HKSAR v. TSANG PUI YU, SHIRLINA

CACC 349/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 349 OF 2013

(ON APPEAL FROM DCCC NO 326 OF 2013)

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JUDGMENT

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Hon McWalters J (giving the judgment of the Court):

Introduction

1.  The applicant appeared in the District Court before Judge Tallentire (“the judge”) on 13 September 2013 on a Charge Sheet containing one count of fraud, contrary to section 16A of the Theft Ordinance, Cap 210.  The applicant pleaded guilty to this charge and on the same day was sentenced by the judge to 50 months’ imprisonment.  On 25 September 2013 she applied for leave to appeal against her sentence and at the hearing of her application we reserved our judgment which we said we would hand down at a later date.  This we now do.

The Background to the Offence

2.  The applicant committed the offence between mid-2010 and 14 October 2011 during the course of her employment with the Royal Bank of Scotland (“RBS”) as a trader of the Emerging Markets Desk of RBS.  The applicant was first employed by RBS in May 2004.  Her role as a trader required her to trade various securities for RBS, including Hong Kong Government Bonds and Exchange Fund Bills and Notes (“Bonds”).  If her trading activities resulted in losses, those losses were suffered by RBS.  She was required to mark all her trading positions to the prevailing fair market prices on a daily basis and record any profit and loss in her employer’s computer system.

3.  At some time towards the beginning of the charge period the applicant incurred losses on behalf of RBS but instead of revealing these losses she took active steps to conceal them from her employer and continued trading in the market on her employer’s behalf.  The active steps that she took to conceal her losses were particularised in the charge as follows:

“… by deceit, namely, by falsely representing in the computer system of The Royal Bank of Scotland (“RBS”) that – 

(i) the prices of Hong Kong Government Bonds and Exchange Funds Bills and Notes (“Bonds”) were genuinely marked to the respective market prices;

(ii) there were 16 sales and purchase for Bonds genuinely transacted between RBS and other counterparties at the clean prices and the principle sums stated therein (“the said transactions”); and

(ii) the said transactions were either genuinely cancelled or amended on the clean prices, principle sums or counterparties stated therein,

with intent to defraud, induced the staff of RBS:-

(i) to believe and accept that TSANG Pui Yu, Shirlina’s trading portfolio was of higher value than it was and there were profits genuinely generated from her trading activities; and

(ii) not to discover and take prompt action against the losses in TSANG Pui Yu, Shirlina’s trading portfolio,

resulting in benefit to herself or in prejudice or a substantial risk of prejudice to RBS.”

4.  This was described in the Summary of Facts, which the applicant admitted, as follows:

“(i) Entering into RBS’s trading systems a series of purported transactions in the Bonds and irregularly cancelled or amended thereof after the said transactions were booked into her daily profit and loss account, giving a misleading impression as to the profit and loss generated from her portfolio; and

(ii) Mismarking a number of the Bonds in her portfolio, giving a misleading impression as to the profit and loss generated from her portfolio.”

5.  The Summary of Facts revealed that between July and October 2011 the applicant entered into the RBS system false details of the Bonds in which she had traded.  For example, she named a counterparty who had not in fact agreed to make a trade, or where a counterparty had agreed to make a trade, she entered a price that did not truly reflect the terms of the trade agreed.  She input these false trade entries either as a fresh trade or as an amendment to an existing trade and was able to do so because the Bonds trading market does not have a practice of same day validation of Bonds trades.

6.  By means of these false trades she was able to inflate her profit and loss account and/or lower her risks position before the ‘cut-off time’, which was 7 p.m. Hong Kong time, when RBS’s system calculated a trader’s book’s profit and loss or risk position.  The applicant would then either cancel or amend these false entries before trade settlement in order to avoid detection by the bank’s systems.  The consequence of her actions was that she was able to show a false picture of her profit and loss and her risk position at the end of each trading day.

7.  Between August 2011 and October 2011, the applicant entered eight false transactions relating to Bonds into the computer trading system of RBS, which she later cancelled before they were settled.

8.  Between July 2011 and October 2011, the applicant also entered false information in relation to eight Bonds transactions into RBS’s computer trading system the particulars of which she later amended before settlement.

