HKSAR v. CHEUNG CHUN YUEN, BARRY

DCCC 718/2017

[2020] HKDC 565

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 718 OF 2017

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REASONS FOR VERDICT

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1.  There are two defendants in this case, the first defendant Mr Barry Cheung Chun Yuen and the second defendant Mr Jacky Choi Tat Ying. They were both jointly charged with conspiracy to defraud, contrary to Common Law and punishable under section 159C (6) of the Crimes Ordinance, Cap 200. The second defendant pleaded guilty before trial. The first defendant also faces a second charge, fraud contrary to section 16A of the Theft Ordinance, Cap 210. The first defendant pleaded not guilty to both charges.

2.  After the 2^nd defendant pleaded guilty, he informed the prosecution that he was willing to assist them so his sentence was adjourned for him to give a non-prejudicial statement to the police. He did give evidence against the defendant as PW7.

3.  At all material times, Mr Cheung was the Chairman, executive director and major shareholder of the Hong Kong Mercantile Exchange, hereinafter referred to as “the Exchange”.  Mr Cheung, hereinafter referred to as “the defendant” was the sole director and shareholder of New Effort Holdings Ltd, hereinafter referred to as “New Effort”, incorporated in the British Virgin Islands with limited liability on 16 December 2008.  The defendant’s initial shareholding in the Exchange, 56%, was held via this wholly owned company, New Effort.  Mr Choi was the Chief Financial Officer at all material times and hereinafter referred to as “Jacky Choi”.

4.  After years of negotiation, from the 26 April 2011 the Securities and Futures Commission of Hong Kong, hereinafter referred to as “the SFC” authorised the Exchange to provide automated trading services pursuant to the Securities and Futures Ordinance, Cap 571.  On 17 May 2013, the SFC withdrew that Authorisation pursuant to the Ordinance and on the same day the Exchange surrendered the Authorisation.

5.  The particulars of Charge 1 are that both the defendant and Jacky Choi between May 2012 and May 2013 conspired together to dishonestly defraud the SFC.  Together they dishonestly concealed from or failed to disclose to the SFC material information in relation to the true financial position of the Exchange.  They caused and/or permitted false or misleading information in relation to the financial position of the Exchange to be supplied to the SFC and they caused and/or permitted the Exchange’s reports to the SFC to be prepared in such a way as to show a false or misleading financial position of the Exchange.  As a result of their dishonesty, they caused the SFC not to withdraw the Authorisation it had granted to the Exchange.

6.  The particulars of charge 2 is that between 12 April 2013 and 17 April 2013 the defendant, by deceit, namely by falsely representing to Sinomax Finance Ltd, that the entire shareholding in New Effort had not been pledged to any other person or entity as security, and with intent to defraud, induced Sinomax Finance Ltd, to commit an act or a series of acts, namely to part with a total sum of HK$30 million which resulted in benefit to the said New Effort or prejudice or a substantial risk of prejudice to the said Sinomax Finance Ltd, hereinafter referred to as “Sinomax”.

The Prosecution’s Case

7.  When the SFC granted the Authorisation to the Exchange to trade, it was subject to conditions imposed on the Exchange including financial conditions and a condition to disclose information on its financial position.  The defendant was aware of the standard of compliance from the Exchange expected by the SFC.  The defendant was an authorised signatory to all of the Exchange’s bank accounts.  All significant outflows of funds and banking activity from those accounts were authorised by the defendant. He was hands-on and had to know the financial situation at all times.

8.  The SFC required that the Exchange had sufficient financial resources in its accounts for the proper performance of its functions and obligations.  It had to have a stipulated cash reserve mainly to protect traders and investors using the Exchange.  However, almost from the outset, the Exchange had financial difficulties and breached the financial conditions imposed.  In part, this was due to low volume of trades and expensive overheads.

9.  Mr Reading, SC leading very able Juniors for the prosecution painstakingly showed the correspondence that evidenced the concern of the SFC that grew with time.  One can see from the letters, emails and bank statements that from about mid 2012 the position of the Exchange was becoming increasingly untenable.  At about the same time, the evidence of dishonest conduct and a conspiracy to defraud began.

10.  The 1^st letter of mindedness, hereinafter refer to as a “LOM”, was served on the Exchange by 21 March 2012.  It is a formal proposal by the SFC to withdraw Authorisation unless the Exchange can convince the SFC by representations to not exercise that power.  The Exchange must be given an opportunity to persuade the SFC not to withdraw Authorisation.  There were 3 such formal letters served by the time the Authorisation was withdrawn.

11.  The prosecution allege that the defendant conspired with Jacky Choi to defraud the SFC in the terms particularised in Charge 1.  The consequence of their dishonest agreement was that the true financial position of the Exchange was concealed from the SFC and/or the SFC was misled about it.  The SFC did not know that the Exchange, at the material times, did not have sufficient financial resources and was in almost constant breach of the conditions thereby causing the SFC as a public body not to withdraw the Authorisation.

12.  The type of fraud alleged in Charge 1 is what has become known as a breach of public duty fraud, that is where co-conspirators agree to practice a fraud on here, the SFC, with the intention of causing the SFC to breach its public duty.  The prosecution says there was an intention to deceive persons in the SFC responsible for exercising a public duty into doing something that resulted in them being deflected from their duty.  The SFC was induced into not withdrawing the Authorisation contrary to its public duties.

13.  The prosecution says that the defendant with Mr Choi dishonestly defrauded the SFC by furnishing misleading or even false information to avoid the Authorisation granted from being withdrawn by the SFC.  The relevant transactions were divided into five categories by the prosecution namely;

(a) dishonoured cheques;

(b) window-dressing of the financial position;

(c) false information;

(d) misrepresentation or misleading information and lastly;

(e) providing favourable snapshots of the financial position of the Exchange.

14.  In short, undoubtedly the defendant invested a lot of time and money in this Exchange.  He had confidence in its ultimate success but the conditions of the Authorisation meant its bank balance was of paramount importance.  The witnesses from the SFC confirm that to be the case.  The defendant and Jacky Choi in desperation had to resort to misleading reporting and even ultimately, misrepresentations.  They had to prevent the SFC knowing the true financial situation and of the almost constant breach of the financial conditions in the hope that the Authorisation would not be withdrawn before new investment or investors were brought in.

15.  Charge 2, the prosecution say the defendant borrowed money from PW4, Mr Suen, a director of Fully Field Limited.  PW4 had heard of the defendant, knew of the Exchange and had the $80 million the defendant required on a short-term basis.  The defendant told him he needed it urgently and they signed a six-month loan agreement even though verbally the defendant had said he only needed the money for three months.  As collateral, the defendant offered his entire shareholding in New Effort.  He subsequently borrowed money on two more occasions from Mr Suen.

16.  It is the prosecution’s case that despite the fact the defendant pledged his entire shareholding in New Effort as security to Mr Suen, he went on to pledge it again to PW5 Mr Ng from Sinomax who was at least in part induced by the defendant’s offer of his shareholding in New Effort as collateral to make a HK$30 million loan to New Effort.  Both witnesses produced an original share certificate for the one share of New Effort.  Both share certificates are not identical; there suspiciously purports to exist 2 certificates for the same share.  The defendant falsely represented to Mr Ng that the entire shareholding in New Effort had not been pledged to any other person or entity as security.

The Defendant’s Case

17.  The defendant’s case was that if Jacky Choi or his employees acted fraudulently and dishonestly, he was unaware of the fraudulent acts.  Nothing he did or said was either dishonest or part of any agreement with Jacky Choi to defraud the SFC.

18.  The defendant evidence was that the financial and discovery conditions imposed on the Exchange by the SFC were not strictly enforced.  The defendant was unperturbed when from time to time the Exchange could not meet the financial conditions because he firmly believed that the SFC would not withdraw the Authorisation for that reason alone.  Therefore, he had no motive, intention nor a dishonest mind to deceive or conspire with Jacky Choi against the SFC as alleged by the prosecution.  He had no reason or need to deceive the SFC.

19.  He was unaware of occasions where the SFC was given false information or misleading information nor was there any instructions to engineer favourable snapshots of financial records to keep the SFC in the dark about the reality of the cash balance.

20.  There were seven cheques ranging from HK$10 million to HK$35 million paid into the Exchange’s account but all were dishonoured, the defendant’s evidence was that he was unaware in advance that they would bounce.  Contrary to the prosecution evidence, he never gave instructions to not disclose to the SFC that those cheques of large amounts had been dishonoured.

21.  He also denied that he gave a general instruction to Jacky Choi to manipulate the weekly financial reports so that the SFC would be satisfied there appeared to be sufficient funds according to the financial condition.  The prosecution has described those six occasions referred to as window-dressing.

22.  The defence case is that he did not act dishonestly to defraud the SFC because there was no motive, need nor reason.  He worked hard to borrow money to keep the Exchange operating but none of his actions were illegal or dishonest.  He had to make personal loans and drip feed the funding into the Exchanges account almost on a weekly basis to keep it operational but that was not illegal or dishonest.  

23.  As for the second charge, the fraud, he never offered the share of New Effort to Mr Ng as collateral for the initial loan or throughout the material period.  He had told Mr Ng that he had no collateral to offer him when he borrowed HK$30 million.  The share certificate as collateral only arose later as a discussion when he had difficulty repaying the loan.

The Issues

24.  The credibility of Jacky Choi, the co-accused, is an issue.  His evidence is that the defendant was in charge, gave him instructions and they conspired together to keep the true financial position of the Exchange from the SFC for as long as they could.

25.  Was there a conspiracy? It is an issue whether the five alleged categories of dishonest behavior, acts or information submitted to the SFC amounted to deception or dishonest intention.  The transactions of each category were not intended to avoid the Authorisation being withdrawn but part and parcel of the daily operation of the Exchange and temporary legitimate measures until other investors committed funds which would ensure that all conditions imposed by the SFC were complied with going forward.

26.  If there was a conspiracy, was the defendant a party to it?  It follows on that the belief of the defendant is also an issue.  The defendant’s own state of mind is relevant and at issue.

27.  Therefore, the issues are whether there was a conspiracy to defraud and whether the defendant was a party to the conspiracy.  The credibility of PW7, Jacky Choi was challenged and for Charge 2, the credibility of PW5, Mr Ng was challenged.

The Law – Charge 1

28.  Dealing with the 1^st charge, the prosecution must prove beyond reasonable doubt that the defendant and Jacky Choi conspired or agreed together to do an unlawful act. A conspiracy is an agreement between 2 or more persons to perform an unlawful act or a lawful act unlawfully. The actus reus of conspiracy is the agreement itself. The mens rea of the offence is an intention to be a party to that agreement. The prosecution must prove that the defendant and Jacky Choi were acting in pursuance of a criminal purpose held in common between them. Assuming the necessary mens rea, once that agreement has been reached the offence is complete. Here the prosecution says the agreement was actually carried out.

29.  Mens rea is an essential element in a common law conspiracy. There must be an intention to take part and be a party to an agreement to commit the offence. It will continue so long as there are 2 or more parties intending to carry out the agreement. The unlawful act alleged by the prosecution is the agreement to use dishonest means with the purpose of causing economic loss to, or putting at risk the economic interest of another, or with the realisation that the use of those means may cause such loss or put such interests at risk.  I have been referred to Mo Yuk Ping v HKSAR 2007 10 HKCFAR 386 paragraph 40.  There, Sir Anthony Mason NPJ goes on to say the offence extends also to cases in which the dishonest means cause a person to act contrary to his public duty.

30.  In this case the defendant is accused of dishonestly bringing about a state of affairs which he realised will or may cause a person to act contrary to his or her public duty, knowing that he had no right to do so.  The prosecution say that the purpose of the conspiracy was to induce the SFC to act contrary to their duty by causing them to accept false financial information, misrepresentations, incomplete or omitted information as true, accurate reporting of its financial position satisfying the SFC, thereby allowing the Exchange to continue operating an automated trading system.

31.  Mr Kwok, SC also leading very able Juniors for the defendant, does not disagree that the SFC can be a victim and that this offence can extend to an intention to deceive a person responsible for exercising a public duty such as those decision-makers from the SFC into doing something which results in them being deflected from their duty.  Here, it would be an exercise of their duty to withdraw the Authorisation granted to the Exchange as a result of a failure to comply with a condition or conditions attached to that Authorisation.

32.  Whether the dishonest means agreed upon were dishonest depends on the test enunciated in R v Ghosh 1982 QB 1053.  That test for dishonesty is a two-stage test, 2 questions must be answered.  Firstly, were the means agreed to be used dishonest according to the ordinary standards of reasonable and honest people and secondly, did the parties realise that those means were, by those standards, dishonest?  A finding of dishonesty requires that both questions be answered in the affirmative.

33.  I quote again from Mo Yuk Ping at paragraph 43,

“In the context of conspiracy to defraud, it is becoming a party to the agreement to use dishonest means that constitutes the material element of dishonesty. Dishonesty involves a state of mind. Most cases of agreement to use dishonest means are cases of deceit. In other cases of dishonest means a defendant may agree to do something which he knows he has no right to do or believes that he has no right to do or he agrees to do something which is dishonest and he knows or believes that it is dishonest.”

34.  A defendant becomes a party to an agreement when he joins in an agreement with another conspirator.  The conspirators may not know the full extent of the scheme to which he attaches himself.  It may well be the case that one conspirator is more deeply involved in and has a great knowledge of the overall plan then the other.

35.  I will have to look at all the evidence as to what occurred during the relevant period, including the behaviour of the defendant, to decide whether there was a conspiracy to defraud and if so whether the defendant was a party to it.  Normally, people do not make agreements to do an unlawful act and put it down in writing or inform others.  Often, the evidence will show that conspirators acted together to bring about a particular result in such a way to leave no doubt that they were carrying out the agreement to engage in a common enterprise to do that unlawful act.

36.  The conspiracy may be proved by inference from conduct, including words spoken in furtherance of that conspiracy.  However, if that is the case, an inference can only be drawn if it is the only reasonable inference to draw from the proved facts.

Inferences

37.  By their very nature, conspiracies are hard to prove.  Either there is an admission, direct evidence of participation or usually the court is invited to infer that a conspiracy exists from individual acts or actions of the co- conspirators done in pursuance of the conspiracy or agreement.  It is of course well established that an inference of guilt can only be drawn against a defendant if it is the only reasonable inference to be drawn.  The primary facts from which the prosecution invites an inference of guilt must themselves be proved beyond reasonable doubt.

38.  Lord Diplock, in the often cited authority Kwan Ping Bong and Another v R 1979 HKLR 1 said at page 5:-

“The requirement of proof beyond all reasonable doubt does not prevent a jury from inferring, from the facts that have been the subject of direct evidence before them, the existence of some further fact, such as the knowledge or intent of the accused, which constitutes an essential element of the offence; but the inference must be compelling - one (and the only one) that no reasonable man could fail to draw from the direct facts proved”.

39.  In R v To Luen Sum (1995) 1 HKCLR 318, Bokhary J, as he then was, said at page 323:

“When it comes to looking at all the circumstances of a case and considering whether an inference of guilt is the only reasonable inference to draw from the primary facts on which the prosecution relies and of which the tribunal of fact is sure, it is true that the piling of layer upon layer of unconvincing material cannot result in proof of guilt beyond reasonable doubt, but that is not to say that items of fact, insufficient each in itself for the purpose of convicting, may not, when taken together, form a body of fact upon which it would be proper to infer guilt and convicted accordingly.”

40.  The prosecution relies on the collective evidence of each act they categorized taken together as being a body of fact upon which it would be proper to infer a conspiracy to defraud the SFC. The prosecution say that if the court considers them all together, the prosecution can prove the defendants were acting dishonestly. 

Charge 2

41.  I have referred myself to the elements of fraud and section 16A of the Theft Ordinance.  The prosecution has to prove that a deceit was practised by the defendant whether deliberate or recklessly with an intention to defraud.  That deceit induced Sinomax through PW5, Mr Ng to do something, which in this case was to part with HK$30 million resulting in a benefit to New Effort and a prejudice to the lender, Sinomax.

Condensed chronology

42.  I am grateful to the prosecution for preparing a detailed chronology as well as a summary of the incidents that the prosecution relies on to collectively point to a conspiracy to defraud the SFC. Those incidents have been divided into five categories with subcategories. I will be attaching herein that chronology and that summary of categories as Annex A and B. There is an Annex C where I have combined Annex A and B for a complete picture of the timeline, the prosecution’s case and for ease of reference.

43.  I will condense that summary here to highlight the prosecution’s case against the chronology and timeline. Obviously, I have not included every relevant event or category, just some examples. The prosecution did call live witnesses from the SFC and the Exchange to prove the chronology and the acts described in the categories of Annex B from their evidence and the documentary evidence.

44.  In November 2007 the Exchange was incorporated. Seven months later, the defendant was appointed the Chairman and made an Executive Director of the Exchange. In December 2008 New Effort was incorporated in the British Virgin Islands with the defendant as the sole director and shareholder. New Effort held 56 of the issued shares. This made the defendant the majority shareholder. In 2009, Jacky Choi was employed by the defendant. He worked under the defendant for a period of four years.

45.  On 4 April 2011 the SFC granted the Exchange an Authorisation to trade subject to conditions set out in the letter P3. Those included financial conditions and disclosure conditions as well as the requirement of the Exchange to conduct its business, operations and affairs in a manner that is honest, fair and consistent with the principles, procedures and standards reflected in the SFC’s guidelines on the regulation of Automated Trading Services. It dictated that the Exchange had to keep certain assets and a certain cash balance in the bank.

