measures to ensure orderly trading in securities. Although he correctly directed himself that he should not sentence on the basis of fraud, I am afraid this is exactly what the magistrate has done.

16. I agree that the facts are serious. The fact that investors' money has been put at greater risk than if the shares had been bought through a registered dealer, using traditional methods, is something that the court may take into account, the absence of fraud nothwith-standing. The legislature has provided for a prison sentence in a proper case. I think it was not wrong in principle to impose one in this case.

17. But I was satisfied that insufficient weight was given to the appellant's guilty plea, his good character and the fact that this was the first prosecution of its kind. I also bore in mind that the appellant had been in custody for four weeks.

18. Giving weight to these factors I reduced the sentence of imprisonment to one of six months and suspended it for two years. I could see no justification for imposing the maximum fine in respect of the first charge and reduced it to $25,000, the same fine as that imposed on the second charge.