9.  The applicant’s mismarking of her Bonds was done by her between mid-2010 and 14 October 2011 in relation to nine Bonds in her portfolio.  In this period the applicant artificially inflated the value of her trading books in the RBS computer by either marking up the price of the Bonds in her portfolio or marking down the cost of the Bonds to clear her short position in her portfolio.

10.  Each trader is required to submit what is known as a Flash profit and loss summary at the end of each day which is an estimate by the trader as to their profit and loss position.  The applicant would misstate her Flash profit and loss position so as to make it consistent with the mismarking of her Bonds.

11.  RBS has a monitoring system called Independent Pricing Verification (“IPV”) and this system is used at both the middle of the month and the end of the month to check discrepancies between published market prices of relevant securities and the prices that have been input by the traders.  Thus, if there is too great a price difference between the published market prices of the security and the price input by the trader, the trader would be called upon to provide an explanation. 

12.  The applicant knew the identity of the brokers used by RBS in sourcing published market prices and she was able to circumvent the IPV system by providing false prices of the relevant Bonds to the persons who were responsible for updating the published market prices.  As a result the prices published by the brokers, which were used by the bank in relation to the applicant’s Bonds, were similar to the mismarked prices on the applicant’s Bond books; and by this means the applicant was able to conceal her mismarked positions from RBS.

13.  The effect of the applicant entering the false information into RBS’s systems was to generate a fictitious profit and loss that enabled her to disguise the losses that she caused to RBS by the trades into which she had actually entered.  Because her activity produced a false impression that she was a profitable trader, she received a bonus for the years of 2010 and 2011 in a total sum of HK$1,055,822.31.  However, after her fraudulent conduct was discovered, the applicant fully repaid this sum to RBS.

14.  The applicant’s fraudulent activities came to light on 14 October 2011 when the applicant’s supervisor conducted a review of the portfolios of all traders under his supervision, and this included the portfolio of the applicant.  It was in the course of this review that the applicant’s mispricing of certain Bonds in her portfolio was discovered.  The supervisor subsequently had two telephone conversations with the applicant on 14 October 2011, in which she was asked what she had been concealing in terms of her irregular trades.  She replied she had lost US$7 million and had lost a lot of money from March onwards.  In another conversation with a different supervisor, the applicant admitted that she had done something wrong and that after her brother had passed away in March she had been very upset and the market was in a poor condition.  She said she lost a lot money in Hong Kong Dollar Interest Rate Swaps and in order to conceal her losses, she made false mark-to-market entries so that the bank would not discover her loss.

15.  RBS calculated the loss that it had incurred as a result of the applicant’s misconduct and it amounted to GBP19.5 million, United Kingdom currency (equivalent to HK$238 million).

16.  In the Summary of Facts it was admitted that:

“If D had not disguised the losses by entering false information into the RBS computer systems, RBS would have discovered these losses earlier than it did and would have taken steps to prevent further losses.”

17.  RBS terminated the applicant’s employment on 14 October 2011 and reported the case to the police on 15 October 2011.  She was arrested at Hong Kong International Airport on 17 October 2011 as she was trying to catch a flight with her mother to Toronto.  Both she and her mother had purchased only one-way tickets.

The Mitigation Advanced at Trial

18.  A psychologist’s report on the applicant was obtained by the judge. This report set out the applicant’s background which was that she had come from a good family, had gone to Canada in 1988 to further her studies including completing a university degree there.  Her family moved to Canada but in 1994 the applicant returned to Hong Kong.  She married in 2000 and claimed to have a stable, happy marriage.  She worked for RBS since 2004 but said she was constantly under work stress from 2008 due to a heavy workload and matters in her personal life.

19.  In respect of the latter, she was emotionally disturbed by her brother’s terminal lung cancer since December 2008.  Notwithstanding that she was in full-time employment, she helped to look after her brother.  His health deteriorated rapidly from 2010 and he passed away in April 2011.  She claimed that her mood was significantly affected during this period of time and that she cried every day as she witnessed her brother’s suffering.  She said she experienced insomnia and poor appetite, became socially withdrawn and had self-harm ideation.