46.  By then, the original capital invested into the Exchange had depleted significantly and within a short period of time, the Exchange had difficulty in complying with the financial conditions.

47.  In August 2011 the defendant informed the SFC of a US$30 million rights issue to raise capital in order to meet their financial conditions, “1st rights issue”, P138. This is four months after Authorisation was granted.

48.  In September 2011, the SFC was concerned about the bank balance so not only required a monthly report but a weekly bank balance report showing the balance on the close of every Friday. The SFC also relaxed the financial condition, requiring the Exchange to maintain a cash balance of the equivalent of two month operating costs, hereinafter referred to as the “TMCL”, P4 and P6.

49.  On 9 March 2012 SFC wrote to the Exchange expressing their concern that the fact the bank balance had fallen below the TMCL, P15.

50.  On 21 March 2012 the SFC sent its 1st LOM, P16.

51.  On 25 April 2012 the SFC sent its 2^nd LOM, P17.

52.  On 8 May 2012 the Exchange deposited the first of the seven bounced cheques referred to in Annex A and B. Those cheques were deposited almost once a month, May, June, July, September, 2 on 10 October 2012 and lastly, January 2013. 6 of the 7 cheques were issued by Perfect Legend Trading Ltd.

53.  On 20 June 2012, the SFC again expressed concern and requested the Exchange report to the SFC immediately if the balance fell below the TMCL. If it did, it had 7 days to rectify it.

54.  On 29 June 2012, a Friday, the Exchange reported a balance for that day of $36.1 million when in reality $30 million did not arrive until the Monday after.

55.  On 17 August 2012, a Friday, the Exchange included in the bank balance weekly report a $10 million time deposit set up that same day. On the following Monday the defendant signed an application form to stop the payment of that $10 million cheque for that time deposit. The purported time deposit inflated the cash balance by $10 million.

56.  On 3 October 2012, a 5th cheque from Perfect Legend for $35 million was deposited but was dishonoured 2 days later on 5th October. The SFC were not informed.

57.  On 9 October 2012, a 6th cheque was deposited this time drawn on the account of Thunder House Electrical Appliances Ltd again for $35 million but was dishonoured on 10 October. The SFC were not informed.

58.  On 11 October 2012, $34,999,998 was transferred into the Exchange account by “Grand Smart”. The weekly bank balance report was due on 12 October, a Friday but the Exchange did not report to the SFC until the following Monday, 15th October and stated the balance for the previous Friday was $34.5 million, P99. That sum of money from Grand Smart ensured the Exchange was not below the TMCL for week ending 12 October and 19th October.

59.  On 22 October 2012, the SFC questioned the Exchange and asked where that sum of money from Grand Smart came from and warned the Exchange that the Authorisation would be withdrawn if the bank balance fell below half of the TMCL, P44.

60.  On 25 October 2012, the Exchange issued a cheque to Grand Smart for HK$35 million but it did not clear the following day. On 26 October, $25 million was transferred to Grand Smart’s bank account, a partial repayment of the previous loan. This reduced the bank balance to $3.3 million on 26 October, a Friday. However, the weekly bank balance report included that $25 million to Grand Smart even though it had been transferred out by 1:26pm on that Friday afternoon. The SFC were not aware of this.

61.  On 29 October 2012, the Exchange replied to the SFC’s query from 22nd of October and reported that the $34,999,988 million deposit was from Edmond Yan, DW2. (DW2’s evidence was that he never successfully brokered alone for New Effort or the defendant)

62.  On 15 November 2012, the bank balance had been reduced to only $562,000. On 16 November, a Friday, a transfer of $79,999,988 was deposited into the account from Fully Field, PW4’s company. That loan and the share transfer of New Efforts only share as collateral is evidenced in P111 and P115. Less than 2 hours later, a sum of $55.7 million was transferred out of that same account.

63.  On 30 November 2012, the defendant informed the SFC he would be arranging a 2nd rights issue to raise US$100 million by 13 December 2012. Clearly, this was the only way to ensure future compliance with the financial conditions.

64.  On 10 December 2012, a Monday, the SFC were informed that the bank balance on the previous Friday, 7 December was HK$32.83 million when in fact the balance was about $12 million. The SFC were unaware of this.

65.  On 12 December 2012, the defendant informed the SFC that the 2nd rights issue had to be delayed to 17 January 2013.

66.  On 7 January 2013, a Monday, the Exchange reported the cash balance for the previous Friday 4th of January to be $26.05 million when in reality the balance was $21 million.

67.  On 9 January 2013, the SFC were informed of a delay of the 2nd rights issue to 31st of January 2013.

68.  On 19 January 2013, the Exchange borrowed another $20 million from Fully Field, PW4’s company.

69.  On 21 January 2013, a Monday, the Exchange reported the cash balance for the previous Friday, 18 January to be $33.37 million when in reality balance was $21 million. On 24 January 2013 the SFC wrote expressing their concerns. They required information about all the short-term temporary funding and the temporary nature of the funds obtained to satisfy the TMCL. They informed the Exchange that the original financial conditions in exhibit P3 were to be reinstated and met by a deadline of 31 January 2013.

70.  On 25 January 2013, a day later, the defendant asked the SFC for an extension of that deadline to 31 March 2013. On 29 January, the defendant asked for an extension of the 2nd rights issue completion.

71.  On 8 February 2013 the SFC conditionally granted the defendants request and extended the deadline to 31 March 2013.

72.  On 4 March 2013, a Monday, the Exchange reported the cash balance of the previous Friday, 1 March to be $30.62 million when on that same Friday the Exchange transferred out of its account $28 million of that $30.62 million without informing the SFC.

73.  Again on 25 March 2013, a Monday, the Exchange reported the cash balance of the previous Friday, 22 March to be $31.9 million, P107, when on that same Friday the Exchange transferred out of its account $30 million of that $32.9 million without informing the SFC. The truth was that the closing balance on the Friday, 22 March was $766,000 only.

74.  On 28 March 2013 the Exchange asked for an extension of the deadline to 30th of April 2013.

75.  On 5th April 2013, a Friday, there was a transfer of $30 million into the Exchange from Fully Field which was repaid to Fully Field 2 days later on the following Monday, in full. However, the Exchange reported the balance of Friday, 5 April to the SFC as $30.28 million. After that repayment to Fully Field on that Monday, the cash balance was down to about $165,000.

76.  On 9 April 2013, the SFC issued a 3^rd LOM, P64.

77.  On 12 April 2013, a Friday, there was a transfer of a loan of $32 million into the Exchange from Fully Field. On the following Monday, 15 April, the Exchange reported the cash balance of that previous Friday to be $32.17 million. In reality, $18 million of that $32.17 million was transferred out on that same Friday without informing the SFC.

78.  On 16 April 2013 the Exchange replied to the 3rd LOM asking again for an extension of the deadline to 30 April 2013.

79.  On the following day 17 April 2013, Wednesday, Sinomax, via PW5, at the defendant’s request lent New Effort for the Exchange $30 million. On 18 April 2013, a Thursday, the Exchange told the SFC they had a cash balance of HK$32 million. Seeing as there was sufficient cash balance SFC extended the deadline to 30th April.

On 18 April 2013 the defendant made a presentation to the SFC himself. He explained how he was going to attract more investment and from whom and in what timeframe. He gave a PowerPoint presentation, P136A. It sets out the source of US$200 million from Dai Linyi in the form of 5-year convertible preference shares available end of April /early May. The shares were convertible into 24% share of Shandong United Energy Pipeline Transportation Company Limited (“The Pipeline Company”). This pipeline project is unrelated to the business of the Exchange. It sets out another source of US$30 million being a 3-year loan to New Effort from another investment company and to be available at the same time.

80.  On 19 April 2013 the SFC wrote to the Exchange after the PowerPoint presentation, P69. The SFC recaps the defendant’s proposal and timeline. The SFC extends the deadline to comply with all original financial conditions to 30 April 2013 with funds “in the form of unencumbered equity shares capital”. The conditions of the extension are strict, paragraph 9 of P69.

81.  On 18 and 19 April 2013, the Exchange paid out a total of $32.265 million to New Effort but on 22 April, the Exchange reported in P108 the cash balance in the weekly report for the ending 19 April 2013 as $31.793 million which was untrue and in fact the cash balance of 18 April. The cash balance for 19 April was in fact $7.4 million.

82.  On 30 April 2013 the defendant requested an extension of the deadline 3 May. The SFC were informed that there was a cheque for $250 million from Mr. Dai Linyi to be deposited on 2 May. The SFC were told it was part of the funding for the 2nd rights issue. The SFC granted the defendants request and extension, P79.

83.  On 3 May 2013, Jacky Choi told the SFC that the Exchange had received in an HSBC account belonging to the Exchange a sum of US$30 million from Dai, P83. He also told the SFC that the Exchange transferred out $11 million which was untrue. On the same day the SFC were informed that the HK$250 million cheque had been cancelled but Dai had deposited the US$30 million in the HSBC account instead, P82, P84 and P154.

84.  Here, I will add that it is the defendant’s evidence that Dai did not have the funds ready by 30 April 2013 so Dai suggested he borrow the money from a Mr. Ng who would extend him a bridging loan but that the US$30 million had to go into an account controlled by Dai. Since the Exchange needed it in their accounts to show the SFC, Ng could open an HSBC company account for the Exchange in a day because he had contacts there. Dai was to be the sole signatory. To arrange all this, Ng’s fee was over $4 million. Jacky Choi met Dai and Ng on the 2 May with a bankers draft for that amount. Subsequently, after amending a term of the agreement with Ng and amending the wording on an HSBC document so as not to arouse questions from the SFC, there was an HSBC Account summary document available and ready the next morning showing a deposit of US$30 million.

85.  The SFC questioned the origins of that US$30 million and the defendant reported back that the money came from Dai on behalf of a Mr. Kong Dexing. He also told the SFC that money was for the use of the Exchange. As a result of that information, the SFC decided not to withdraw the Authorisation, P85.

86.  However, on 8 May 2013, in P86 the SFC asked the Exchange for more details of the HSBC account. On 15 May, the SFC asked the Exchange for more details about the origins that US$30 million, P88.

87.  On 16 May 2013 4 cheques for $75 million each purportedly arranged by Dai were deposited into the Exchange’s Bank of China Account but all were dishonoured. (This was arranged because the SFC were dissatisfied with the fact Dai had sole control of the HSBC Account. The defendant said he persuaded him to transfer the equivalent or the US$30 million into their Bank of China Account.) On the same day, defendant wrote and told the SFC that Dai would transfer the money in the HSBC account to their Bank of China account, P90.

88.  On 16 May 2013 the SFC was informed by HSBC that the HSBC account summary received from the Exchange was a forgery, no such account in the name of the Exchange existed.

89.  On 17 May 2013 the Exchange surrendered the Authorisation granted, P92 and the SFC withdrew the Authorisation, P93.

90.  This condensed summary shows how the Exchange struggled to comply with financial conditions. The defendant constantly borrowed money to keep the Exchange afloat and the SFC satisfied. The correspondence and deadlines showed how the SFC was concerned about the financial status of the Exchange. In fact, their concern grew with time and obviously linked to the weekly reports of the Exchange’s financial position. The 3 LOM’s and the constant stream of emails and letters show that the SFC did expect compliance of conditions but did give the Exchange many chances to survive. The prosecution says that the SFC never had the true picture of the state of the financial situation to make an informed decision. The prosecution say this was deliberate, the defendant and Jacky Choi intended to conceal from or mislead the SFC as to the Exchanges true financial position.

Admitted Facts

91.  There are 3 sets of Admitted Facts in this case, P1, P223 and D27. In P1, the background of the Exchange and shareholders including the shareholding is admitted. The bank account details are admitted as is much of the relevant correspondence between the Exchange and the SFC. The material weekly financial reports submitted by the Exchange to the SFC are set out in paragraph 94. The documents pertaining to the loans from Fully Field and Sinomax are referred to and agreed.

92.  The details of the 7 dishonoured cheques between May 2012 and January 2013 are admitted. The video recorded interviews with the defendant under caution were admitted. Lastly, the fact the defendant has no previous criminal convictions in Hong Kong is admitted.

93.  Exhibit P223 admits details referring to the Bank of China Internet banking system registered in the Exchanges name and linked to material accounts. It sets out who were authorised users and their limitations. It is a fact that from February 2013 to March 2013 there was no report made known to the Bank of China that its corporate Internet banking services for customers was not operating without any service disruption or breakdown. A schedule of times when the service was suspended for system maintenance and upgrade was agreed and attached. There was also a breakdown of problems the Exchange reported to the bank concerning its use of corporate Internet banking services.

94.  It was prosecution’s evidence that there was occasion when the Exchange told the SFC they were late with the weekly cash balance report and the bank statement printout because of Internet banking services problems causing the delay. Yet, there was no report about the malfunction of the services ever made by the Exchange.

95.  In that same admitted facts, the company email account assigned to the defendant and other employees of the Exchange were agreed.

96.  In exhibit D27, the details of the subsequent arrests, prosecution and convictions of Dai Linyi and George Ong were set out and admitted. Chauncey Ng was also arrested the offence of using false instruments which were purported to be bank documents, released on police bail but fled the jurisdiction before he could be charged.

97.  The banker’s affirmations relating to the Bank of China Bank Accounts were exhibits P154, P155 and P156. P154 was referred to constantly during the trial to confirm when compared to the weekly bank balance reports and information given to the SFC by the Exchange in other correspondence, how the Exchange window dressed the cash balance, gave favourable snapshots of the cash balance, misinformed and misled the SFC about the cash balance and certain transactions.

Oral Evidence

98.  I will summarise the evidence of the prosecution and defence witnesses below. There is a repetition of evidence relating to confirmation of documents and emails between the prosecution witnesses but, it is necessary to demonstrate the knowledge of the witnesses.

PW1, Mr. Lui Kei Kwong Keith

99.  PW1 is the retired executive director of the SFC’s supervising markets division. He is most often referred to as Keith Lui in the many documents and emails produced during the trial. One of the functions of his division was to oversee the operation of operators of ATS. He explained how the Exchange was granted an Authorisation to operate a ATS in April 2011 after several years of negotiations and discussions. He confirmed that the Authorisation had financial and other conditions attached to it.

100.  His evidence concentrated on the end of the operation of the ATS. He confirmed ongoing problems came to a head in about April 2013 when the SFC suspected the Exchange could not comply with the original financial conditions. Much of his evidence was a confirmation of the emails and correspondences exchanged between the SFC and the Exchange which sets out the history and chronology.

101.  The SFC sent the defendant a LOM, P65 dated 9 April 2013 which set out the history of the Exchanges problems and inability to comply with financial conditions imposed. It was the third and last such formal letter. The Exchange responded, P68. The defendant was given an opportunity to make representations to the SFC by 5pm, 16 April. The defendant asked for an opportunity to make representations in person to the SFC board and he made a PowerPoint presentation on 18 April. PW1 was present. That slide show was produced P136A and B.

102.  PW1 gave evidence that this was the first time they had received written material from the defendant with regards to long-term funding possibilities and the SFC wanted more details and therefore allowed an extension to the end of April. This extension is evidenced in his letter to the defendant attached to the emails in P70. It summarised the meeting and subsequent telephone conversations with the defendant. It set out conditions for granting an extension to the end of April. And it set out consequences of failing to meet those conditions.

103.  In response to P70 the Exchange wrote to the SFC, P71 and clarified monetary contributions as required and set out a table containing the sources of temporary funding to the Exchange. PW1 gave evidence that the SFC took the table at face value, read it as true but had no way to verify it.

104.  Before the end of April deadline there were further correspondence between the SFC and the Exchange, P72 and 73. In P74 an email dated 30 April from Ann Cresce, the Exchange asked for a further extension and attached a copy of a HK$250 million cheque from Mr. Dai. The Exchange needed an extension because 1 May was a public holiday and they could not deposit the cheque until 2 May. The SFC granted an extension for the cheque to clear. PW1 had no reason to believe the cheque was not genuine. During that period of time PW1 and his colleagues spoke regularly to the defendant and his staff.

105.  On 3 May, PW1 and the defendant spoke on the phone and the defendant told him that the cheque was cancelled but the money was nevertheless being wired or transferred to the Exchange as they spoke. P84 was an email from the Exchange with a copy of a bank statement from HSBC attached as required by PW1 and the ledger balance was US$30 million. PW1 made further enquiries on the same day about the origin of that money and was told by the Exchange in writing and confirmed as requested in a telephone conversation between himself and the defendant that it was part of the US$200 million investment from Mr. Dai on behalf of a Mr. Kong Dexing, P153.

106.  PW1 was satisfied with the information in P84 and wrote a letter to the defendant extending the Authorisation to 30 June 2013, P85.

107.  PW1 confirmed the many emails and conversations in the last few days before the Authorisation was surrendered and withdrawn. P87 an email from Colin Lau, PW3 dated 13 May contained Jacky Choi’s email about Mr. Dai and the HSBC account in the Exchanges name. PW3 asked Choi why the cash balance in the Bank of China’s account had dropped to $3 million. P137 was his response.

108.  On 15 May PW1 wrote to the defendant, P88 and in it he refers to a conversation of 13 May. The letter asked why Mr. Dai was a signatory to that HSBC account in the name of the Exchange. It set out the grave concerns of the SFC. It would appear the Exchange did not have control of that $30 million in the HSBC account and the SFC wanted more information. On 16 May the defendant wrote to PW1, P90. The defendant told PW1 and the SFC that Mr. Dai was in the process of transferring US$38.7 million to the Bank of China account of the Exchange.

