THE SECURITIES AND FUTURES COMMISSION v. PAN MING

HCMA 167/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO. 167 OF 2011

(ON APPEAL FROM ESS 43567 OF 2009)

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BETWEEN

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J U D G M E N T

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1.  The Appellant was convicted after trial before Marco Li, Esq. in the Magistrates’ Court on a charge of false trading, contrary to s. 295(3) and (6) of the Securities and Futures Ordinance, Cap. 571. He was sentenced to 5 months’ imprisonment and ordered to pay investigation costs of $69,268 to the Securities and Futures Commission. He now appeals against conviction and sentence.

2.  The particulars of the charge are that the Appellant “together with Mei Anthony Hsiao Tung, on 2 April 2008, in Hong Kong, took part in or carried out, or was concerned in, directly or indirectly, one or more transactions, namely, the placing on the stock market operated by the Stock Exchange of Hong Kong Limited of buy orders for shares of a listed company, namely IRICO Group Electronics Company Limited (“IRICO”), in the name of CQS Convertible and Quantitative Strategies Master Fund Limited, with the intention that, or being reckless as to whether, it or they had, or was or were likely to have, the effect of creating an artificial price, or maintaining at a level that was artificial a price, for dealings in securities on the stock market or by means of authorized automated trading services.”

3.  Three perfected grounds of appeal against conviction have been filed.  The first one reads:

“The learned Magistrate, against the objection of the Appellant, wrongly admitted inadmissible, irrelevant and prejudicial evidence against the Appellant which related only to a Mr. Anthony Mei (“Mei”).  The evidence was admitted on the basis that Mei was allegedly involved in a joint enterprise with the Appellant.  However the evidence was of activities by Mei that were outside the scope of the joint enterprise alleged.”

4.  Before discussing this ground, it is necessary to set out the undisputed facts set out in paras 1 to 5 of the Admitted Facts.  They read:

“1. In 2008, the shares of IRICO Group Electronics Company Limited (“IRICO”) was at all material times listed for trading on the Stock Market operated by The Stock Exchange of Hong Kong Limited, with a stock code “0438” and a stock name “IRICO”. IRICO was and is a listed corporation within the meaning provided under section 285 of the Securities and Futures Ordinance, Cap. 571 (“the Ordinance”). The Stock Market operated by The Stock Exchange of Hong Kong Limited was and is a recognized stock market within the meaning provided in the Ordinance.

2. Since March 2007 until April 2008, Mr. Anthony Mei Hsiao Tung (“Mr. Anthony Mei”) was employed by CQS (Hong Kong) Limited as an equity trader and he was authorised to manage the investment of part of two mutual funds, namely CQS Convertible and Quantitative Strategies Master Fund Limited (“the CQS Master Fund”) and CQS Asia Master Fund Limited (“the Asia Fund”), including the authority to purchase shares of listed corporations in the name of the two mutual funds.

3. The CQS Master Fund and the Asia Fund maintained separate securities trading account with the broker Guotai Junan Securities (H.K.) Limited (“Guotai Junan”).

4. On 2nd April 2008, Mr. Chan Wai Tung, a staff member of Guotai Junan, placed the following 5 buy orders of IRICO shares.

Time	Buy Order	Bid Quantity	Bid Price / share
15:58:09 hours	Buy	250,000	HK$0.62
15:58:26 hours	Buy	2,000	HK$0.61
15:59:15 hours	Buy	700,000	HK$0.65
15:59:32 hours	Buy	2,000	HK$0.64
15:59:46 hours	Buy	50,000	HK$0.66

5.      As a result of the above 5 buy orders, a total of 798,000 IRICO shares were purchased under the name of the CQS Master Fund, with an average purchase price of HK$0.6273 per share.

Time	Buy Order	Bid Quantity	Bid Price per Share	Purchase Quantity	Purchase Price / Share
15:58:09	Buy	250,000	HK$0.62
15:58:09				28,000	HK$0.61
15:58:09				34,000	HK$0.61
15:58:09				34,000	HK$0.61
15:58:09				120,000	HK$0.61
15:58:09				2,000	HK$0.62
15:58:26	Buy	2,000	HK$0.61
15:58:32				10,000	HK$0.62
15:59:15	Buy	700,000	HK$0.65
15:59:15				400,000	HK$0.63
15:59:15				80,000	HK$0.63
15:59:15				10,000	HK$0.65
15:59:32	Buy	2,000	HK$0.64
15:59:34				20,000	HK$0.65
15:59:46	Buy	50,000	HK$0.66
15:59:46				50,000	HK$0.66
15:59:57				10,000	HK$0.65”

5.  It was not in dispute that the Appellant instructed Mr Chan, who gave evidence as PW1, to buy IRICO shares for the CQS Master Fund.

6.  The buy orders referred to in the charge are the ones set out in the Admitted Facts.

7.  It was the prosecution’s case that the Appellant and Mr Mei, who absconded before trial, committed the offence charged in the course of a joint enterprise between them.  Assuming that to be so, the prosecution’s case still has to be confined to the carrying out of a joint enterprise covered by the charge.  On the charge, the joint enterprise would be one of creating or maintaining an artificial price by the five buy orders pursuant to which IRICO shares were bought for the CQS Master Fund during the period 15:58:09 to 15:59:57 on 2 April 2008.

8.  But the evidence complained of under the first ground of appeal as inadmissible, irrelevant and prejudicial included evidence of a subsequent off-market transaction after the market had closed in which Mr Mei was able to sell IRICO shares to the CQS Master Fund at $0.68 per share.  This subsequent transaction was not referred to in the charge.  Moreover there was no or no reliable evidence, whether direct or circumstantial, that the Appellant knew that Mr Mei controlled the account in the name of someone else out of which the IRICO shares concerned were sold to the CQS Master Fund.  At most it lays in the realm of suspicion.

9.  I will not go through all the evidence complained of under the first ground of appeal as inadmissible, irrelevant and prejudicial. I will, however, note that points similar to those which I have just mentioned have been made, and properly so, in respect of the testimony of Mr Brian Pohli who was Mr Mei’s supervisor in CQS (Hong Kong) Limited.  Mr Pohli testified, such testimony having been ruled admissible despite the defence’s objection to it, that he had instructed Mr Mei to sell, not buy, IRICO shares for the CQS Master Fund.  The Magistrate considered that testimony relevant as background evidence.  But these instructions and Mr Mei having acted contrary to them went to the subsequent transaction not referred to in the charge.  Moreover there was no or no reliable evidence, whether direct or circumstantial, that the Appellant knew that Mr Mei had been given such instructions.  At most it lays in the realm of suspicion.

10.  On the foregoing, quite apart from anything else, the first ground of appeal is made out.  I think that there is substance in each of the other two grounds of appeal, but even without reference to them, I feel driven to the conclusion that this conviction is unsafe and unsatisfactory.  All three grounds of appeal against conviction are fact-specific.  Having disposed of the appeal on one of them, I do not propose to go into the details of the other two.  The just course in my view is to quash the conviction, and I allow the appeal to do so.  The conviction is quashed and, in consequence of that, the sentence is set aside.