20.  In respect of her work stress, the applicant claimed that she worked under a new supervisor in 2010 and he encouraged her to take a large trading position.  However, the applicant said that she lacked confidence in her ability to do what her supervisor wished.  Nevertheless, she took a large trading position and started to lose money in her portfolio.  As her losses increased, she found it difficult to be accountable to RBS for the huge losses and this caused her stress to worsen.  She readily admitted committing this offence and concealing her losses from her employer.

21.  In trying to provide a context for her actions she said that it was not unusual for traders to enter false information into the RBS system and that she had only done so in order to buy time.  She said that she hoped that the market would be in a better condition later, and that there would be profits in her portfolio and that RBS would not suffer losses.  She denied committing the offence for her own financial benefit, but this, it must be said, was never part of the prosecution case.  She accepted responsibility for her conduct and expressed remorse for the consequences of it.

22.  The psychologist said that the applicant had normal intellectual functioning but appeared to have weak coping skills.  He expressed the opinion:

“She coped with her brother’s illness poorly and developed Depressive symptoms such as depressed mood, insomnia and self-harm ideation. It appeared that her Depressive symptoms, together with her weak handling of the work stress, contributed to her unsatisfactory work performance and she suffered remarkable losses in her trading portfolio. … In view of her stable employment, her lack of past criminal behavior and her weak coping skill, her risk for re-offending is assessed to be low.”

23.  In advancing his mitigation on his client’s behalf, Mr Choy, the applicant’s counsel at trial, explained that when the applicant referred to the use of malpractices by traders in respect of RBS’s computer system, she was not suggesting that there was any systematic non-compliance of rules by her colleagues. What she meant to say is that she had noticed that there were occasions when malpractices were used to temporarily hide away losses, and that her awareness of this contributed to her misjudgment in employing such practices on a much grander scale.  Part of her misjudgment, as noted by the psychologist, was that at the time of her conduct she did not perceive the consequences of what she was doing as particularly serious.  Her counsel said that now she perceived it to be very serious and is extremely remorseful for her actions.  Her view at the time that she committed the offence of the seriousness of what she was doing was said to be indicative of the impact of her depression on her and her inability to properly judge what she was doing.

24.  In the course of mitigation, there was concern raised by the judge as to what the true loss from her actions might be.  This was raised by the judge as traders do, from time to time, incur losses on behalf of the employer.  Such a risk is a natural part of their activity.  Moreover, there are always fluctuations in the market, so there would be occasions when the applicant might have been generating a profit for her employer but at the end of the day, whatever such occasions, if any, there were, these were cancelled out by the substantial losses that resulted.  Thus what the loss might have been, or whether there might even have been a loss, at some other point in the charge period cannot be quantified.  Consequently, Mr Choy asserted that even if the applicant had been entirely honest from the first, the bank might still have incurred some losses and how much less than the ultimate loss they would have been, is impossible to say.

The Reasons for Sentence

25.  In respect of the applicant, the judge noted that she was a lady of clear record with no previous convictions and that she had returned the entirety of the bonus of over HK$1 million that she had received from RBS.  He noted the personal background of the applicant and particularly the effect that the experience of nursing her younger brother through his terminal cancer to his death, had had upon her.  He referred to numerous letters from friends and colleagues which had all spoken well of the applicant and expressed shock that she had committed this offence.  They all confirm that she is a person of good character.

26.  The judge then referred to the psychologist’s report which he had obtained and summarised the mitigation which Mr Choy had advanced on behalf of the applicant as follows:

“Mr Choy then completed his mitigation by summarising the main points: the remorse that you show as demonstrated by your plea of guilty and the cooperation with the bank at the time of discovery; the repayment of your bonus and your positive good character which is shown by the letters. He asked me for leniency on your behalf.”

27.  In respect of the offence, the judge noted that had the applicant not disguised the losses, RBS would have discovered them earlier and taken steps to prevent further losses.  He accepted that even if the applicant had not engaged in her acts of concealment, the bank would still have lost money but not as much as was ultimately lost.  He said that the fraudulent actions of the applicant prevented the bank from having full knowledge of her losses and, therefore, the ability to mitigate those losses.