109.  In P90 the defendant attached copies of documents relating to the authorisation to open an HSBC account given to Mr. Dai by the Exchange. Mr. Dai was investing US$200 million in the Exchange as part of a rights issue and the US$30 million in the HSBC account was the 1st tranche of subscription investment. Mr. Dai wanted protection for those funds and at his request, an Exchange account was opened at HSBC of which Mr. Dai was the sole authorised signatory. The SFC found out on that same day,16 May that the Exchange’s HSBC account and that account statement sent to the SFC was a false account and a false document.

110.  Immediately after receiving P90, PW1 asked for a Bank of China statement to prove US$38.7 million had been transferred and received a statement at 4pm that day showing a total bank balance of HK$300 million. We know that sum of money comes from 4 cheques for $75 million each deposited and dishonoured on same day. However, PW1 said based on information they received from HSBC about the fake document they decided that the Exchange was non-compliant with the Authorisation and would withdraw it. He spoke to the defendant that evening and the defendant wrote a letter of voluntary surrender the following day, 17 May.

111.  PW1 said that if they had at any time suspected the Exchange had given them misleading or false information, they would have asked for an explanation. If not satisfied they would have issued a LOM with a view to withdraw the Authorisation.

112.  He explained that a LOM is the SFC informing the Exchange that they will withdraw Authorisation unless the Exchange can show why they should not. PW1 confirmed in his last LOM, P65, that he set out a history of the inability of the Exchange to comply with financial conditions. It is self-explanatory and shows the long-term and growing concern the SFC had.

113.  In cross examination, it was put to PW1 that after a few months of trading the Exchange was not doing well financially. The defendant asked to be able to trade in more commodities to improve their financial position but the SFC wanted the defendant to show a better financial position before giving permission to trade in more commodities. PW1 explained that the Exchange was open to the public so the SFC had to balance the interest of the Exchange against the public’s interest, be careful and protect traders.

114.  PW1 further explained that the defendant had wanted to trade in RMB products not US dollar products. There had been ongoing discussions between the SFC and the Exchange on how to launch new products. It was not a case that the SFC refused to grant more products until they improved their financial position but that the SFC wanted to be sure they could fulfil financial conditions. So in September 2011, to assist the Exchange, the SFC lowered the five-month critical limit to 2 months, about HK$31 million, hoping the Exchange would be able to comply.

115.  It was suggested to PW1 that the SFC withdrew Authorisation and the Exchange surrendered the Authorisation on the basis of a failure to comply with financial conditions not a failure to comply with disclosure conditions. PW1 agreed that in his notice of withdrawal P93 it stated that the Authorisation was withdrawn due to failure to meet financial conditions, the disclosure condition was not mentioned. However, PW1 said that the financial condition had more impact but both conditions had been a concern to the SFC.

116.  In cross examination, emails in Exhibits D1, D2 and D3 were produced and dated from late April 2013 and early May. It appeared the SFC were satisfied with the information from the Exchange about the source of temporary funding as well as the injections of money purportedly from Mr. Dai. It was suggested to PW1 that if Mr. Dai’s money had come through then the SFC would not have withdrawn the Authorisation even if it, the money was a couple of days late. He agreed. In exhibit D4, PW1 wrote that the defendant sounded calm after being told that the SFC was withdrawing Authorisation. The SFC by then knew that the HSBC account statement was a false document.

117.  In cross examination, PW1 was taken through the steps where the SFC first relaxed the original financial condition to one where there must always be five months operating expenses in the Exchanges account. In August 2011 it was relaxed to a three month operating cash position. In September 2011 the SFC relaxed it further, to a two month operating costs balance referred to as the 2-month critical level or “TMCL”. In June 2012, the SFC told the Exchange in P25, that if they fell below the TMCL then they had to rectify the financial position within one week. PW1 said that this was because, experience showed that the Exchange could rectify their position sometimes within one day or two days or seven days so the SFC felt they had to be given a deadline of one week.

118.  The SFC were well aware that the Exchange use temporary funding to bridge gaps and keep up the operating costs balance but the SFC wanted to give the Exchange an opportunity to improve. The SFC kept pushing the defendant to keep the balance above the TMCL on a long-term basis not just a short-term basis. He agreed that the SFC did not strictly enforce conditions. That is because the SFC under the law must give opportunities to the Exchange to try and rectify their position before withdrawing the Authorisation.

119.  PW1 agreed that in January 2013 the SFC wanted to revert back to the three original conditions by 31 January 2013, P52. That is because the defendant told the SFC that there would be US$100 million being raised by the shareholders by the end of January. There was a meeting and in that meeting the defendant asked for an extension of compliance to end of March instead of end of January. It was extended in P56.

120.  In P62 three months before the March deadline, the defendant asked for an extension to the end of April. In P69, the SFC grant an extension to 30 April on the understanding that the defendant would take action to rectify their financial position. The defendant told the SFC that there was to be US$100 million funding raised through shareholdings so the SFC gave them the opportunity and time to do this.

121.  In re-examination, PW1 confirmed that all variations in conditions and extensions given were based on what they were told by the Exchange. If they knew what they had been told was false, then they would have withdrawn the Authorisation sooner. If they had known there was false information they would have triggered the exit plan. He reiterated that the SFC believed everything they were told by the Exchange during the period the Authorisation was granted; there was no reason not to believe them. They had to rely on what the Exchange told them.

122.  He reiterated that the financial conditions imposed were important to the SFC, all businessmen involved with the SFC knows that these conditions are very important. The financial position is important. Integrity and conduct is important as well.

PW2 Leung Chung Yin Rico

123.  Rico Leung took over from PW1 when he retired in August 2019. He joined the SFC in October 2000. PW1’s evidence concentrated on the end of the Authorisation whereas PW2’s evidence started from the beginning. He explained that the SFC and the Exchange were in negotiation for years before the SFC granted the Authorisation for the ATS. He went through exhibit P3 which was the Authorisation document with conditions attached. He explained the general conditions, financial conditions, reporting and disclosure requirements as well as other conditions. The Exchange was allowed to trade in gold futures contracts only at first.

124.  Financial problems arose by September 2011 and the SFC concerns were expressed in P4. The SFC requested weekly bank balance information. Originally it was monthly reporting and the SFC required further weekly reporting. The Exchange had to inform the SFC of open and closing balances and later on they had to give the SFC their weekly expenditure details.

125.  When asked about the Exchange receiving cheques that were dishonoured, it was PW2’s opinion the Exchange was required to inform the SFC if there were dishonoured cheques of large amounts. If told of such a cheque then the SFC would discuss it and decide if further action was required: they would expect an explanation from the Exchange. Of the seven cheques bounced referred to in the admitted facts PW2 heard of one but was not told of the other six. He said he would have expected to have been told by the Exchange of all of them.

126.  He confirmed that in exhibit P5 and P6 and by September 2011, the Exchange had approval to trade in silver as well. PW2 knew that New Effort was the defendant’s company. By September 2011 the SFC was discussing with the Exchange how to fix their financial position when the Exchange told them that a US$30 million shareholding fundraiser was in place.

127.  PW2 explained that they could and did relax their financial conditions because the business level or turnover of the Exchange was low and the exposure or risk to investors was not high.

128.  PW2 was taken through exhibits P6, 7, 8, 9, 10, 11, 12, 14, 15, 16, 17, 18, 19 through to P30, a history of the correspondence between the SFC and the Exchange from September 2011 to July 2012. There were in total three letters of mindedness, 21 March 2012, 25 April 2012 and 9 April 2013. A lot of the emails specifically stated that the SFC had concerns. These emails show how the Exchange was non-compliant with financial conditions on many occasions. The Exchange told the SFC of certain cheque deposits and/or produced proof, for example P21, P22 and P29 but the SFC were not made aware that those cheques were subsequently dishonoured.

129.  The SFC was aware that the defendant was arranging personal loans to fund share purchases. The SFC could see funds of the defendant or New Effort were short-term loans to the Exchange so they eventually asked for details. The reply from the Exchange, P26 stressed that all shortfalls in the TMCL had been rectified quickly and would be within one week going forward. The Exchange said that they recognised and understood the gravity and ramifications of the requirements and possible failure to meet them. The letter explained that the defendant himself had personally arranged bridging financing from friends to fund the purchase of a partial amount of shares but these personal loans were not related to the Exchange itself.

130.  PW2 went through correspondence from P30 onwards from July 2012 to 17 May 2013 when the Authorisation was withdrawn/surrendered. He referred to P31, a letter from the SFC dated 30 July 2012 entitled “concerns about financial viability”. The Exchange had told the SFC that a shortfall of the TMCL on 12 July 2012 which was rectified on 24 July 2012 by a $10 million deposit was payment of subscription monies in respect of the US$30 million rights issue, 1st rights issue but three days later that $10 million was taken out of the account. In truth, it was just a short-term loan to boost the balance. The Prosecution say this is an example of window-dressing and false information. PW2 said that without the $10 million, the Exchange’s cash balance would be below the TMCL and therefore the SFC would have had to consider withdrawing Authorisation.

131.  By October 2012, the SFC wrote and said they wanted daily updates and any shortfall had to be rectify within one week, P37. The prosecution was demonstrating the SFC’s growing concern. In P38, the SFC asked why a $35 million cheque bounced and was given a reply, P45. The SFC did not know that this was the fifth cheque drawn by Perfect Legend Trading Ltd for $35 million that had not cleared. Of the 7 dishonoured cheques, they were told of 1 only.

132.  P52 is an important letter dated 24 January 2013 where SFC told the Exchange that they must revert to compliance of the original financial conditions set out in P3 by 31 January 2013.

133.  This led to P53 from the defendant, an eight-page letter and a request of an extension of the deadline from 31 January to 31 March. The SFC wrote to the defendant, P54, seeking more information before considering his application to extend deadline. In P56 the SFC extended the deadline with conditions and one of those conditions was that if New Effort borrowed any money in the future, the SFC were to be told of the lenders information. P57 was the defendant’s reply to P56 in which he accepts the SFC’s stringent conditions set out in P56.

134.  In that SFC letter, P56, personally addressed to the defendant, the Commission says at paragraph 6 that the 31 March 2013 deadline was to be treated as being “extremely critical”. If financial indicators were not met or the additional conditions in that letter were not met, then the SFC would take “immediate” steps to withdraw the Authorisation.

135.  PW2 confirmed P140 were notes of an SFC meeting on 25 March 2013 held just prior to the latest deadline, notes that were circulated internally. There was a proposal by the defendant who requested to temporarily delist Exchange which the SFC refused to consider. In P62, the defendant asked for a further extension to 30 April 2013.

136.  On 9 April 2013 in the third LOM, P64 the SFC rejects the request for an extension of time, rejects the suggestion to voluntarily delist and sets out the financial history of the Exchange. It sets out the SFC’s concerns about the Exchange’s failure to comply with the financial conditions and what factors amplified that concern. P67 was a reply to that letter with a promise of US$25 million injection by 30 April. In it the defendant requests a meeting which was held on 18 April 2013 with slideshows.

137.  PW2 agreed that the defendant wrote to the SFC on 30 April 2013, P79 to confirm a discussion had that day, if the funds needed by the Exchange to satisfy the 3 financial indicators are not in the bank account of the Exchange by 3pm on Friday, 3 May 2013 then the Exchange would voluntarily surrender the Authorisation. P80 was an extension from the SFC to 3 May to give time for the cheque to clear. Everything hinged on that cheque and those dates.

138.  P81 is an email with an attachment of a Bank of China customer credit advice showing $250 million credited on 2 May 2013 at 5:11pm.

139.  P82 is an email dated 3 May sent at 11:58am with an attachment of a copy of an HSBC account portfolio summary for US $30 million. PW2’s evidence was that when he saw this he believed that the HSBC document was genuine. He said that if there was no money deposited by that date then the SFC would have proceeded to withdraw Authorisation.

140.  There were a lot of emails sent between parties on 3 May and around this time. PW2 was referred to and confirmed the contents of P82, P84, P86 and then P137 which continues an email chain from 8th May, that is P86.

141.  Like PW1, PW2 confirmed the contents of P88 from the SFC to the defendant on 15 May referring to deadlines and Mr. Dai’s involvement and the defendants reply P90 on 16 May, signed by the defendant with some documents attached including Mr. Dai’s letter. P91 contains documents referred to in P90 which is a Bank of China account balance of HK$300 million. PW2 likewise confirmed that on 16 May they were made aware that the HSBC account was fake.

False information

142.  PW2 was specifically asked in chief to confirm certain false information reported to the SFC by the Exchange. In P58, the Exchange told the SFC that on 8 February and 15 February 2013 the Exchange had $29 million in its account but the reality was that on 8 February there was only $4 million and on 15 February there was less than $700,000. His evidence was that if the SFC had known the truth they would have asked the Exchange to rectify the financial level in a very short period of time. If unable to, the SFC then would have withdrawn the Authorisation.

143.  He confirmed the contents of P60, P61, P63, P66, P31, P144, P145, P146, P147, P148, P33, P99, P149, P150 and P151. Referring to these documents, he was taken to examples of the Exchange not giving a true picture of their cash balance and the SFC being kept in the dark. For example, the email chain of the exhibit P33 relates to the SFC’s concern the cash balance for the week ending 27 August 2012 would fall below $20 million, significantly below the TMCL. They demanded confirmation that the defendant himself was aware of this. Jacky Choi replied that the defendant was aware of the need to rectify the position immediately and that defendant was aware of the possibility of the SFC taking steps to initiate the withdrawal of the Authorisation.

144.  PW2 agreed that P150 says that on the 30 August 2012 the Exchange reported the daily cash position report as of the end of the day of 29 August 2012 to be $29,180,552.50. What he did not know was that the bank statement showed that the cash position as of the end of the day of 29 August 2012 was actually $8,306,611.96. The Exchange also did not tell the SFC that on 28 August 2012 $20 million was withdrawn from that account and on 30 August 2012 at 16:36pm a deposit was made into the account of $19,999,988.

145.  PW2’s answer was that if the Exchange had disclosed these transactions and the actual cash balance fluctuations then the SFC would have had grave concerns. They would have immediately contacted the Exchange and asked questions. If the Exchange was unable to answer satisfactorily in a very short period of time, then the SFC would consider the need to withdraw the Authorisation. This was his answer to every example of misinformation, misrepresentation, omission of information, window-dressing or favourable snapshot he was shown.          

146.  In another example, he gave the same answer when shown P59 where the Exchange explained a lower cash balance position by telling the SFC they had to pay an invoice of €900,000 to Cinnobar, their clearinghouse which the SFC accepted as true. In fact, it was not true. PW2 said if the SFC had known that this was not true then they would have immediately ascertained if the misrepresentation was deliberate. If it was a mistake, then they needed to know what was the true nature of that payment out which meant the cash balance was well below the TMCL.

147.  He confirmed the contents of P61, P152, P95, P97, P102, P103, P104, P94, P98 and P107. Again referring to those documents he was given examples of the Exchange not giving a true picture of their cash balance and the SFC being in the dark. PW2 confirmed again that if they knew the truth then they would have acted upon it then, made enquiries immediately of the Exchange and the Authorisation would have been in jeopardy.

Cross examination

148.  PW2 explained the original financial conditions and the SFC’s position about winding down the Exchange if necessary. If a contingency plan was to be activated, he said it would only take a few days because of the small number of investors. He explained the steps to be taken. He essentially explains why the SFC gave them so many extensions and chances to rectify their financial position. PW2 explained that every time they asked for an explanation, the Exchange had an answer and a promise of more funds which is why they were given time to rectify their position over and over again. If there was a deadline due, the defendant would successfully convince the SFC to extend it. However, he also explained why the SFC had more serious concerns and reservations towards the end.

149.  It was put to and PW2 agreed that the Exchange was given many many chances to rectify and they always manage to keep the Exchange in operation until the date of surrender. PW2 explained that the SFC made assessments and considered whether explanations made were satisfactory and if not they would probably have taken other steps.

150.  In cross examination D6 emails and D7 emails were referred to. The tone of cross examination was that the Exchange had demonstrated a failure to comply with financial conditions on many many occasions yet the SFC did nothing. PW2 was asked if this was the general attitude in the SFC, that is if the Exchange could come up with funding despite delay and so long as they could carry on operations then the SFC would give them time? PW2 said they were told of money coming in and cheques so they waited to see if funds were available. He explained that if the SFC withdrew Authorisation then the decision was irreversible so a couple of days made no difference to verify if funds were available or not.

151.  PW2 said they did not accept the fact that the Exchange did not disclose to the SFC that it had to make repayments of loans to others, he called it “a kind of misrepresentation”. He did not agree that it was not important for the Exchange to tell the SFC when large sums of money were coming in; the most important thing was that they maintained the cash balance. He said both disclosure and financial conditions were important. He said the SFC needed to know that the Exchange had the ability to fulfil financial conditions and payments to other market participants like investors. The SFC needed to know that a cash buffer was available to the Exchange and if big payments out eroded that buffer then the SFC needed to more closely monitor their financial position.

152.  It was suggested that the Exchange was not instructed by the SFC to inform the SFC of any dishonoured cheques but PW2 said it was common sense. If a cheque bounced and the cash balance went below the TMCL then the Exchange must mention it to the SFC. The SFC finally had to ask for weekly reports of big sums of money in and big sums of money out, so if a cheque was bounced then they had to be told. PW2 insisted that if there was any major movement in their account it was common sense they tell the SFC. He did not agree it was an implied requirement.

