HKSAR v. LO KING FAT AND OTHERS

HCCC 476/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL CASE NO 476 OF 2012

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Transcript of the Audio Recording
of the Sentence in the above Case

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COURT: I start my sentencing remarks by saying that I hope that this case is not just the tip of an iceberg, in that there are other company directors and major shareholders in Hong Kong who think that the law may be disregarded when it comes to restructuring publicly listed companies.

As far as the 1st count of conspiracy to defraud is concerned, the 1st and 2nd defendant showed a cynical disregard for sensible rules that are there to protect all investors in the stock market. The sign of a mature securities market is when proper methods are used to achieve a listed company’s objectives.

All that was intended in this case could more than likely have been achieved by proper methods, and Gerard McMahon’s evidence made that clear.

The 2nd and the 5th defendants have been convicted of a conspiracy to offer advantages. Any offence involving bribery in Hong Kong is a serious offence. Public sector corruption has to be rigorously investigated, and those convicted of committing it must receive condign punishment.

I accept that the 1st defendant was loyal to Tan, perhaps too loyal. But I am satisfied that he was aware that throughout the implementation of the conspiracy he was aware that he was taking part in a dishonest scheme, and well aware that proper procedures were being deliberately disregarded and improper procedures deliberately followed.

Loyalty can only go so far. It was always open to the 1st defendant to say to Tan, “No, Mr Tan, this is wrong I will not do it”.

As far as conspiracy to defraud is concerned, I am satisfied in the 2nd defendant’s case that he was an eager participant in the conspiracy and was well aware that what he was doing and what his objectives were was entirely wrong.

As I have said, corruption offences call for condign punishment.

In relation to the 2nd count, I am satisfied the 2nd defendant was well aware that the payments to Tan and the deal, the undisclosed deal, to allow him to retain his properties in the mainland were an inducement to Tan to bring the deal to fruition.

I am satisfied that the 5th defendant, who prepared many of the documents involved in the corrupt scheme, was well aware that the sums paid to Tan were inducements to him to bring the scheme to fruition. As a qualified accountant, he should have refused to take part in it and, at the very least, give a strong advice to the co-conspirators not to implement it.

As to mitigation, I find nothing in the circumstances of commission of the offence by any of the three defendants to be of mitigating value. All three defendants are mature men, they are men of clear record. But then I note that those who commit these offences, or these types of offences, are invariably of clear record.

I accept that there is no evidence that the 1st defendant did no benefit personally from the conspiracy to defraud, other than receiving a loan from Tan. I accept that the 1st defendant may have thought that it was of benefit to Benefun to implement the conspiracy. I accept that there is no evidence of the 5th defendant benefiting by way of an allocation of convertible notes.

The 2nd defendant, however, did benefit. He got what he wanted, a listed company, and it is a great pity that he felt he had to resort to dishonest and illegal means to do so.

I accept in the conduct of their defence in the trial, the defendants have been reasonable. It has been a long and difficult trial, but there was proper cooperation with the prosecution which I am sure was on the instructions of the defendants.

There were no spurious points raised, and there was no endless debate on such spurious points. There was a reasonable agreement of witness statements and agreed facts, and there were no delaying tactics.

I accept that there is no evidence of actual financial loss having being suffered as a result of a conspiracy to defraud by any independent shareholder. The loss, however, is there. It is a loss to Hong Kong’s reputation as a good and honest place to do business, and that reputation can be destroyed almost in an instant if practices such as the defendants engaged in become rife and are seen to go unpunished.

I accept that the three defendants are family men, and that their families are supportive of them and will continue to support them.

I accept that the 2nd defendant and the 5th defendant have engaged in positive works of charity for the disadvantaged. And all this makes it all the more sad that they should have become involved in an illegal scheme.

The sentences that I am about to impose are reduced by one year in each defendant’s case to reflect the matters that I find to be of mitigating value. The sentences must be ones of immediate imprisonment. Riding roughshod over the interests of a publicly listed company and engaging in a conspiracy to offer corrupt payments and advantages to the company’s chairman and major shareholder demands no less.

Extensive though the 1st defendant’s role in the conspiracy to defraud was, and the fact that it extended throughout the whole period of the conspiracy, I accept that he was under the influence and the domination of Tan. His sentence on Count 1, the only count on which he was convicted, is one of 3 years’ imprisonment. It would have been 4 years’ imprisonment had it not been for the mitigating factors.

The 2nd defendant’s role is greater. He stood to gain from the conspiracy to defraud and, in the short term, did gain greatly. His sentence on the 1st count of conspiracy to defraud is one of 4 years’ imprisonment. It would have been 5 years’ imprisonment had it not been for the mitigation.

On the 2nd count, the conspiracy to offer advantages, the 2nd defendant was, again, a major player, although not the architect of the scheme, he was more than happy to go along with it and his sentence on the 2nd count is also one of 4 years’ imprisonment. I would have taken a starting point of 5 years had it not been for the mitigating factors.

I do not accept, with respect, Miss Cheng’s argument that Count 1 and Count 2 must be regarded as part and parcel of the same offence. Therefore, 3 years of the sentence in respect of the 2nd count are to be served by the 2nd defendant concurrently with the sentence on the 1st count of conspiracy to defraud, and one year of the sentence on the 2nd count is to be served consecutively to the sentence for the conspiracy to defraud, taking the defendant’s total period of imprisonment to one of 5 years.

As for the 5th defendant, he played an active role in the early stages of the conspiracy to offer advantages to Tan. He prepared many documents to bring it to fruition. As I have said he could and he should have intervened at an early stage to stop it. I take account of the fact that there is no evidence of financial gain on the part of the 5th defendant, and I view his role in the 2nd count of conspiracy to offer advantages to be less than the 2nd defendant’s. I am of the view that the correct sentence for then 5th defendant is one of 3 years’ imprisonment - and it would have been 5 years’ imprisonment had it not been for the mitigating factors.

The prosecution has made no application for a costs order to be made against the defendants, and I do not prepare of my own volition to make one.

I do, however, make an order under section 168E of the Companies Ordinance that each of the defendants is not, without leave of the court, to be a director of a company or a liquidator of a company, or a receiver or a manager of a company’s property, or in any way whether directly or indirectly to be concerned or take part in the promotion, formation or management of a company for the period of 10 years from today’s date.

So if the defendants can stand up.

The 1st defendant, you are sentenced to 3 years’ imprisonment. The 2nd defendant, your sentence in total is one of 5 years’ imprisonment. And the 5th defendant your sentence in total is one of 3 years’ imprisonment.

And you are all subject to a Company Directors Disqualification order for 10 years.