28.  He recognized that he had not been given full information on the working structures at RBS but it did appear to him, nevertheless, that there should have been more supervision of the applicant, more support and more checks and balances to guard against the kind of acts committed by her which enabled her to obscure her true trading position.

29.  The judge referred to a number of press cuttings which had been handed to him by Mr Choy of behalf of the applicant that reported cases from overseas jurisdictions where rogue traders had been prosecuted and sentenced for conduct not dissimilar to this applicant.  However, as they were only press cuttings, the judge found them to be of very limited use, particularly as they related to different times, different conditions and different jurisdictions.

30.  The judge then turned to sentence the applicant.  He characterised the offence as an extremely serious one which led to RBS suffering a loss of approximately HK$238 million.  He recognized that the applicant had repaid the bonus that she had obtained from the bank as a result of deceiving the bank into thinking that she had earned profits for it but he said of this act of restitution:

“It is to your credit and a matter of mitigation that the falsely earned bonus has been returned but that is but a small percentage of the losses the bank has suffered.”

31.  He portrayed the applicant’s conduct as “a type of breach of trust because effectively you were deceiving your employer to cover your shortcomings” but also recognized that this was not a case of criminal conduct committed for personal gain and that all the losses that flowed to the bank from her conduct were unintended and unplanned.  He accepted that the applicant’s acts were committed in order to cover her own shortcomings as a trader.

32.  He noted the mental anguish which the applicant had undergone in the course of nursing her brother to his death.  He accepted that she would never commit such an offence again because, as a result of this conviction, she would never be able to work in the banking industry again.  He then said:

“Taking all matters into account, I take as a starting point of 6 years and 3 months’ imprisonment, that is 75 months. For your plea of guilty, you will receive one-third discount. You will go to prison for 50 months.”

The Grounds of Appeal

33.  There are three grounds of appeal.  The first ground complains that the starting point of 6 years and 3 months’ imprisonment that was adopted by the judge was too high in the circumstances of this case.  In this respect the applicant asserted that the judge erred by placing undue emphasis on the size of the loss to RBS; did not give sufficient consideration to the fact that in any event RBS would have suffered some loss; did not give sufficient consideration to the fact the offence was not committed for personal gain but only to enable the applicant to conceal her shortcomings; did not give sufficient consideration to the fact that the losses suffered by RBS were not intended or planned by the applicant and erred in not giving sufficient regard to the circumstances leading to the commission of the offence.

34.  The second ground of appeal complains that notwithstanding that the applicant made full restitution of her falsely obtained bonus, the judge did not give her any specific discount for this act of restitution.

35.  The third ground of appeal is simply that in the circumstances the overall sentence imposed on the applicant is manifestly excessive.

Discussion

36.  In complaining of the judge’s starting point, the first ground of appeal attacks the judge’s assessment of the seriousness of the offence.  The applicant argues that the judge erred in his assessment and points to particular features of her criminal conduct which distinguish her offence from other white collar crimes.

37.  There is no doubt that this is an unusual offence.  In fact, we are told it is the first of its kind in Hong Kong.  “Rogue trader” offences have occurred elsewhere in the world and when they are discovered they frequently attract international publicity.  This is usually because of the huge losses that the offender has caused to the employer and sometimes the risk that, as a result of those losses, the employer’s business might fail or at least be very seriously affected by it.  It is this potential to cause such extensive, and sometimes fatal harm, to the employer’s business, that makes it such a serious offence.  It is also the reason why general deterrence must be the dominant sentencing principle in the determination of sentence.

38.  Clearly, a strong element of personal deterrence is not needed, as there is a very low risk of the applicant re‑offending, if for no other reason than that she is highly unlikely to be employed in such a position in the future. That is, of course, for the obvious reason that only persons an employer can trust, will be allowed to use the employer’s money to trade on the employer’s behalf.  With this conviction, the applicant will be hard pressed to find an employer willing to trust her and, in so far as this kind of activity is regulated by independent bodies, may never be able to obtain the requisite authorization to work in this industry.  But the lack of a need for personal deterrence in no way diminishes the need for general deterrence to be the dominant sentencing principle and for rehabilitative considerations to become very much of secondary importance.