153.  He said if the SFC knew of dishonoured cheques it would have affected their decision making process and assessment of the Exchange; whether they should be afforded the same level of confidence. By January 2013 he described it as a critical moment whether the SFC should withdraw the Authorisation or not. Therefore, it was important to tell the SFC why cheques bounced. PW2 said that by January 2013 it was crunch time and information of dishonoured cheques would have been important. Yet the SFC were not made aware of dishonoured cheques nor large sums of money going in and out of the account.

154.  He agreed in cross examination that the 1st rights issue, share subscription of US $30 million had taken a year to complete. He recalled that when the defendant proposed a US $100 million share subscription he was very confident that it would be completed by 31 January 2013. It was because of his confidence that the SFC decided to revert back to the original financial conditions by that same date.

155.  He was asked in cross examination if the SFC had reservations about the defendant’s confidence in raising such a large amount of money in such a short period of time since it took a year to raise US$30 million. He agreed but said that the SFC had already considered the possibility that the defendant would not succeed by 31 January 2013 and the Exchange would therefore be unable to comply with the original financial and other conditions. The SFC had already decided that they were not prepared to be as patient and forgiving as they were whilst the defendant raised the US$30million, the 1st rights issue. They had already decided that they were going to withdraw the Authorisation if he failed by the deadline.

156.  It was suggested to PW2 that exhibit D6 showed that the SFC couldnot pull the plug on the Exchange for a financial reason only. That was an internal SFC email chain and included Mr. Ashley Alder, the Chief Executive officer of the SFC. It was not addressed to the defendant or anyone at the Exchange. They were discussing the fact that as of 7 January 2013 the Exchanges cash balance was $5 million below the TMCL and they could not rectify it within a week. Mr. Alder responded and wrote, I quote, “our problem is that we have exercised considerable restraint and allowed HKMEx to breach our thresholds and deadlines (in large part due to minimal trading in HKMEx contracts) it becomes more difficult to fix on an event to justify the plug.” In answer to this, PW2 said in all their letters to the defendant they reiterated that financial and disclosure conditions are important. This means, they did not tell the defendant Mr Alder’s thoughts. There was further reference to other internal SFC emails in exhibit D7.

157.  In re-examination he said that the SFC’s decisions were based largely on information provided by the Exchange therefore they were expecting the information to be accurate. He said that is what they would expect as regulators.

PW3 Lau Cheuk Colin

158.  This witness at the material time was the manager of the “supervision of markets” division. He was directly involved with the approval of the Authorisation granted to the Exchange. He supervised the compliance of the conditions imposed upon the Exchange in granting the Authorisation. He was shown the 3rd and last LOM dated 9 April 2013, P64 and confirmed that there was a chronology in it that set out the history of the SFC’s concerns. He confirmed it was the funding promised by the defendant, $250 million, which led to the SFC granting an extension to 30April 2013.

159.  He confirmed that the SFC were aware of the many short-term loans to the Exchange so it required the Exchange to inform the SFC of the purposes of all funds deposited and to state the types of cash injections, see P28, of 23 July 2012. This was important for the SFC to know what type of money was deposited into the account because if short-term only and not permanent funding it would affect whether the capital was enough for the Exchange’s operations. His evidence dealt with the period of time towards the end of the Authorisation.

160.  PW3 produced P152 and P137, email chains dated 3 May 2013 and beyond. In P137 he asks about the weekly report of 3 May 2013 and a balance of only $3 million. He explained that he asked this question because he could see that there was less than 3 million in the Bank of China account yet there was US$30 million in an HSBC account but since the payment currency was Hong Kong dollars for operational expenses, he thought it was strange to have only $3 million in Hong Kong dollars versus $30 million in US dollars.

161.  PW3 discussed this with Rico and Keith and decided to ask the Exchange about it. They wanted to know who was a signatory to the HSBC, was it a time deposit, who was authorised to use it and what was it to be used for. They wanted to know who was a signatory to the HSBC account to check if was really available for the Exchange to use. The SFC were worried about the very low cash balance in the Bank of China account. When told by the Exchange that Dai was the sole signatory, the SFC were very concerned and PW3 immediately sent P137 an email to his supervisor.

162.  There was no cross examination of PW3. His evidence went unchallenged.

PW4 Suen Cho Hung Paul (Charge 2)

163.  PW4 owned Fully Field Ltd who lent money to New Effort through the defendant. He was introduced to the defendant when he wanted to borrow money towards the end of 2012. In their first meeting, the defendant explained he was in urgent need of some temporary cash flow for a short term period not exceeding three months. He first borrowed $80 million telling PW4 that he would only need this cash short-term as other money was coming in soon. PW4 asked him if he had anything to pledge but he said not personally but New Effort would borrow the loan and he would be the guarantor. They had not met before.

164.  PW4 agreed to lend the defendant money but it was on condition that the Exchange shareholding was pledged against the loan. Solicitors were engaged to deal with the paperwork. The defendant had told him he had no personal assets to put up as collateral but agreed to pledge New Effort’s sole share which held the shareholding of the Exchange.

165.  P111 was the loan agreement dated 15 November 2012. It was written up as a six-month loan but verbally it was a three-month loan. The interest rate was high, PW4 said the defendant urgently needed money and he himself suggested that interest rate.

166.  P112, P113, P114 were all documents relating to this loan. In the share charge document the defendant’s company, New Effort was the collateral for the loan.

167.  PW4 was shown an original share certificate, P158 which he said he had seen and this was given to him as security for the $80 million loan. P158 was subsequently identified as the original share certificate given to PW5 not PW4 as security for his loan. PW4 was given P166. I will come back to this error.

168.  P116 was a second loan dated 19 January 2013, an additional loan facility for a further $20 million. Defendant told PW4 he needed money urgently. The first loan had not yet been repaid. He said the proceeds of his investment had not arrived but it was coming and therefore he needed more short-term cash flow. He was definitely referring to the Exchange. PW4 thought the Exchange had value, great value, so agreed to lend more without asking for extra collateral nor was any offered.

169.  P117 was signed on 5 April 2013 for a third loan of $30 million and was a three-day loan with interest payable of $100,000. Again the defendant came to see the PW4 and said he needed money urgently. PW4 still thought the Exchange had a lot of potential and wanted to help the defendant so he lent him more money. He was told the $30 million was for temporary cash flow. P162 was the bank transfer of that $30 million.

170.  PW4 said this $30 million loan was repaid in 3 days but the initial $80 million loan and the $20 million loan plus interest have still not yet been repaid.

171.  P163 was a request by the defendant for an extension of time to repay the total $100 million. It was dated 15 May 2013. PW4 found out about the Authorisation withdrawal by the SFC later on in the news. There was no cross examination of this witness. His evidence was not challenged.

PW5 Ng Hoi Shuen (Charge 2)

172.  PW5 worked for Sinomax Finance Ltd which was a moneylender, he looked for business for the company. His wife owned the company with another. He was introduced to the defendant through a fellow clansman. He had met the defendant on social occasions several times.

173.  P120 was a loan agreement where the guarantor was the defendant and the borrower was New Effort. The lender was Sinomax. PW5 said the defendant called him in April 2013 and told him that he needed some cash flow financing urgently. The 2 men met at the American Club. He told PW5 that they needed a certain amount as a guarantee required by the SFC regulators. He said he needed $30 million. He said he would pledge the company holding shares of the Exchange as security. It said in the agreement that the borrower was holding 61% of the Exchanges shares. The defendant had written this clause into the agreement that is, if there was a failure to repay all shares of New Effort would be transferred to the lender.

174.  He recalls that at the time of the loan there was a discussion of collateral and the defendant said only these shares were available as collateral and since Sinomax needed some protection, this was the only protection and only collateral. It was a discussion they held at the American Club when the defendant asked to borrow money. The loan was supposed to be for one month and interest was discussed.

175.  PW5 told the two shareholders of Sinomax that the borrower had 61% of the shares of Exchange and it would be provided as collateral. If they accepted this collateral and since the loan was a short-term loan, he thought they would agree. The short length of the loan and collateral were relevant factors. He said collateral was an important factor in agreeing to the loan. He recalled the defendant said he had no other assets to use as collateral, this was only thing he had. PW4’s evidence was that if there was no collateral available then the loan would not have been approved by Sinomax. He said that if there was no collateral available why would Sinomax lend money and how could the loan be approved without it. Having available collateral was their minimum requirement.

176.  PW5 said he knew at the time of the loan that the defendant was the guarantor and the borrower was New Effort. He also knew that the defendant was the sole director of New Effort. Clause 1.3 refers to collateral, he said the defendant offered to draft this term referring to the collateral. He said this agreement P120 was drafted by the defendant or somebody in the defendant’s company. No lawyers were involved in this loan agreement. He trusted the defendant so did not require or insist on lawyers drafting or advising. When asked why he trusted the defendant, he said several times that the defendant’s character was good and there was collateral.

177.  This witness confirmed they discussed the question of collateral when he met the defendant. He said they discussed the share of New Effort and that an instrument of assignment would have to be signed. He recalled it was the defendant who offered the share as collateral.

178.  In examination in chief he said that if there had been a problem with the collateral then no loan would have been agreed. He said that if he knew that the share of New Effort had already been placed or pledged with another person, there would have been no loan.

179.  He was shown P170 a share certificate of New Effort which he gave to the police. When asked whether P170 was the original or a photocopy of the share certificate he was unclear, not sure and said he could not distinguish. He was unsure if he got a copy of the share certificate from the defendant or the original from the defendant. He could not recall. That exhibit P170 is clearly a copy of a document.

180.  The confusion was cleared up when it was clear that he had had possession of it because he also later gave an original share certificate to the police, he had signed a receipt from the Hong Kong police, P173 as evidenced by PW9. He was shown P158 purportedly an original share certificate document and could see it was the original document of P170.

181.  He was shown in evidence in chief exhibits P171 and P172, a written resolution from the defendant as the sole director of New Effort, a resolution that he resigned as a director and a letter of resignation. He said he was given these documents when the loan was made in April 2013. He was shown exhibit P168 and P169 a share sold note and an instrument of transfer which he recognized. He also recalls being given original documents but gave them to the police.

182.  It became apparent to me during his evidence he was not comfortable giving evidence against the defendant. He did not want to be in the witness box. I was also informed he was suffering from depression. He said he was retired now, not in good health, could not sit for long periods of time and had problems with his memory. He said at one stage he hoped neither the defendant or Jacky Choi were in trouble.

Cross examination

183.  He said he was introduced to the defendant by a native clansman who was a childhood friend and a very successful businessman. It was suggested Jacky Choi drafted the original loan agreement but he did not know that for a fact. Yet he told the police in his statement that the CFO had drafted it. He explained that he was told it was Jacky Choi who drafted it but he did not actually know. He said that the defendant designated Choi to be his contact person. The two extension agreements were again drafted by the defendant or the defendant’s staff, not lawyers.

184.  It was suggested to him that Jacky Choi discussed the terms of the loan with him and not the defendant. He disagreed and said both of them discussed it. It was put to him that the defendant had no involvement after the American Club meeting and only Jacky Choi discussed it with him. He disagreed and said that he had more discussions with the defendant then with Choi.

185.  He was reminded about his interview with the SFC and what he said the SFC. He gave the SFC a draft of the loan agreement P120. In that draft there was no Clause 1.3 seen in P120. That article states that the borrower is willing to use all the shares of New Effort Holdings Ltd as collateral for this loan. PW5 said that it was added to the draft because there should have been some discussion about it and the issue of collateral was raised.

186.  He said in cross examination that he did not now remember the details leading up to the drafting of the loan agreement. It was put to him that the clause said the borrower was “willing to use” not that the borrower used the shares as collateral. He was asked if he could see the difference in the terminology and he said he could not see any difference. It was suggested to him but he had no recollection that the defendant had told him there was a problem with using the share of New Effort as collateral and then he said maybe that was the case. He later said on several occasions that he forgot when the defendant told him this but it was probably later, after the loan had been made.

187.  It was suggested to PW5 that he was told before the signing of the loan that there was a problem with the collateral but he suggested that he did not know until after there was a failure to repay the loan. He also said he could not recall. He was asked about when he got the share certificate and he was confused. He did not agree that the defendant told him there was a problem with pledging the New Effort share as collateral and therefore was not given the original share certificate at the time of the loan. He then said he did not know at the time of the loan that the share was not available as collateral. He also said that he may not have asked for the original at that time because the loan was based on trust.

188.  He did go on to say when asked about when he received the original share certificate that this loan to the defendant was based on a complete trust in him. He agreed that normally he would make sure that an original share certificate was handed over as collateral before a loan was made. He went on to repeat that he had complete trust in the defendant and the loan was based on this rather than the document drafted by the defendant. He said loans were normally arranged through lawyers from both parties but not on this occasion.

189.  It was suggested to him that he did not get the original until May 2013 but he could not recall. It was in May 2013 that there was a request by the defendant for an extension of time to repay. PW5 had no choice but to agree to an extension because he knew the defendant could not repay the loan. The extension document was exhibit P121 and in clause 2.3 it said that the borrower was willing to pledge all its shares of New Effort as collateral for this loan and delivers the relevant original share certificate & share transfer document to the lender for custody. It was suggested that he wanted more protection in May 2013 and that was when he received the original share certificate, not in April but he could not recall when.

190.  After that, lawyers were engaged and involved. This meant proper documentation was drawn up. There was a further extension in June 2013 when the defendant was unable to repay the loan, that extension document was P122. He agreed that the defendant had told him about the oil pipeline project in China when they were at the American club. He could not answer many questions relating to this, he said that there were details he could not recall now.

191.  It would appear that the defendants pipeline shares and New Effort share was used as collateral. The Pipeline project shares added protection during the second loan extension. The Pipeline shares were added because the New Effort share was not good enough for Sinomax. He agreed that it was not good enough because he knew there was a problem with the share. However, he had earlier said he only knew there was a problem at a later stage with the New Effort share. This was all in June 2013. This was when lawyers were involved.

192.  Exhibits D8 and D9 were produced. PW5 said by this time, when the loan repayment was extended the defendant had already told him that he was unable to repay the loan so these documents D8 and D9 were drafted as an afterthought for legal protection. He said previous documents had been drafted by the other side, meaning the borrower and signed with no lawyers engaged or involved because he trusted the defendant. At the beginning, PW5 said he only briefly looked at documents given to him because he trusted the defendant.

193.  It was suggested in cross examination that he was given a copy of the original share certificate P170 when the loan was signed but he was only given the original later in May when the first extension was requested. This witness could not recall.

194.  The defence essentially suggested to PW5 that when the loan was made there was no promise of share as collateral and the defendant had told PW5 that there was a problem with offering the share as collateral so gave him a copy of the share certificate. What the defendant said that problem actually was however, was not suggested to this witness.

The original share certificate of New Effort

195.  During the evidence of PW5 a problem arose and PW5 was excused. The prosecution realised that the original New Effort share certificate P158 produced by PW4 was the one in fact given to PW5. When PW4 gave a statement to the police he only produced a copy of the original certificate given to him by the defendant. The police did not seize any original share certificate from PW4. However, it appeared that from the evidence of the witnesses there were 2 originals of the same share certificate where there should only be one. The defendant’s evidence was that he had never seen the 2nd original share certificate produced by PW5; he had no knowledge of it nor its origin.

196.  The prosecution applied to recall PW4 and suggested he first be interviewed by the police to establish whether he was still in possession of the original share certificate. Mr. Kwok objected to PW4 being interviewed again, he said justice should be seen to be done. He said it was important to the defence case that PW4 had the original share certificate not PW5. After all, there should only be one original share certificate. It was the defence case that he did not give any original share certificate to PW4. He relied on paragraph 6 in PW4’s statement where he tells the police that the defendant gave him the New Effort share certificate to prove he owned that share. It states he gave the police a photocopy of the share certificate. The prosecution was quick to point out that in PW4’s second statement it said he gave the police the original share certificate.

197.  PW4 was recalled without first being interviewed again. It was ascertained that when he was interviewed by the police he gave them a copy of the share certificate he received from the defendant, P165. He signed a police chop to acknowledge that he gave this copy to the police. He reiterated that he was also given the original share certificate. After signing the loan agreement, the solicitors retained all documents. He said he would not have lent the defendant $80 million if he had not received the original share certificate.

198.  He was asked if his solicitors still had the original share certificate and he said he would have to contact his solicitor to ask. There was an objection by the defence to him making the phone call himself but I adjourned the hearing for him to specifically ask his previous lawyer if he had retained any original share certificate for New Effort. PW4 also asked his own secretary in the adjournment period to look for the same document in their offices.

199.  Whilst there was a discussion as to whether the police could assist his lawyer in looking for a document that was collected 7 years ago, PW4’s secretary arrived at court and gave him the original share certificate she found in his office, Exhibit P166. This document was the original of the copy P165 that he gave to the police during his interview in 2015.

200.  PW4 confirmed in the witness box that P166 was the original share certificate given to him by the defendant. He was not cross-examined on this evidence.

201.  In PW5’s evidence he produced what purported to be an original share certificate of New Effort P158 and P170, a copy of P158.

202.  When one compares the 2 original New Effort share certificates P158 and P166 there are differences. The shareholder “name” is in different places and the signatures are slightly different and in 2 different colours. P158 appears to be an incomplete share certificate in that it is missing the top quarter of P166 which states the name and address of the shareholder, the defendant and the fact there is 1 share, the value of that share is US$1 and the consideration paid is US$1. They are clearly 2 different documents.

