HKSAR v. HSU MING MEI

DCCC649/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO.649 OF 2010

--------------------

--------------------

--------------------------

Reasons for Sentence

--------------------------

The defendant was convicted after trial on 24 counts of theft (Charge 1, 2, 4 – 6, 8, 9, 11, 12, 14 – 16, 18, 19, 32, 34 – 36, 38, 40 – 43, 46) ; and 7 counts of access to computer with dishonest intent (Charge 7, 10, 13, 17, 37, 44, 45)

Findings

The victims concerned are the account holders or the beneficial owners (hereinafter collectively referred as the “clients”) of various accounts with Merrill Lynch. The defendant was the private wealth manager of the aforesaid accounts. The defendant knew the clients were interested in principal protected product, however, the defendant in recommending structured product to them only emphasised the revenue generating aspect of the product and took the risk of diminishing in product value too lightly. The defendant knew she had caused the clients to believe that the linked bonds purchased in their accounts as shown on the Chinese statements provided by her were principal protected.

The defendant carried out unauthorized trading in the accounts and did not reveal these in the Chinese statements; she knew the clients did not understand English nor were they good in reading the Merrill Lynch statements or checking their account on-line from the Merrill Lynch website, and they relied on the Chinese statements provided by her as record of their accounts and investment. The defendant knew the clients trusted her and Merrill Lynch, and took her words as accurate.

In between September 2007 and February 2008, the defendant dishonestly effected a number of unauthorized transactions through the aforesaid accounts with a view to cover up the losses caused by the “principal protected product” recommended by her and losses caused by her unauthorized trading, assumed the rights of the clients appropriated the chose in action in question with an intention to treat the same as her own to dispose of regardless of the owners’ rights. The unauthorized transactions being:

1. Unauthorized transferred of funds (Charge 19, 32 and 46)

2. Unauthorized purchase (Charge 5, 6, 16, 36, 38)

3. Unauthorized sale (Charge 4, 9, 41, 42, 43)

4. Unauthorized payment of interest for loan (Charge 2, 8, 11, 12, 14, 18, 34, 40)

5. Unauthorized settlement of loan (Charge 1, 15, 35)

Further, in order to facilitate and or to cover up the unauthorised trading transactions, the defendant obtained access to the computer system of Merrill Lynch to manipulate the credit facility with dishonest intent to cause loss by creating new indebtedness to the clients. By creating a new indebtedness without knowledge of the clients, the defendant prevented them to know the real situation of their account and thus unable to act promptly to remedy the situation. (Charge 7, 10, 13, 17, 37, 44, 45)

As time pass, discrepancies were noticed, the discovery of the dishonest acts was triggered by an unauthorized transfer of US$37,200 from account D to account A (Charge 32). The defendant made excuse that the transfer was a company error and made a transfer of close amount into account D to settle the matter.

In the meantime, PW7 identified more problem, and the defendant admitted her fault in relation to 3 products and signed a declaration that she would compensate any loss resulted. Further, the defendant also signed to confirmed 4 products in account D to be principal protected. Thereafter more unauthorized transactions were discovered in various accounts, including another 2 transfer of funds in the sum of US$40,000 from account D to account C and US$274,000 from account F to account E (Charge 19, 46).

Mitigation

The defendant aged 49, a university graduate and has been a financial advisor since 2000, after she left Merrill Lynch, she has worked briefly in Singapore. She is single and lives with her father in Taiwan. She has been remanded for about 5 months before she was granted bail, thereafter because of the bail condition, she was required to stay in Hong Kong pending trial. During her stay in Hong Kong she did not have any employment.

Merrill Lynch has come into settlement with PW2 and PW6, and has offered full compensation to PW5, PW7 and PW8, though no settlement has been reached yet.

The defendant being an experience financial advisor should have knowledge that the securities and futures market was beyond her control, by engaging in unauthorized trading in the clients’ accounts she was risking their loss and it turned out that as a result of her dishonest acts losses were sustained.

Though the period of the present case concerned was about 5 months, the defendant had been the victims’ financial advisor from 7 to 2 years. The defendant had taken advantage of the trust they had reposed in her to operate their accounts without regard to their instructions or their investment needs and the investment risks that she exposed them to in the process. In order to cover up her unauthorized trading, the defendant transferred funds between the clients’ account.

I considered the present case involved a breach of trust. Further, this is not only a case of unauthorized trading, I considered the three transferring of fund were typical theft, the defendant had appropriated the property of innocent third party to cover up her fraud, and for charge 32 and 46 in no way these two can be taken as household transfer.

For the charges related to unauthorized trading, namely charge 1, 2, 4 – 18, 34 – 38, 40 – 45, taking into account of the circumstances of the case including that the victims either came into a settlement with Merrill Lynch or has been offered full compensation, I considered the appropriate starting point to be one of 18 months, for the defendant’s clear record I reduce it by 3 months , and for the admission of most of the prosecution case I reduce it by a further 3 months down to 12 months.

For charge 19, the source of fund of account D and account C both came from PW5, PW5 was the beneficial owners of both accounts, and as such PW5 did not suffer any loss of that US$40,000. For charge 32, a similar sum was transferred back into account D within the same month and thus the ultimate loss was negligible. For these two charges, I considered the appropriate starting point to be 24 months, for the defendant’s clear record I reduce it by 3 months, and for the admission of most of the prosecution case I reduce it by a further 3 months down to 18 months.

For charge 46 which concerned a transfer of US$274,000, again having taken into account that the victim has been fully compensated by Merrill Lynch, I considered the appropriate starting point to be 48 months, for the defendant’s clear record I reduce it by 3 months, and for the admission of most of the prosecution case I reduce it by a further 3 months down to 42 months.

I do not consider there to be any other mitigating factors that called for further deduction. However, as all charges concerned a continuous course of conduct related to the practice of unauthorized trading by the defendant within Merrill Lynch, I consider a concurrent order would be appropriate in the present case.

Order

Charge 1, 2, 4 – 18, 34 – 38, 40 – 45 each sentenced to 12 months imprisonment. Charge 19, 32 each sentenced to 18 months imprisonment.

Charge 46 sentenced to 42 months imprisonment.

All concurrent, making a total of 42 months imprisonment.