39.  It is also argued that the motive of the applicant is a significant mitigating feature of this case in that the applicant did not commit the offence for personal gain.  The only benefit she received, apart from her salary and retention of her employment, was the bonus of HK$1,055,822.31, and this amount she repaid to RBS.

40.  The absence of personal gain is a common feature of rogue trader offences and there is a simple reason for this.  It is not the kind of offence that can, in fact, be committed for personal gain.  The only gains to the rogue trader are the opportunity for the trader to conceal the losses from the employer, to remain employed and to keep trading in the hope that over time these losses can be recovered.  But, it has never been suggested that traders can make use of their employer’s money to trade for their own personal benefit or that they have the ability, through access to the employer’s money, to steal the funds of the employer.  All that a trader can do is to trade on behalf of the employer. In these circumstances, the fact that the offence was not committed for personal gain is a matter which goes to the applicant’s character, and for this credit is given in the one-third discount for pleading guilty; but it does not lessen her culpability for this offence.

41.  This brings us to a consideration of the dishonesty involved in her conduct.  As the judge noted, the misconduct of the applicant is not the usual breach of trust case where a person is allowed by an employer to access his monies and bank accounts and in abuse of that trust dishonestly appropriates the employer’s property for personal gain.  Although the judge recognised that the applicant’s conduct was not this kind of breach of trust he, nevertheless, said that it was a form of breach of trust, and a serious one at that.  We agree.

42.  However, it is necessary to place the applicant’s breach of trust in context and that requires a consideration of what it is that a trader is entrusted by the employer to do on the employer’s behalf.  In essence, it is to trade in a very substantial way in different types of financial securities which, because of their fluctuating value, create a high risk trading environment.  In such an environment a wrong judgment by the trader may expose the employer to very large losses, but a right judgment may generate great profits for the employer.

43.  Clearly, in such a situation the employer will want to monitor very closely the activities of its traders in order to protect itself from the risk of escalating losses.  Nowadays, precisely to prevent such risk from becoming manifest, employers put in place a range of safeguards.  Whether RBS had adequate safeguards in place we do not know, but that does not seem to us to be a matter relevant to an assessment of this applicant’s culpability.  For, like all traders, this applicant knew that she was entrusted by her employer to trade only as long as she complied with the employer’s requirements; requirements that existed in order to manage the risk to which the employer was exposed by the nature of these trading activities.

44.  This applicant not only failed to comply with those requirements, she actively circumvented them.  She knew she could continue to trade only if she had the employer’s authority to do so and she further knew that that authority was dependent on the employer continuing to have confidence in her.  Of course, that confidence was based upon the employer’s assumption that it could rely on the accuracy of her trading position.  The applicant well knew all of this and of the extent to which her employer relied on her honesty and her good character not to betray the trust it had placed in her.  Yet, as time passed and her position worsened she never stopped her deceptive practices but instead expanded them.  The longer she continued to trade, the more active she became in circumventing the safeguards the employer had put in place.  Her fabrication of trades, and of their particulars, may have been fairly simplistic methods of deception, but the same cannot be said of the calculated way she managed to undermine the IPV mechanism to prevent it from detecting her activities.  This is dishonesty and breach of trust on a grand scale and there is no doubt in our mind that the applicant’s conduct was of a very high level of culpability and this must be reflected in the punitive element of the sentence.

45.  In terms of what it is the applicant did, the other sentencing principle that is highly relevant is that of denunciation.  The applicant had great trust placed in her and attendant upon that trust was the opportunity to earn great rewards for herself.  But accompanying that great trust were great responsibilities and these she deliberately chose, not just to ignore, but to actively circumvent, and all of this was in the context of a trading environment where she had potential to cause great harm to her employer.  The court would be failing in its duty to the community if it did not, by its sentence, send an unequivocally clear message denouncing such conduct.

46.  Thus, in assessing the seriousness of the applicant’s conduct we have a gross breach of trust lasting a substantial period of time involving numerous, carefully planned and executed acts of deception and subterfuge which enabled her to continue in her trading and result in a loss to her employer of some HK$238 million.