PW9 Ho Lai Him

203.  PW9, the last prosecution witness was a police officer in the Commercial Crime Bureau Fraud Section during the time of the investigation of the defendant. He participated in arrests and seizures as well as taking statements. He was called to confirm that he did on 1 September 2015 seize from PW5 an original share certificate for one share of New Effort. Mr. Ng gave him this document in Ng’s own office and both men signed a police receipt confirming this seizure, P174.

204.  He was cross-examined but the fact that he did receive from Mr. Ng what purports to be an original share certificate was not challenged. What was confirmed was that initially Mr. Ng when first interviewed by the police, had given the police a photocopy of the share certificate he received and only later did he give the police the original. PW9 had a recollection that the original document was initially filed with a civil action and unavailable. The police knew there was an original document but could initially only seized the copy.

205.  He was able to confirm in cross examination that P158, was not the original share certificate that was given to PW4 by the defendant, meaning it had to be the one given to PW5 of Sinomax. PW9 compared or crossed referenced it to the receipt signed for by PW5, the original and to the copy of a share certificate attached to Mr. Ng’s witness statement. This was not challenged by the defence.

PW6 Ignatius Lau Yiu Lun

206.  PW6 was an accounting manager at the Exchange at the material time. One of his duties was to organise and prepare the financial reports for the SFC. He did not know of the conditions imposed by the SFC when the Authorisation was granted, he just knew he had to prepare a report when told. He knew that from September 2011 he had to prepare not only a monthly report but a weekly report. He explained what the reports contained.

207.  When completed, he would send them to Jacky Choi as the CFO to review and approve. Jacky Choi would change how they were presented, change the format and then PW6 would amend it, scan it and send it to the legal department.

208.  He was shown a number of documents and weekly bank balance reports. For example, he explained what the term payment and vendors would mean, that is their suppliers. He confirmed that there were reports of short-term advances and repayment of term advances included when shown P176. The main purpose of showing him the documents was to confirm that on several occasions the SFC were not given the true picture of the Exchanges financial position. I donot propose to repeat all exhibits he was shown and his answers.

209.  He was shown exhibits P177–179 which illustrated how a $10million time deposit was arranged by him in an ICBC account as instructed by Jacky Choi. This amount was included in a weekly bank balance report of 17 August 2012 to the SFC, P179 which made the bank balance $32.5 million. This would have satisfied the SFC’s conditions. However, three days later, P180 Jacky Choi instructed him to stop that payment of that cheque for that time deposit. P180, a bank document was signed by the defendant. No deposit was ever made but the sum of $10 million appeared in the weekly report as available financial resources to the Exchange. The prosecution described this as a misrepresentation or misleading information given to the SFC.

210.  He was shown P181, an email addressed to Jacky Choi dated 24 August 2012 informing him that the Bank of China bank balance as of that day was less than $1 million, it was $976,000. He was then shown P182 an email from Jacky Choi to PW6 showing an email from the defendant to Jacky Choi telling Jacky Choi that the amount should be $$27,736,700. PW6 understood this to mean that Jacky Choi was telling him that funding was coming in to bolster the Exchanges cash balance to that amount.

211.  He was shown an email, P33 where the SFC are reminding the legal department and the finance department that the Exchange must have enough operating costs in their accounts to cover 2 months’ expenditure, a reminder of the TMCL required. PW6 said he did not know of this two-month critical level financial requirement. It is referred to again in P33, some emails which included him but he said he had no idea what it was about.

212.  He was shown another group of exhibits, P187-189 and P190-192 which essentially showed the cash position of 9 October 2012 was below $2 million. There was then a cheque received by the Exchange for $35 million which was banked and included in the bank balance weekly report of 12 October 2012 informing the SFC that the Exchange had HK$34.503 million. P189 is an email from PW6 to Jacky Choi to say that the Exchange had received $35 million He said he did not know that the $35 million cheque did not clear on 10 October 2012.

213.  There is evidence of a deposit on 11 October 2012 from Grand Smart Holdings Ltd for $34,999,988. There was then an express transfer application dated 25 October 2012 for a payment of HK$25 million to Grand Smart Holdings Ltd. He did not know what that payment in and then out was for. The prosecution say this was an instance of window-dressing by the Exchange.

214.  He was shown exhibit P199. He informs Jacky Choi by email on 30 November 2012 that the Exchange will receive $34.2 million that day but that he had to pay out $30 million the following Monday. He wrote to him and said that “we are safe today”. He said he did not recall the meaning of that sentence when he wrote it. The fact is, that “today” was a Friday and the day the weekly bank balance report was due to the SFC.

215.  P208 are a series of emails from PW6 to Choi dated 27 February 2013 with an attachment for a daily cash position for 26 February of $20.2 million. There was another attachment with a copy of a telegraphic transfer to Cinnobar for €900,000. He did not prepare this telegraphic transfer and he did not know if there was such a transfer made. He confirmed that the telegraphic transfer application form was signed by the defendant. The evidence from others is that the SFC were told by way of an explanation that the cash balance was low because of this €900,000 payment but it was not true. This payment was never made to Cinnobar.

216.  He confirmed from exhibits P209 and P211 it showed Fully Field Ltd (PW4’s company) paid into the Exchanges bank account HK$30 million on 5 April 2013, a Friday at 16:37:37pm and the same amount was transferred to Fully Field on the Monday at 11:36:55am. He did not know why this amount came in on a Friday and was transferred out on a Monday.

217.  In cross examination he was only asked to confirm that there had been on occasion issues with the Internet banking and that there has been a problem with logging in and out of the Bank of China account as well as printing out account balance information. He did not know how and when problems were resolved but said it happened occasionally.

PW7 Jacky Choi Tat Ying

218.  PW7 is the co-conspirator who pleaded guilty on 6 November 2018. He admitted a separate set of facts specifically prepared for his plea. His sentence has been adjourned until after the completion of the trial. He indicated that he would give a non-prejudicial statement and assist the prosecution on the day he pleaded guilty.

219.  There is of course the need to be ultra-cautious when a co-accused gives evidence against another. There is always the added incentive of a further discount in sentence. I have taken into account his identity as an accomplice witness when considering his credibility and taken into account the submissions made by Mr. Kwok as to the circumstances in how he indicated he would assist the prosecution.

220.  He joined the Exchange in April 2009, two years before Authorisation was granted. His title was Chief Financial Officer, CFO and he managed the financial department and its accounting operations. PW6 and Anita Tsang worked for him in the finance department. Their names are often seen in correspondence. He was not on the board of directors but would sometimes attend meetings at the request of the defendant. When the Authorisation was granted to operate an ATS, he was aware of the SFC conditions in its letter, P3 dated 26 April 2011.

221.  At first, according to the conditions imposed by the SFC, the Exchange had to have at all times the equivalent of 9 months operating expenditure in its accounts. The Exchange was required to provide a monthly financial report to the SFC. He confirmed that by September 2011, five months after the Authorisation was granted the SFC relaxed the required funds from 9 months to the equivalent to 3 months which was then not long after, reduced further to the equivalent of 2 months operating expenditure, the TMCL, just over $30 million.

222.  These conditions were relaxed by the SFC because the Exchange was having difficulty in complying with those financial conditions and after discussions with the SFC. When it was clear that the monthly expenses of the Exchange regularly outweighed its income, the SFC required not only a monthly report but a weekly bank balance report. The SFC wanted to know the Exchanges financial position at the close of business every Friday to be reported to them every Monday.

223.  PW7 confirmed that the Exchange had an account with Bank of China and ICBC. The defendant was the sole signatory to the Bank of China account and both he and the defendant were signatories to the ICBC account. He explained that his colleagues in his department would prepare those required reports for his review and then they would be passed on to the legal department before submission to the SFC.

224.  PW7 agreed that they were meant to report the financial position of each Friday but if funds were due but had not yet arrived, they would wait for those funds to arrive before submitting that report to the SFC.

225.  The defendant was based in the Exchanges office and PW7 had contact with him when necessary or if the defendant had instructions for him. The defendant would instruct him to make payments he wanted the finance department to make or told them to pay attention to funds coming into the account or to prepare cheques or remittance forms for the defendant to sign.

226.  In chief, PW7 confirmed that there were seven cheques drawn on the account of Perfect Legend Trading Ltd and Thunder House Electrical Appliances Ltd that were all dishonoured. They were deposited almost one per month from May 2012. After every cheque bounced, the defendant would be informed. The defendant told PW7 that it was a friend lending him money and he would follow up himself. PW7 asked him if they needed to report the failed transactions to the SFC and the defendant said that there was no need. That applied to all seven cheques. The SFC only found out about one of the seven cheques as shown by the correspondence in P38. The SFC knew that a $35 million cheque was dishonoured and the cash balance of the Exchanges account went down to $2.18 million as a result.

227.  Those seven dishonoured cheques did concern PW7 but the defendant said on each occasion he would deal with it and in most cases there were funds deposited in the account not long after. He was only concerned that there were enough funds in the account to report to the satisfaction of the SFC. He had no idea where the funds were coming from, he knew that the defendant often arranged loans from his friends but he had no idea of the terms of any loans secured by the defendant. PW7 said as long as there was money coming in from somewhere he would take it into account.

228.  He was aware that often before these cheques were deposited, their cash balance was very low. He would hope that cheques cleared because if not they did not have the capital for operating costs required by the SFC, the TMCL.

229.  In chief, PW7 was taken through every incident of window-dressing, creating favourable snapshots, false information given or facts misrepresented to the SFC. He was shown every supporting document, email, letter and bank statement. He explained why he did it and how it was done. He explained what were personal loans from the defendant’s friends, short-term loans that spanned weekends as well as large transactions in and out.

230.  He said in chief that the dishonoured cheques, the short-term loans, the constant repayments of loans were all activities that concerned him as the CFO. Timing of these loans and credits were crucial and the timing of deposits were monitored carefully by the accounts department under his instructions. He would have to wait until there was enough cash deposit before they would report to the SFC that there was the TMCL available.

231.  He agreed that the reporting was designed to satisfy on paper a compliance of the financial condition imposed by the SFC. He agreed that the loans made by the defendant for the Exchange had no business or commercial purpose. They were only to increase the cash balance to be in compliance and show the SFC the TMCL was satisfied. After the weekly report was made then usually money was withdrawn and the balance would drop below it.

232.  He agreed that the SFC became aware of this inflating the cash balance on a Friday for it to be reduced by the Monday. There was a meeting with the SFC in August 2012 attended by both the defendant and PW7. The SFC were unhappy with this practice and warned them and the Exchange to stop it. Paragraph 1 of P220 refers to the concern. He agreed that despite that warning, they continued to misrepresent the cash balance on occasions when needed.

233.  He agreed that there were occasions where the Exchange gave a false cash balance because money or loans due to arrive were late. When this happened, they would add it to the cash balance before it arrived. The defendant would tell him in advance how much was coming in. The SFC were unaware of those occasions. He was taken through every occasion where the Exchange lied to the SFC about the true cash balance and said the Exchange did it to increase the cash balance to satisfy the TMCL. He said in evidence that this was not his idea or his plan but the defendant who told him and instructed him to wait for money before reporting the cash balance to the SFC. PW7 knew this was necessary to satisfy the TMCL.

234.  He agreed that the weekly report was meant to be the balance on a Friday but on occasions he had to wait for money to come in to satisfy the TMCL on Monday but nevertheless told the SFC that that balance was already there the previous Friday. He agreed it was not accurate reporting but it created the impression that the Exchange had sufficient bank balance.

235.  He did not get instructions from the defendant to do this on every occasion, every week but it was a general instruction from the defendant in mid-2012 that he continued to follow. The defendant had instructed him and the Exchange to as much as possible, make the cash balance look as great as possible. PW7 did it even though it misled the SFC. This instruction was never withdrawn by the defendant.

236.  He would regularly be told by the defendant when money would be coming in and how much. He was told to wait for and confirm those instructions. He was also given instructions to write cheques for repayments. All cheques were signed by the defendant and drawn on the defendant’s instructions for example, if for loan repayments, who to pay, when and for how much. Often large sums of money were paid out either on the same Friday or the Monday. There were numerous cheques payable to New Effort but that was because New Effort borrowed money on behalf of the Exchange and New Effort needed to repay those loans. PW7 would never asked the defendant about the money payable to New Effort, he or his colleagues would just prepare the cheques as instructed by the defendant.

237.  He agreed there were those occasions where the SFC were told a particular balance which satisfied the TMCL on a Friday but later on the same day money would be transferred out such as loan repayments which depleted the cash balance to well below the TMCL. He said as the CFO he was concerned about this practice and did discuss this with the defendant. He asked the defendant if the cash could remain in the company account and not be repaid to lenders so quickly or soon after deposit. The defendant said there was no other way.

238.  PW7 had no input nor was he any part of the decision-making process as far as loans were concerned; the defendant took control of that. He gave evidence that he personally had no benefit from over reporting the cash balance, lying to or misrepresenting facts to the SFC. The only entity to benefit from keeping the SFC in the dark or ensure they did not ask too many questions was the Exchange.

239.  He was specifically asked about the lie he told to the SFC to explain a shortfall in the TMCL in February 2013. He told the SFC that the Exchange had to pay Cinnobar €900,000. Exhibit P208 purported to show that payment on 26 February. PW7 said that application to pay was never processed. There was a payment out on that same day however to an account he did not recognise for $20 million.

240.  He said that at that time the cash balance had been depleted to repay loans taken out by the defendant. Since the SFC had already expressed concerns about loan repayments and they did not want to explain those repayments, the defendant and PW7 decided together to say this shortfall was due to the Cinnobar payment. PW7 said at that time Cinnobar was actually chasing the Exchange for payment so they used their name in vain.

241.  In March 2013 PW7 said there was so much cash flowing in and flowing out that not only did Ann Cresce misrepresent a deposit as a share fund injection but the Exchange described deposits as shareholder funding or loans. The SFC by then required an explanation of the source of any large deposits. If the Exchange reported every transaction in and every transaction out, then the SFC would ask many questions. So much cash was going in and out that it would be troublesome to explain to the SFC. PW7’s department would have to answer so many questions about the source of funds. PW7, in turn would have to ask the defendant for so much detail and explanation to satisfy the SFC’s predicted queries. That is because PW7 himself had no idea about the provenance of these deposits and withdrawals despite being the CFO. They were all generated by the defendant.

242.  He knew of the loans from Fully Field to the defendant, all three loans. He knew the defendant asked Sinomax to lend New Effort money with an instruction that the loan be paid directly into the Exchanges account. PW7 was not involved in the negotiation of the Sinomax loan nor did he know who was in charge of it in Sinomax.

Mr. Dai Linyi

243.  After the third LOM the defendant attended a meeting at the SFC and made a PowerPoint presentation on 18 April 2013. He presented the planned funding for New Effort. A Mr. Dai intended to buy US$200 million convertible preference shares. In exhibit P73 there is a letter to the SFC dated 30 April 2013 confirming the proposed funding that would solve all of the Exchanges financial problems. There was a reference to a subscription agreement signed by Dai, P142, drafted by PW7 on the instructions of the defendant.

244.  PW7 met Mr. Dai a couple of times and recalls the defendant arranging a meeting at a Bank of China branch to do a transfer or a remittance. The defendant and PW7 were present. PW7 confirmed that Dai gave the Exchange a cheque for $250 million on 30 April 2013. He was subsequently told that it was dishonoured. By then, PW7 knew that the Exchange had opened an HSBC account for Dai’s money.

245.  This was a critical period for the Exchange because the deadline for complying with all the original financial conditions was 30 April 2013. Dai’s investment would save the Exchange and he had promised the first tranche of $250,000 by the end of April. On 1 May 2013, a public holiday, PW7 received a phone call from the defendant asking him to help Mr. Dai open an HSBC account. He wanted PW7 to prepare documents needed for setting up an account such as the memorandum and articles of the Exchange, a board resolution to approve the opening of a new account and the Certificate of Incorporation. PW7 did not give evidence to the effect that he met the defendant, Dai and Mr. Ng Chor Sun, Chauncey to discuss a bridging loan on the 1 May nor was this put to him in cross examination.

246.  On the morning of 2 May, the defendant arranged for PW7 to meet Mr. Dai at an office in Central where Mr. Dai introduced him to a Mr. Ng. Dai told PW7 that Ng would help open an HSBC account very very quickly as he had contacts in the bank. He passed Ng all those relevant Exchange documents and waited outside.

247.  Before meeting Dai that morning, the defendant told PW7 to go to the Bank of China and buy a banker’s draft before the meeting. The defendant told him to buy one for HK$4.656 million payable to Ng Chor Sun which the defendant told him was a cost to be borne by the Exchange because Dai’s US$30 million fund was being deposited earlier than expected. When he met Dai he was shown an agreement made between the defendant and Dai. It was an agreement to help the Exchange open a bank account. And in it was a condition that every time the Exchange requested an HSBC bank statement there would be a US $50,000 charge “other than today and tomorrow”. PW7 had to verify this with the defendant and there are some phone messages between them. The screenshots of those messages were compiled and in exhibit P219A (1-8) a photo album.

248.  There is a message from the defendant telling PW7 to change that term of the agreement from “tomorrow” to “Monday” meaning the Exchange had 2 free bank statements coming. Thereafter they had to pay US$50,000 per statement. There was another message where PW7 said Dai had shown him several samples of HSBC bank statements and on them were printed the words “offshore & confidential” which he thought was very strange. He said if he thought it was strange then the SFC would think it was strange therefore, he asked the defendant about them. It was decided to delete the word offshore. PW7 left without giving either man the banker’s draft. He said it was later cancelled because Dai did not give the Exchange an updated bank statement as requested.

249.  The following day, 3 May, either Dai or the defendant told PW7 that an account had been opened at HSBC and US$30 million had been transferred into it. The SFC were informed and a copy of the HSBC account summary was sent to them. PW7 did not know until after the Authorisation had been surrendered and withdrawn and when the Exchange were being investigated that the HSBC bank account summary was a false document.

250.  PW7 was asked about four cheques each for $75 million all deposited on 16 May 2013, two in the Exchanges current account and two in the Exchanges savings account. No one in the accounts department had received and banked these cheques. He did not know how they had been deposited. He did not know the payer. The first he knew of them was when the bank called and told him all four had bounced. He immediately told the defendant who said he didnot know what they were.

Cross-examination of PW7

251.  PW7 agreed that after the grant of the Authorisation the running costs of the Exchange only grew but their income remained low. By November 2011, the Exchange were in breach of the original financial conditions and the defendant’s solution was to initiate a US$30 million share subscription to alleviate the problem. However, this took over a year and some of the original shareholders were reluctant to take up pro rata their own positions so the defendant had to subscribe to more shares than his own pro rata position. His original shareholding increased. Even when the subscription was completed, the Exchange were still unable to comply with the original financial conditions.

252.  He agreed that the next major decision was to initiate a second share subscription of a higher amount, US $100 million. It was thought that US$25 million from that would be enough to ensure the Exchange would comply with all SFC conditions. It would also persuade the SFC to allow the Exchange to trade in more commodities.

253.  He agreed that the defendant presented a PowerPoint to the SFC on 18 April 2013 to explain how the US$100 million share subscription would be met. The idea was that New Effort was to issue convertible preferential shares of US$200 million to Dai. The intention was for Dai to make an initial payment of US$25 million by the end of April 2013. That would alleviate all of the Exchanges financial issues.

254.  He agreed that he knew Dai was investing in New Efforts convertible preference shares and that US$25 million would be deposited by him into the Exchange by the end of April. He agreed he emailed Dai on 15 April 2013 with the bank account details of the Exchange so he could transfer the funds to the Exchange, exhibit D10 and 10A. Exhibit D11 was an email four days later to Dai giving him details of another Bank of China account telling him this had no transactions in it. PW7 cannot recall why nor recall Dai giving him any reasons, so it may be Dai and the defendant discussed it, with the defendant giving PW7 instructions to pass on that information. He agreed that he had no reason not to believe that Dai was not a genuine investor. He had no reason to believe that the cheque for HK$250 million from Dai on 30th April was good.

255.  He agrees he was shown an agreement on 2 May 2013 when he was told to meet Dai and Ng but reiterated that before the meeting the defendant told him to go to prepare a bankers draft for Ng. He believed that Ng was now supplying the US$30 million to Dai to invest in New Effort. He agreed he did not find the fact that he was shown sample HSBC statements and that there was to be a large payment every time a bank statement was issued suspicious; he still believed these two men were genuine investors.

256.  Later, the SFC questioned why the Exchange was not a signatory to the HSBC account so there was an expectation that Dai would transfer that US$30 million from HSBC to the Exchange’s Bank of China account. D12, was an email from PW7 dated 16 May 2013 to Dai giving him those details for that transfer.

257.  It was put to him that although he did not know of the four cheques each for $75 million dated 16th May that were deposited into the Exchanges account he could now assume that those four sums of money were meant to be the US dollars from HSBC. PW7 recalls being told by the defendant to closely monitor the movement in the account but was not told of these four cheques. He said the first he knew of them was when they all bounced.

258.  He agrees that by then they realised that Dai was not a genuine investor. He said it was the defendant’s own decision to surrender the Authorisation; he did not discuss it with PW7. He was just told after the event. He agrees that he did not conspire with the defendant to deceive the SFC. He clarified in re-examination that he was referring to Ng and Dai and the false HSBC document.

259.  It was suggested to PW7 that he believed that the SFC would not withdraw Authorisation despite the Exchanges inability to comply with even the relaxed financial conditions because there was minimal risk to the participants and members of the Exchange if they were to cease operation. After all, the SFC granted indulgences to the Exchange on numerous occasions when conditions were not met, they took no action. PW7’s answer was that he did not know what the SFC would do. He was asked the same question several more times and he did agree that he did not believe the SFC would revoke Authorisation simply because the bank balance fell below the TMCL and was not rectify within one week. It was suggested to him that when he did this, creating favourable snapshots, he did not intend to deceive the SFC and he said you can say so.

260.  He agreed that because of this belief he had no motive to lie to the SFC. It was put to him that because of this belief he never discussed lying to the SFC with the defendant. He agreed he did not discuss lying with the defendant but he said he acted in accordance to the defendant’s directions and instructions. In re-examination he was asked if he had no motive to lie to the SFC, then did anyone else have a motive to lie to the SFC? He said he could not answer for others but for himself he was just following his superior’s instructions, the defendant’s instructions.

261.  His evidence in chief where he implicated the defendant was repeated to him. He confirmed what he said but added that he was not sure if this implicated the defendant in a crime. He said he was just telling the facts.

262.  When it was suggested that the contents of the weekly cash balance reports were his decision, he disagreed because he often had to consult the defendant what bills to pay first because there was not enough cash flow. He said in general he would decide how to present the weekly or monthly report but if the defendant gave specific instructions on that, then they would follow it.

263.  It was put to PW7 when he was interviewed by the police under caution he did not implicate the defendant. He answered that he did not recall if any questions were put to him to implicate the defendant. He was legally represented and remained silent in answer to many questions.

264.  He agreed that when he pleaded guilty on 6 November 2018 before a different court he had not indicated any intention to implicate the defendant. He received legal advice and then knew that if he did give evidence for the prosecution and cooperate then he will receive more of a discount in sentence. It was suggested to him that he only decided to give evidence, a non-prejudicial statement after it was mentioned by the court. After an adjournment and discussion with his counsels, his sentence was adjourned because he indicated to the prosecution that he would give evidence against the defendant. It was suggested he knew that his decision would make that court happy and it could affect his sentence but he said that it was not his intention to make the court happy.

265.  He agreed he was interviewed by the SFC in 2013 and 2014. Extracts of that interview were produced as exhibit D14(1-3). In one of the interviews in June 2014 he was shown a $15 million cheque deposited on a Friday 7 September 2012 which was dishonoured on 10 September, the Monday. He was asked why the SFC were not informed to which he answered he could not recall why. He did not tell the SFC that the defendant told him there was no need to report that dishonoured cheque to the SFC. When asked why not, he said he thinks that at that time he forgot but in preparing his non-prejudicial statement he had a long time to think and go through all the documents and emails to remind himself. When he was interviewed by the SFC he had no time to prepare, was already re-employed elsewhere and was put on the spot which was a very different situation.

266.  He denied he was not telling the SFC the truth; in fact, he said it was the truth at that time. He denied fabricating this evidence against the defendant now. He denied he fabricated the evidence that the defendant gave him general instructions to manipulate the reports, give favourable snapshots and do what it took to ensure the cash balance appeared to satisfy the SFC’s requirements.

267.  He agreed that the SFC did ask him if anyone had told him to submit favourable snapshots in weekly reports and he did answer that he could not remember. He repeated his answer that the preparation for the non-prejudicial statement assisted him. He denied he fabricated the evidence against the defendant. He specifically recalled a reply to the defendant in an email where he told the defendant that once the funding had been received he would then give the SFC the weekly report to support his evidence that he was acting on the defendant instructions. He did add that when interviewed by the SFC he did not want to recall his painful experiences that the Exchange.

268.  He agrees he did not tell the SFC that he and the defendant made up the Cinnobar €900,000 payment to explain a low cash balance. He said he probably forgot at that time. He said at that time of that interview, he did not really want to face it, recall it or relive it. But as a witness and when he decided to be a witness he had to make the effort to recall it all.

269.  It was suggested to him that he adopted a practice of not giving the SFC the full picture, created favourable snapshots, mislead the SFC or misrepresented facts because he wanted to avoid having to answer questions from the SFC. He said yes but it was also done or mainly done in accordance with the defendant instructions.

270.  In re-examination, he clarified this, he said at some point the defendant had promised the SFC that he would no longer take out short-term loans for the weekend to appear to have sufficient cash balance. The Exchange had been warned and reminded that the Authorisation was subject to compliance with financial conditions. Despite this warning and promise it continued, so if a weekly report showed a loan injection and an almost immediate repayment then the SFC would ask questions and that is what he wanted to avoid. He wanted to avoid questions from the SFC that were related to the financial conditions.

PW8 Lai Hin Yeung

271.  This witness worked in the Security and Fraud Risk Department of HSBC he confirmed that the copy of an integrated account portfolio summary of HSBC attached to an email dated 3 May 2013 in exhibit P82 was a forgery. It was not a document issued by HSBC. That account number did exist but the account holder was not the Exchange as depicted. The HSBC chop seen on the document was not the banks and nor would they ever chop such an account summary. The copy in P82 and P220 (1 & 2) were not issued by HSBC. His evidence was not challenged by the defence.

The Defendant and defence witness

272.  The defendant elected to give evidence and called one witness, Mr. Edmond Yan Yui Sing. His evidence related to the 7 cheques that bounced that he procured for the defendant at his request in exchange for a commission if the cheque cleared.

273.  The defendant gave evidence of how the concept of a Mercantile Exchange came about. He was working for Titan petrochemical as the Chief Executive Officer when he and the chairman wanted to start an Exchange to primarily trade in petrochemical products in the China market. The Exchange would be available for traders of petroleum products to trade through. The Exchange was formed in mid-2008, just before the global financial crisis. Despite that and the withdrawal of the interest of many potential investors, they persevered.

274.  He explained in detail the initial shareholders and employees hired. By 2010 the defendant had a shareholding of 56% of the Exchange held through New Effort of which he was the sole director and shareholder. It was meant to be a temporary situation where he was the majority shareholder. He took up that 56%, shares not held by others yet. When others came in later as investors, he intended to transfer his shares to them.

275.  By 2011 when the SFC granted the Exchange and Authorisation to operate an Automated Trading System, (“ATS”), Anne Cresce and Jacky Choi were hired as the legal counsel and CFO respectively. Essentially after the Authorisation was granted, the defendant spent most of his time either performing public service duties or trying to borrow money to finance the Exchange and meet the financial conditions imposed by the SFC.

276.  The license granted by the SFC was to trade in gold and then later silver. There were future plans to trade in other metals but that required further Authorisation from the SFC which was not forthcoming because of the difficulties of the Exchange in complying with SFC conditions. The defendant’s evidence was that he was confident they would eventually get the necessary funding and investment to satisfy those conditions and get Authorisation to trade in other commodities. He described himself as constantly fund raising.

277.  The Exchange’s income came from trading fees and clearing fees. Initially they were not significant but he thought it would improve eventually, the Exchange was a long term plan. The initial investment by shareholders was almost depleted by the time Authorisation was granted which meant that within several months of that, the Exchange was unable to fulfil the original financial conditions imposed; there was just not enough funds. The defendant said that the SFC were not concerned that the Exchange was technically non-compliant. This was evidenced by their lack of action and relaxation of the financial conditions.

278.  In August 2011 the defendant proposed a US$30 million rights issue to the Exchanges board to raise funds to ensure compliance with the SFC’s financial conditions, “the 1st rights issue”. He had assumed it would be easy because the existing shareholders were very wealthy but he was unable to convince many of the shareholders to buy more shares and he ended up buying 26 million of the 30 million offered. He only intended to temporarily step into take-up those shares and had to raise the money himself. This took over a year to complete. By then of course, these funds had been depleted as well and the SFC were urging the Exchange to comply with financial conditions.

279.  The defendant’s evidence was that he had to try and identify potential investors. He met George Ong a wealthy successful businessman who introduced him to Dai Linyi. Ong even sent the defendant a document, “proof of funds” to prove his wealth, P225. At first, he pinned his hopes on George Ong’s investment, there was a discussion of a $70 million investment. Either he would lend New Effort that money or Ong would become a new shareholder of the Exchange and take up some of the defendant’s shareholding. At the end of the day, he did not invest.

280.  In late 2012 he met Dai and was told he was a man with access to huge wealth and had the funds for investments. He showed the defendant a contract to build railways which impressed him. He negotiated with Dai to invest in New Effort which meant investing in the Exchange; part of the funds he invested in New Effort would be used by New Effort as subscription money for a 2nd rights issue in the Exchange. He also intended for part of the funds invested by Dai to be used to pay for the defendant’s contribution in a Shandong pipeline joint venture by investing in convertible preference shares in New Effort. The money he would invest in shares were convertible to shares in Sino Energy Trading Limited (“Sino Energy”) which was a wholly own subsidiary of New Effort. Sino energy was set up to hold the defendant’s investment in that pipeline joint venture in Shandong, China.

281.  On 12 November 2012, the defendant signed a joint venture contract with 2 other companies with Shandong United Energy Pipeline Transportation Company Limited, hereinafter referred to as “the Pipeline Company”. The defendant set up Sino Energy in the British Virgin Islands to hold the shares of this joint venture. Sino Energy was a wholly owned subsidiary of New Effort. This foreign company was approved by the Chinese government, D18.The joint venture document is P143. There was then a capital increase agreement between the investors, D16. His capital contribution was ultimately to be RMB188.472 million for a 24% share of this joint venture.

282.  The capital contribution was meant to be paid 20 days after D16 was signed but no payment was made by any shareholder. The payment date was extended to March 2013 then, to 1 August 2013. The board of directors approved the extensions. In early March 2013, the defendant was hoping that part of Dai’s investment would go towards this joint venture capital contribution.

283.  Ultimately, Sino Energy were unable to raise money from Dai or other investors to invest in this joint venture even though the chairman of the joint venture extended the deadline for the defendant to raise funds until October 2013. Even after the Exchange ceased to operate on 16 May 2013, the defendant continued to try to raise money to invest in this joint venture.

284.  This joint venture was unrelated to the business of the Exchange or its Authorisation. It did become part of the defendant’s evidence when he had negotiated with Dai to not only buy shares of New Effort to invest in the Exchange in a 2nd rights issue but for part of his investment to be capital injection into this separate joint venture.

285.  In early 2013 Dai signed a subscription agreement drafted by a law firm where he agreed to a US$200 million convertible share issue, P142, dated 15 March 2013. Defendant said he did inform the SFC of this plan. The defendant wanted Dai’s investment by the end of March 2013 but he said his money was tied up and he needed more time. However, the issue became more urgent because of the SFC’s deadline of 31 March 2013 so the defendant requested Dai pay between US$25 million and US$30 million as an initial payment. He did promise payment but it was not forthcoming. In mid-April he promised HK$250 million as the initial payment. In mid-April, Jacky Choi emailed Dai details of the Exchanges bank account in anticipation. The defendant wanted it paid straight into the Exchanges bank account because of the urgency.

286.  Because of the urgency and the 3rd LOM the defendant made a presentation to the SFC on 18 April and asked for an extension of the deadline to 30 April 2013. In that PowerPoint presentation, P136A, the SFC were told of the convertible preferential shares rights issue and Dai’s investment. They were given a copy of the subscription document P142. The contents of that presentation were summarised in the SFC’s letter dated 19 April extending the Exchanges deadline to meet all original financial conditions by 30 April 2013.

287.  He had already proposed a 2nd rights issue and informed the SFC on 30 November 2012, P48. The Exchange confirmed a US$100 million share offering would be presented to the board of directors and shareholders on 13 December 2012. He anticipated that share offering to be completed on that same day. When that did not happen he asked for several extensions of the deadline as seen in P49, P50 and P53.

288.  The defendant chased Dai for his 1st contribution but by 18 April not only had the money not been deposited but Dai raised a concern about the security of his incoming funds in the Exchanges bank account. He asked the defendant for an account that the Exchange did not use on a daily basis so Jacky Choi emailed him the details of a little used account, exhibit D11.

289.  Dai said he would give the defendant a Standard Chartered bank cheque for $250 million by the end of April when urged by the defendant. The defendant asked Jacky Choi to go and meet Dai to collect this cheque and deposit it the same day on 30 April. On 1 May the day after giving Jacky Choi the cheque, Dai told the defendant that the cheque would not clear as he had not been able to transfer the funds to that Standard Chartered bank account. Dai said his investment was not yet ready but promised to arrange a bridging loan from someone who could do it very quickly; that is loan Dai the money to invest in New Effort.

290.  The defendant gave evidence of his meeting with Dai in an office in Central on 1 May where he met a Dr Ng. The defendant took Jacky Choi with him. Ng was a business associate whose specialty was arranging financing. He could quickly provide US$30 million for a period of one month for 2% payable by New Effort. It was to be a loan to Dai but Dai had to have control of the funds and account. Ng said he could have an HSBC account opened in the Exchange’s name very quickly because of his connections. Jacky Choi did not give evidence that he was present on 1 May with the defendant nor was he cross-examined on this.

291.  In cross examination the defendant confirmed that the sequence of events was that the $250million cheque was collected from Dai and deposited on 30 April 2013 then on the next day, 1 May, Dai told the defendant that the cheque would not clear but he could get a bridging loan for US$30 million. There was a meeting on that same day and Jacky Choi met again with Dai and Ng on 2 May leading to the HSBC account summary being sent to the SFC on 3 May. However, it was put to him according to the bank records that cheque was not deposited until 2 May at 17:11:42pm which did not tally with his evidence.