47.  It is said that the judge placed too much weight on the size of the loss and did not give sufficient consideration to the fact that RBS would have suffered a loss in any event.  We do not agree.  It must be remembered that the applicant did not volunteer her misconduct to her employer – she was found out and had she not been found out she presumably would have continued trading.  The court cannot speculate on what the loss might have been had the applicant been discovered earlier, or what it might have been had the applicant not been discovered until later: it must sentence her on the basis of the actual loss at the time her conduct, in fact, came to light.  Courts always take into account in the determination of an appropriate sentence for an offender, the harm the offender has caused to the victim.  In white collar crime cases a ready, but not necessarily complete, measure of that harm is the financial loss caused by the offender’s conduct.

48.  However, it is said that this loss was not planned or intended.  Again, we do not see that this is particularly relevant to the culpability of the applicant; it is more reflective of her character.  The applicant knew that as a consequence of her actions her employer could suffer large losses but that was a risk she was willing to take.  It hardly lessens her culpability to say that she didn’t want her employer to suffer losses when she deliberately embarked on a course of conduct that she knew would expose her employer to the possibility of that very risk eventuating.

49.  This, as we have said, is a very serious offence.  Given that the maximum penalty is 14 years’ imprisonment and given the sentencing principles that have to be accommodated, a substantial sentence of imprisonment was called for.

50.  It is clear to us that the judge had regard to all the matters prayed in aid on behalf of the applicant.  We cannot detect in his Reasons for Sentence any failure to have regard to a relevant matter or of any error in placing undue weight on any relevant matter.  Notwithstanding that no error by him has been demonstrated in this regard, we have gone on to consider whether the starting point can be said to be excessive.  In this regard we bear in mind that sentencing is an exercise of judicial discretion and it must be shown that this discretion has miscarried before this court is entitled to intervene.  In this respect considerable leeway in assessing the appropriate sentence is accorded the trial judge by the appellate court.  Bearing in mind that sentencing is a discretionary act we are unable to say that, notwithstanding all that has been urged upon us by counsel for the applicant, the judge’s adoption of 6 years 3 months’ imprisonment as his starting point was manifestly excessive.

51.  In respect of the second ground of appeal, however, we believe the applicant is on stronger ground.  This is the ground that complains of a failure by the judge to provide a specific discount for the applicant’s act of restitution in respect of the bonus she received.  The law is well settled on this issue.  There must be a specific discount, in addition to the one-third discount for pleading guilty, awarded to an offender who makes restitution.  In HKSAR v Leung Shuk Man [2002] 3 HKC 424, Stuart‑Moore Ag CJHC said at pages 428 H-429 C:

“Even before the appellant was charged, she repaid the whole of the sum she had stolen as the judge recognised in his sentencing remarks. But despite this, the judge unfortunately, perhaps because of oversight, made no reference to this as a powerful factor in mitigation which justified a reduction in sentence beyond the usual one-third in order to reflect the compensation the appellant had paid to her victim. If the situation were otherwise, and a specific discount was not given for the payment of compensation or restitution, there would be no advantage to an offender who has repaid some or all of the ill-gotten gains to the victim, over and above the one-third discount the offender could necessarily expect to receive for a timely plea of guilty.

14. There are, of course, no guidelines as to precisely what discount should be given where compensation for a victim’s losses has been paid or partially paid.  The circumstances of each case will obviously vary.  A sensible use of the sentencer’s discretion will normally enable the offender to receive an appropriate discount.  In a case such as the present one, particularly where full repayment has been made, a significant discount, above and beyond the usual one third for plea, should plainly be given.”

52.  However, the extent of any discount that should be given is always a case sensitive matter.  The act of restitution will always reduce the harm to the victim and may or may not evidence genuine remorse.  In respect of this applicant we are satisfied that it does evidence genuine remorse.  But, as the judge correctly noted it goes only a small way to reducing the loss that RBS suffered.  Nevertheless, it does at least repay the whole of the bonus that the bank paid to the applicant, and this is not an insignificant amount.  In the circumstances of this particular case and this particular offender, we are of the view that a further specific discount of 4 months should have been awarded to the applicant for her act of restitution.

Conclusion

53.  For the reasons we have given, we allow the application for leave to appeal against sentence, treat the hearing of the application as the hearing of the appeal and allow the appeal.  We set aside the sentence of the judge and in substitution for it sentence the appellant to 46 months’ imprisonment.