292.  The defendant initially could not explain. He said he did not know why the cheque was deposited on the 2 May because by then they were proceeding with a bridging loan in an HSBC account. Later, in his cross examination he corrected himself. He said that Jacky Choi had picked up the of $250 million cheque on 30 April but it was too late to deposited that day. On 1 May Dai said he might not be able to transfer the funds to clear that cheque as opposed to his earlier evidence that Dai said he could not transfer the funds to clear that cheque. They then met and planned a bridging loan just in case the cheque would not clear. It was arranged on 2 May. Dai told the defendant that if that cheque could clear he would let him know but since there was no news from him, Jacky Choi deposited it late on 2 May.

293.  The defendant, in evidence in chief, gave evidence of the events of the following day, 2 May where PW7 obtained a bank draft for the 2% and had prepared documents to open an HSBC account. He confirmed that the BlackBerry messages between Jacky Choi and himself exhibited in P219 were accurate and explained their content. He wanted them to delete the word “confidential” from the bank account summary document. He agreed the Exchange would pay US$50,000 for every bank statement they supplied the Exchange.

294.  The defendant explained that although the SFC were given the HSBC account summary with a US$30 million deposit, within days they were asking questions about the signatory of that HSBC account. The defendant spoke to Dai and told him to transfer the money to the Exchanges accounts or deposit other funds into the Exchanges accounts to satisfy the SFC. Dai told the defendant he would have his associates deposit HK$300 million into the accounts which presumably was the 4 cheques for $75 million each which were dishonoured the day they were deposited, 16 May. On that day Keith Lui told the defendant that the SFC were withdrawing the Authorisation without telling him why. The defendant said he would surrender the Authorisation voluntarily.

295.  The defendant gave evidence that up until the moment that those 4 cheques for $75 million were dishonoured he still believed that Dai was a genuine investor. In cross examination he said that despite knowing how long it takes to open a company bank account he accepted the reassurance that it could be done in a day. He said with hindsight the whole Dai and Ng transaction was suspicious but he was so anxious for the funding that it did not occur to him then that it was a scam to cheat him out of the 2% fee. He was embarrassed to have fallen for this scam but he was desperate and when desperate you see what you want to see.

296.  In cross examination, the defendant was taken through every example in the categories set out in Annex B. He denied any involvement or knowledge in misleading the SFC or making misrepresentations as to the true financial position of the Exchange. He distanced himself from anything that his employees said and did which misled the SFC or kept the truth from the SFC especially, Jacky Choi. What they did or said was on their own volition. He did not give them any instructions to that effect. Any evidence that directly implicated him he denied outright.

297.  The defendant explained that between May 2012 and January 2013 he was constantly borrowing money on a short-term basis from multiple parties because he was not sure who would come through or come good with loans. One of the defendant’s sources was an investment broker called Edmond Yan. His job was to connect people who needed money to people who had money to lend for which he would earn a commission. The defendant asked him to source financing the Exchange.

298.  On each occasion Yan would give the defendant a cheque which was dishonoured ultimately. The defendant did not know the companies who were lending those seven sums of money. Yan would explain that he was unable to raise the money in time. The defendant was not happy with this situation and it happened seven times but luckily he was able to source loans from others which saved the Exchange. By saved he meant able to demonstrate there were funds in the Exchanges account or had money to pay expenses.

299.  The defendant had no idea each of the seven cheques would bounce and they were not deposited for the purposes of inflating the Exchanges bank balance. There was no need as money was borrowed from other sources and in any event the SFC gave the Exchange seven days to rectify shortfalls if any. Nobody asked the defendant if the SFC should be informed of those seven dishonoured cheques.

300.  The defendant’s evidence was that Jacky Choi and Ann Cresce were responsible for reporting to the SFC as required. He said the only instruction he gave them as to how they should report was to report accurately and in a timely fashion. He added that he did not want anyone to say he was abusing his position as an Executive Member of the Legislative Council who did not follow SFC guidelines and conditions. He therefore wanted accurate reporting and reporting on time.

301.  He had no idea that on many occasions for the weekly report, the Exchange gave the bank balance for a Monday instead of the Friday before as required by SFC. He was only made aware of these instances after he was charged. He did not see any deception as the bank statement attached showed it was the balance for a Monday. The SFC were not told it was Fridays and in any event even if on the Friday the account balance was below TMCL the Exchange could rectify it by the following Monday or Tuesday. He did not know why the reports did not give the balance at the end of the day of the Friday.

302.  He never gave instructions to Jacky Choi to do that. He gave no instructions to Jacky Choi relating to the reports submitted to the SFC. In fact, he would have expected the finance department to report to the SFC whenever there was a drop below the TMCL which would be followed by a second report of the rectification of the breach. He expected them to be truthful and transparent with the SFC. There was always rectification according to his evidence less than a week later or within a week or thereabouts.

303.  He also did not give instructions to report a figure to the SFC knowing that once reported, money would then be withdrawn often immediately after that reported figure showed up in the statement. The defendant considered it normal movement of funds. The Exchange had bills to pay and loan repayments to make. Once money went out, more money would come in; that is how the Exchange operated. His focus at the time was raising short-term loans. Jacky Choi would tell him what funds were needed and when. Jacky Choi himself would then decide and prioritise how money was spent. He did not concern himself with what bank balance was reported to the SFC.

304.  As for the misleading information to the SFC that €900,000 was paid to Cinnobar to explain a lack of funds, he knew nothing about that. He knew that payment was overdue and he had only told PW7 to try and pay it as quickly as possible. He assumed that it would be paid when there was cash flow to pay that debt. He had no idea why the SFC was misled; it was done without his knowledge.

305.  The same applies to the $10 million time deposit arranged on a Friday and included on the Fridays cash balance but a stop was put to it on the following Monday, the application form to stop it was signed by the defendant. That 10 million did not exist as part of the cash balance but it showed up on the bank statements and documents. The defendant did not give instructions to set up a time deposit nor did he have any idea why this was done the way it was on a Friday and cancelled on the following Monday. He assumed there were funds on the Friday to arrange a time deposit but then Jacky Choi asked him to sign a form to cancel the transaction, he assumed that meant money was tight. He did not concern himself with those types of transactions and details.

The defendant’s belief

306.  The defendant gave evidence that it was his strong belief that the SFC would not withdraw the Authorisation just because the Exchange was unable on occasion to maintain the TMCL. He based this belief on the SFC’s actions in relaxing the financial condition originally imposed. Even though the Exchange was instructed to prepare a contingency plan that was to be activated if it fell below the TMCL, the SFC did not require the Exchange to activate it on the numerous occasions it failed to comply with that condition. He believed the SFC did not want to close the Exchange and therefore did not impose the sanction it had set.

307.  In cross examination the defendant agreed that honesty and trust was very important in doing business and he was doing business with the SFC. He agreed that two months after the Authorisation was granted the Exchange was unable to survive without borrowing money. But he did not just borrow money to satisfy the TMCL condition but also to keep the Exchange operating and float.

308.  He did not agree that the SFC did not always know that the Exchange had less than two months operating costs in its accounts. He said they almost always knew. When asked if the SFC was kept in the dark when misled or given false information, he replied that he had no involvement in the reporting of any misleading or false information.

309.  He did agree that the SFC was concerned about the Exchange failing to meet the conditions imposed. He said there was no doubt they were concerned. They did require the monthly report relating to bank balances to be submitted weekly as well as monthly from September 2011. In the email, P4, the SFC made it clear they wanted to monitor the Exchange financial status closely, the reports were to be provided on a weekly basis. In that same email, the Exchange was reminded of the original financial conditions imposed and reminded they had not been met. The defendant agreed that the SFC had requested the Exchange give details of all major deposits and they reinforced that disclosure condition and request in correspondence such as exhibit P30 where they expressed concern for non-compliance.

310.  The defendant did not agree he was hands-on as far as the finances of the Exchange was concerned. He focused on raising funds and paid no attention to the weekly report or the TMCL. He said on many occasions in his evidence that he was not concerned with this condition imposed by the SFC nor was it his priority. He said he did not care about reporting, his colleagues did the reporting, his focus was bringing in money and he did not care which day the money came in. He said it was not credible or realistic for him as the Chairman to be even familiar with these details; he had highly paid employees to deal with those matters.

311.  He agreed that in P4 the SFC specified the Exchange were to provide the total bank balance amount as of the end of every Friday and a weekly movement, from the previous Saturday to Friday. But he qualified this with repeating that the Exchange had a one-week rectification period if there was non-compliant and they always managed to find funds in that week. He agreed that what Jacky Choi did was wrong and did mislead the SFC by often giving Mondays balance but he denied any knowledge of it.

312.  It was suggested to him that once a cash balance was reported to the SFC be it the Fridays balance or Mondays balance, on many occasions the Exchange would then deplete that cash balance by moving money out of the account almost immediately. Examples were put to him and he agreed that happened but he said there was nothing sinister about it because the Exchange subsisted on short-term financing which was known to the SFC. The SFC did not tell the Exchange they could not operate in this manner.

313.  The prosecution demonstrated how concerned the SFC were by their issuing the first LOM on 21 March 2012 and the second LOM one month later. These letters were to inform the Exchange that the SFC was minded to withdraw Authorisation. In these letters they set out a full history of the failure of the Exchange to comply with conditions despite relaxation of those conditions. The defendant agreed they were warnings and that the SFC had grave concerns. The defendant agreed but pointed out despite their grave concerns, the SFC’s took no action against Exchange.

314.  In cross examination he was questioned at length about the seven bounced cheques and the failure to disclose those to the SFC. He reiterated that he was not asked if the SFC should be informed. He then said that those loans were actually borrowed by New Effort and had nothing to do with the Exchange but for the sake of convenience they were deposited into the Exchanges account. So although he was required to report significant movements in funds, there was no need to in fact tell the SFC of these seven bounced cheques because they were loans to New Effort not the Exchange.

315.  The defendant also reiterated that he did not know in advance that they would not clear nor was he concerned when those seven cheques were dishonoured because he managed to borrow more money from others within days. He did not know that one of the seven cheques for $35 million was included in a weekly report as part of the cash balance even though it was dishonoured. He was shown exhibit P38, a letter from the SFC addressed to him referring to the 6th dishonoured cheque in paragraph 4. The SFC were shocked to learn that the cheque for $35 million represented to have been deposited into the Exchange had in fact bounced, and that as a result the Exchanges cash position had fallen further to about $2.18 million as of 5 October 2012 which was a Friday. The SFC found it more significant that this position which ought to have been known by the Exchange was not immediately reported to the SFC.

316.  That letter goes on in paragraph 6 to say that there are significant doubts and concerns about the Exchanges ability and readiness to abide by its duties and obligations. It also raised significant doubts and concerns about the reliability of assurances previously given by the defendant regarding his ability to secure the funding needed to ensure that the cash level stayed above the TMCL at all times.

317.  The prosecution put to the defendant that he gave general instructions to his staff that what was reported weekly as the bank balance was not to raise the SFC’s suspicion and was to be reported so as to appear to comply with the TMCL. The defendant did not agree. But he did agree that on the evidence put to him, false or misleading reports were made regularly of the financial position of the Exchange, misleading the SFC. He denied he had any knowledge of that. He agrees that looking at it now retrospectively, the weekly reports sometimes appeared misleading but he had no knowledge nor any reason to give such an instruction to those beneath him nor any motive to give such an instruction.

318.  He denied the motive or reason was as suggested, because the Exchange was in danger of losing its Authorisation for consistent non-compliance. He said the SFC would not take away the Authorisation for that reason, because the Exchange could not meet the TMCL. He distanced himself from these reports, saying they were not his priority. His priority was raising funds to pay expenses, repay earlier loans and raising capital for long-term use. He certainly did not pay attention as to which day money borrowed came into the account. He did not deliberately borrow money in time for the Friday cash balance report. He disagreed the Exchange had to keep under the radar of the SFC so the standing instructions to Jacky Choi from him were to either window dress or give favourable snapshots or mislead the SFC.

319.  When the defendant said in evidence that he had nothing to do with the contents of the reports and that it was only his staff who created the reports, the prosecution showed the defendant P224 which is an email exchange between the defendant and Jacky Choi on Monday 27 August 2012. Jacky Choi is telling the defendant what he would report to the SFC on that Monday referring to the cash balance weekly report for the previous Friday. The exchange was expected to report the closing balance on the previous Friday which from P154 BOC-406 (page 145) the bank statements, it is noted that the closing balance was $733,371.84.

320.  That Monday email at 2:13pm told the defendant that up to that moment they had only received $15.6 million. The next email to the defendant was at 3:34pm to inform him that they had just received another $6 million resulting in the aggregate receipt of $21.6 million. He will receive an update when the remaining $6.1 million comes in. The next email to the defendant was at 3:39pm to inform him that they had received the whole $27.7 million and would immediately send that bank balance to the SFC. The defendant’s answer was he had no knowledge of this window-dressing nor was the contents of the emails as a result of him instructing Jacky Choi to do the window-dressing.

321.  He added that he thought that Jacky Choi may not have been entirely truthful to avoid questions from the SFC. It was a lot of work answering their questions. This was the answer he gave when given several examples of the Exchange giving the SFC a cash balance figure for a Friday that would satisfy the TMCL and the SFC when, in reality, large sums of money were almost immediately withdrawn after and by the close of business on that same Friday leaving the cash balance significantly lower than the TMCL. The defendant repeatedly denied how Jacky Choi reported to the SFC was done on his instructions.

Charge 2

322.  In cross examination, the defendant agreed meeting PW5 of Sinomax in the American Club in April 2013 to discuss a loan. They discussed the amount, the interest and the duration of the loan. He told PW5 that he did not normally offer collateral; usually just his personal guarantee was sufficient. PW5 told him that his company normally required collateral. The defendant later asked Jacky Choi to draft a loan agreement to send to PW5 his approval and there was no mention of any collateral in it.

323.  The defendant met PW5 again in his offices and again PW5 brought up the necessity for collateral. He told PW5 that his share in New Effort had already been pledged but he could pledge it later once released by the third-party. He said PW5 was happy with that and signed the loan agreement P120 on 17 April 2013 which reflects that he was willing to pledge his share not that he did pledge his share as collateral. That meant when it became available.

324.  His evidence was that PW5 only later wanted the share certificate and the paperwork such as a charge of share document executed when it was clear that the defendant could not repay the loan. Even then, the defendant told him he could not pledge his New Effort share because the other lender was still in possession but he could pledge his Sino Energy share instead. This was agreed. The 2 loan extension agreements with Sinomax were dated 16 May and 21 June 2013. At that time the Sino Energy Joint Venture deal with the Pipeline Company in Shandong was still very much alive. It would have meant that Sino Energy had to take up the Sino Energy obligation to make the joint venture contributions. The defendant told PW5 that it was a fantastic opportunity which is now worth billions of dollars.

325.  He did recall that PW5 requested a copy of the New Effort share certificate when he signed the original loan agreement on 17 April 2013 even though he was told by the defendant it was not available. This could explain his possession of a copy. I note that copy is not a copy of the original share certificate given to PW4 of Fully Field earlier. It is a copy of the second original share certificate.

326.  The defendant’s evidence is that he did not personally give him the copy of the original document nor did he personally give him the original share certificate as referred to in the first extension of loan agreement in clause 2.3 signed on 16 May 2013. He has no knowledge of this second original share certificate nor any idea how it came about. Documents such as these are kept by his staff. He recognises his signature on it though.

DW2 Mr Edmond Yan Yui Sing

327.  DW2 gave evidence of his employment, for the last 10 years he has been a financing middleman helping those in need of money borrowed from those who have money to lend. He met the defendant in early 2010 through a wealthy man called Chan in Beijing. Chan told him that the defendant and the Exchange needed to borrow money. In March or April 2012 the defendant told him he needed to borrow money, between several million dollars to several tens of million dollars. He charged a commission of at least 1%. There will be a loan agreement drawn up on each occasion if it was a long term loan but not if it was for a short-term loan of 1 to 2 months. The defendant was more interested in short-term loans.

328.  He himself would borrow money from another middleman in mainland China. He did not tell the defendant the origin of the money sometimes but did say it was from China. He explained how money was sent from China by cash deposits through companies and then cheques were issued using company accounts to move the money. If a cheque was honoured and if the loan was successful, then the borrower would give DW2 a postdated check for repayment of the loan plus the costs.

329.  DW2 explained how he passed 7 cheques to the defendant, 6 were from Perfect Legend Trading Ltd and one was from Thunder House Electrical Appliance Co which was his recently deceased elder brother’s company. This brother also assisted DW2 and Chan in the lending business. He could not recall who owned Perfect Legend. He gave evidence about the provenance of those 7 cheques and loans to the defendant. He would normally be given information from Chan in China about available sums of money and he would locate those in Hong Kong who needed to borrow money.

330.  With each of those 7 cheques he was either told that the money was not available or the cheques were withdrawn and then dishonoured. He can recall either the defendant or Jacky Choi scolding him over the phone. He himself argued with Chan for telling him the money was available when it clearly was not. He explained how there were 2 cheques in October for $35 million; when the first was dishonoured, he asked his brother to issue the second cheque.

331.  He said his discussion of loans to the defendant were not limited to the 7 occasions but none of his loans to the defendant were ultimately successful. In cross examination he recognised his older brother’s signature on the first 2 cheques from Perfect Legend. In cross examination he went through the history behind each cheque and what happened when it was dishonoured.

Shandong United Energy Pipeline Transportation Company Limited

332.  There was to be a third defence witness, a Ms. Wang Fei but she was a mainland resident who was unable to leave her province or enter Hong Kong due to Covid -19 travel restrictions in late April this year. She is the Chief Commercial Officer of the Pipeline Company. There was an adjournment of about a month in case there was any relaxing of travel restrictions. The trial was adjourned to 5 June.

333.  Ms Wang was ultimately unable to come to Hong Kong to give evidence on behalf of the defendant even though she was willing. Her statement was produced under section 65B of the Criminal Procedure Ordinance, Cap. 221. Her statement was read out in court and produced as D28 with numerous documents attached as Annexes. Many of those documents had been provisionally marked as defence exhibits during the defendant’s evidence about this joint venture and the history behind his participation and ultimate failure to invest.

334.  Her evidence is intended to confirm the defendant’s evidence about this Pipeline Company, his Sino Energy company which he set up as a wholly owned subsidiary of New Effort and his proposed involvement by owning 24% of the pipeline company. Sino Energy was meant to invest a capital of RMB188.472 million to buy 24% shareholding of the joint venture. This joint venture was signed in November 2012, P143. Sino Energy appointed the defendant to be a member of the Board of Directors of the Pipeline Company, D17. The capital investment injection was delayed several times by the joint venture and ultimately was due 31 August 2013. The defendant was unable to raise the capital by then or by the extension granted to him. His shares were later transferred to another partner.

335.  This evidence is intended to prove the defendant’s evidence relating to his involvement in this joint venture is true. It is intended to prove the defendants evidence and his intention to invest in it with Dai. It is intended to support the defendant’s hope and belief that Dai was a genuine investor in both the Exchange and the joint venture. It was not challenged by the prosecution.

Final Submissions

Prosecution Submissions

336.  The prosecution, for Charge 1, submit that the numerous incidents in the 5 categories they identified considered altogether provide evidence from which an irresistible inference could be drawn that there existed an “overall dishonest scheme” which the defendant and Jacky Choi agreed to join and intended to carry out. They both agreed to a common object or purpose and each had the intention for it to be carried out and to carry it out.

337.  It is not the prosecution case that each of the numerous incidents in those 5 categories in themselves necessarily suffice to constitute a dishonest means. Even if I were to find some of the incidents might have occurred innocently or through inadvertence, the prosecution submits that there was such a proliferation of those incidents that there is no doubt as to the existence of an overall dishonest and fraudulent conspiracy to defraud the SFC.

338.  It is suggested that this conspiracy was one that did not require direct communication with each other every step of the way; that is to say, the prosecution is not suggesting that the defendant and Jacky Choi discussed or agreed upon every specific incident, every false or misleading representation or the presentation of a favourable snapshot or window-dressing before the incident occurred.

339.  That is because there was no need in this case and would have been an unrealistic depiction of the agreement to defraud. The standing instruction to Jacky Choi as his CFO was evidence of the agreement and Jacky Choi’s subsequent acts and actions implemented throughout the relevant period are evidence to show he followed the defendant’s instructions. He did what he could to deliberately conceal, when it was necessary, the true financial position of the Exchange from the SFC.

340.  The prosecution relies on Jacky Choi’s evidence that the defendant had instructed him to, as much as possible, make the cash balance look as great as possible. Clearly this had to go on as long for as possible, as long as it took for the defendant to secure the necessary funds to comply with the SFC’s financial conditions. After all, the defendant said that was his goal.

341.  Even if many of those acts considered on their own and individually were not inherently dishonest as argued by the defence, the nature of those acts must be dishonest when considered together. When one considers the accumulative effect of those acts and actions the only reasonable conclusion is that they were done or carried out to conceal the true financial position of the Exchange from time to time. The witnesses from the SFC gave evidence that they were unaware of the true financial position of the Exchange on many occasions. The prosecution submits they were deliberately kept unaware by Jacky Choi following the defendant’s instructions. It is suggested that therefore, the evidence adduced for Charge 1 should be considered in the round.

342.  Most of the evidence the prosecution relies on is undisputed. The documents, be they emails or letters between those in the SFC and the Exchange or between the SFC internally or between the Exchange internally are not disputed. Bankers affirmations to prove the numerous cash inflows, cash outflows and the cash position of the Exchange at the material times cannot be challenged.

343.  The undisputed facts show the defendant was heavily invested in the Exchange, had access to all bank accounts at all times and was in a position to give instructions to Jacky Choi as the person in control day-to-day as well as the controlling shareholder of the Exchange. The little business or transactions in the accounts meant the almost all the income came primarily from the defendant or was arranged and controlled by the defendant.

344.  The defendant himself admits being very aware of the SFC’s conditions and their variations, that includes both the financial and the disclosure conditions. He confirms all the various correspondence from and with the SFC expressing their concerns as well as face-to-face meetings and phone calls. Clearly, the SFC held him accountable as the Chairman. This does fly in the face of his own evidence that he believed the SFC would not act on or would not withdraw the Authorisation on the basis that he failed to comply with financial conditions from time to time. The prosecution submits there can be no misunderstanding by the defendant in this regard. They submit it would run contrary to the plain and ordinary meaning of the SFC’s correspondence with him.

345.  The prosecution suggests he says he was never concerned by the shortfalls or failure to comply with the financial conditions in order to convince the court that he had no motive to conspire with Jacky Choi against the SFC. His overall and prevailing mindset, knowledge and belief that he put forward in evidence does not tally with the evidence that the SFC was growing more concerned and let it be known to the defendant specifically that it was critical there was compliance.

346.  He knew full well the SFC relied on the weekly cash balance reports to ensure the Exchange continued to satisfy the conditions even if relaxed. It was the defendant, in his position who was the one most concerned about the continuation of the authorization. He had the most to lose. This gives weight to Jacky Choi’s credibility, it gives weight to his evidence that the defendant was the one who gave instructions to deliberately conceal, when it was necessary, by dishonest means, the true financial position of the Exchange from the SFC. The motive was to retain the Authorisation, without it, the Exchange would cease to operate.

347.  During the course of the trial it was suggested by the defence to certain witnesses that the SFC did not consider the disclosure conditions to be as important as the financial conditions. This was to suggest that the Authorisation withdrawal was contingent on the cash balance only at the time of reporting. It was also argued that the prosecution should not ask questions relating to representations made about the nature and purpose of cash deposits and withdrawals because disclosure of that nature was strictly irrelevant to the prosecution’s case.

348.  Firstly, the witnesses from the SFC, such as PW1, did not agree with that suggestion. Secondly, the prosecution suggests that the particulars of the offence accuse the defendant and Jacky Choi of failing to disclose to the commission material information in relation to the financial position of the Exchange. That must include disclosure of the nature and circumstances of the origin of the loans or cash injections; this must be material to the SFC.

349.  In any event, there is correspondence and evidence of meetings where the SFC make it clear it is material to them for the purposes of assessing what the reported financial position truly represents. For example, in P25 at page 2, the SFC writes “information about the source of any funded provided to the Exchange is critical to the commission’s consideration of the company’s long-term viability.” Even the defendant himself agreed that as a general proposition the Exchange must be frank and honest with the SFC, trust is important.

350.  The defendant relied on the SFC’s lack of action or sanction to bolster his evidence that his prevailing mindset and belief was the SFC would not withdraw the Authorisation because of occasional shortfalls in the cash balance position. However, the prosecution showed through the various incidents in those 5 categories that the SFC were deliberately misled, given to believe that the Exchange was generally in compliance and financially viable. That would partly explain their lack of action as described by the defendant.

351.  PW1 and PW2 said repeatedly that if they had known the true financial picture on all those occasions, the SFC would have implemented action much earlier and on numerous occasions. That would have put the Authorisation at risk much earlier.

352.  The prosecution in its written final submissions points out why PW7 is a credible witness. As the CFO, like the defendant he undoubtedly was fully aware of the SFC’s financial and disclosure conditions; he knew what was required of the Exchange at all times. The prosecution says the defence put to Jacky Choi that he had no motive to lie to the SFC because like the defendant, he did not believe the SFC would actually withdraw the Authorisation because the cash balance was below the TMCL.

353.  The prosecution says, despite this, the fact remains he admitted to misleading and giving false representations to the SFC. He admitted to concealing information about transactions such as the dishonoured cheques. He admitted to window-dressing the weekly cash balance report and manipulating the report to present favourable snapshots of the accounts. It was not challenged by the defence.

354.  The prosecution submits that they are not required to prove what motive named conspirators had to act the way they did, merely that they did so with the realisation that their acts might cause the SFC to act contrary to its public duty. Time and time again, the SFC made it clear in correspondence that the Authorisation may be withdrawn which means the court can reasonably infer that the conspirators were so aware.

355.  PW7 said his instructions were to work on the weekly reports so that the financial position of the Exchange appeared to be at or above the TMCL. He said in cross examination that it was the Exchange that would benefit when asked whom would benefit. This must be right and precisely what was intended by the conspirators. The implication was that so long as the SFC thought the Exchange were in compliance the SFC would continue to grant the Authorisation to the benefit of the Exchange. The task in hand for the defendant and PW7 was to ensure that the SFC thought precisely that for as long as it took to find more capital.

356.  In final submissions the prosecution did address the evidence it relied on for each incident in all 5 categories. I do not intend to repeat it. Except to say that the prosecution relies on the cumulative effect of all those acts to demonstrate how they must be dishonest by the ordinary standards of reasonable and honest people as well as the defendant himself realising that what he agreed to do and instructed Jacky Choi to do would be regarded as dishonest by those standards.

357.  As for the evidence for the Fraud charge, Charge 2, the prosecution submits that if I am sure that the defendant leading up to the loan dated 17th of April 2013 did offer the New Effort share as collateral for this loan then the requisite deceit was practised by the defendant and his intent to defraud is proven.

358.  The issue is the credibility of Mr Ng (PW5). There is no dispute Sinomax made a $30 million loan to the defendant and in the loan agreement dated 17 April 2013 there is reference to the defendant in clause 1.3 as the borrower being willing to pledge his New Effort share. PW5 said the Sinomax shareholders would have required collateral and that he mentioned it when they discussed whether to loan the money to the defendant. He did say that Sinomax would not have lent the money if there was no collateral or if the offered collateral was already pledged to another party.

359.  Moreover, he said he was given a copy of an original share certificate before given an original share certificate, he thinks in April. He was not so sure when that was given to him but it is clear from comparing the 2 documents that the copy was of the original share certificate he received, not a copy of the original share certificate pledged to Fully Field, PW4 much earlier. The defendant’s evidence was that PW5 was given a copy at his request when they signed the loan agreement.

360.  The prosecution question why would he have been given a copy at all earlier or at all if what the defendant says is true and that he told him specifically he could not offer him the New Effort share as collateral because there was a problem with it. The prosecution submits that he was offered the New Effort share as collateral evidenced by his possession of a copy. Then, when an extension of that loan was signed on 16 May 2013, clause 2.3 added “the borrower…. delivers the relevant original share certificate & share transfer document to the lender for custody.” This can only mean and it is a strong inference from the wording of both the original loan and the loan extension document that all along the New Effort share was offered as collateral.

361.  The fact he possessed and was given not only a copy but a purported original share certificate infers it was offered as available collateral from the very start. If it was not, there was no reason for him to be provided with such documents by the borrower who is the defendant.

362.  The prosecution submits the defendant’s evidence is an attempt to distance himself from the terms of the loan. He said it was in fact Jacky Choi who negotiated the key terms of the loan. This was not only denied by Mr Ng but never put to Jacky Choi in his cross examination. His evidence was that he never knew the terms of any of the loans that the defendant drip fed into the Exchange. The defendant denied all knowledge of the copy of the second original share certificate as well as that original share certificate even though it is his signature on it. He said his staff dealt with those documents. He not only distances himself from the terms of the loan but also the suspicious second original share certificate.

Defence Submissions

363.  In final submissions from the defence, the salient evidence of the defendant was summarised. As soon as the financial position of the Exchange began to suffer, the defendant worked very hard to improve the situation. He initiated the 1st rights issue in September 2011 but took much longer than he anticipated. After that he had to initiate a 2nd rights issue and look for more permanent funding. He thought that first George Ong would invest in the Exchange but nothing came of that contact. He then met and approached a Dai Linyi to invest in New Effort. He discussed Dai investing funds into New Effort to be used to buy shares in the 2nd rights issue. It led to a subscription agreement for US$200 million.

364.  Whilst the defendant worked hard to raise funds and borrow loans for the Exchange as well as arrange 2 rights issues, it never occur to him that the Exchange would lose its Authorisation from the SFC because of a failure to comply with the financial conditions from time to time. He believed that the SFC were supporting his plans to arrange permanent funding; they would not have withdrawn the Authorisation before that.

365.  Dai stalled on the investment and eventually at the very last minute provided documents supposedly to assist the defendant and the Exchange but such documents turned out to be false. It appears that Dai and Chauncey Ng were scheming to con the defendant out of the 2% interest of the bridging loan and US$50,000 every time an updated bank statement was provided. The defendant was unaware and almost became a victim; Ong, Dai and Ng were later arrested and dealt with according to the third Admitted Facts D27.

366.  The defendant had also become part of a joint-venture in a Pipeline Company in Shandong and it was intended that a portion of Dai’s investment would be used to pay for the capital injection for what became a very profitable business. The defendant was ultimately unable to raise the funds required to buy shares in that joint venture.

367.  Both parties have referred me to the law concerning a conspiracy to defraud as discussed in Mo Yuk Ping. The prosecution must prove the defendant was a party to an agreement to use dishonest means. He agreed to do something which is dishonest and he knew or believed that it was dishonest. The defence submit it has not been proved the defendant was a party to any such agreement nor was there any dishonest intent.

368.  The defence submits that the SFC knew full well that the Exchange had little business and knew that there were times when the cash balance position fell well below the TMCL yet gave the Exchange an opportunity to rectify their position within a week. There were many occasions when there was a failure to rectify within a week but no action was taken by the SFC nor did it trigger the contingency plan.

369.  They did issue LOM’s and did voice their concern on numerous occasions but took no action. The SFC gave so much leeway to the Exchange during the time it held an Authorisation that he had reasonable grounds to believe they would not withdraw the Authorisation because of the Exchange’s cash balance position.

370.  It was submitted that the SFC did not take the disclosure condition seriously; they took no action for nondisclosure or late disclosure. This too would affect the mindset of the defendant and his belief that the SFC would not withdraw the Authorisation. It is submitted that it affected the mindset of Jacky Choi and other employees as well. Jacky Choi agreed in cross examination that he believed the SFC would not withdraw the Authorisation unless the financial risk to the participants and investors in the Exchange became real.

371.  The defence submits that in fact, Jacky Choi had the same mindset, knowledge and belief as the defendant. It was stressed that in light of that mindset, knowledge and belief, the defendant had no dishonest intent nor any motive to conspire with Jacky or give him instructions to defraud the SFC. It was submitted that what Jacky did was without dishonest intent so how could they be guilty of conspiring together to defraud the SFC.

372.  The defence submits that the defendant’s evidence was credible. Most of the incidents in the 5 categories were put to the defendant but he could explain that he either had no knowledge nor did he need to trouble himself with the actual reported figures nor did he care what was reported because he never thought the Authorisation was in danger. He only knew of these incidents after he was charged.

373.  He saw nothing sinister in the circumstances surrounding the 7 dishonoured cheques and certainly no dishonesty can be inferred from the evidence. Those cheques may have been dishonoured but the defendant rectified the cash position with other loans within days. The Defence submits that there was no dishonesty that can be inferred from the alleged window-dressing accusations. The practice of short-term loans even if for just the weekend was not sinister or done with any dishonest intent to mislead the SFC.

374.  As for the occasions where false information was provided to the SFC he distanced himself from these occasions; he either did not know about it or was not involved in them. He put some of them down to Jacky Choi trying to avoid questions from the SFC. Even in the 5 incidents where misleading information was reported to the SFC, there was no discussion between the defendant and Jacky Choi as to reporting in this manner.

375.  That would also apply to the creation of favourable snapshots that did not present the true cash balance position of the Exchange which the defendant described as a sharp practice adopted by Jacky Choi to avoid questioning by the SFC. Once again it is submitted that no dishonesty can be inferred against the defendant as he was not a party to this practice. He saw no need to try and keep the SFC in the dark as to the true financial position of the Exchange.

376.  It was submitted that the evidence of Jacky Choi was discredited and weak; nothing but a fabrication against the defendant for his own benefit. The prosecution was unable to prove there was an agreement to use dishonest means. In fact, none of the 5 categories can amount to deception or means with dishonest intent therefore, the prosecution has failed to even prove the existence of a conspiracy.

377.  As regards the loan from Sinomax, the defence case was simply that he never offered or represented to PW5 that the share of New Effort was available as collateral. In fact, the opposite. When they signed the loan agreement in April 2012 all parties understood that although he was willing to use the share of New Effort as collateral, it was not available. Later, shares of Sino Energy were used as collateral when there was a need to extend repayment of the loan. PW5 was aware of the Pipeline Company and the joint-venture and took those shares as collateral.

378.  Much was made of the evidence from PW5 being either confusing, conflicting or unreliable. The prosecution could not prove from his evidence that the defendant offered the share certificate of New Effort to him for the loan in April.

379.  The defence submit the prosecution are unable to prove beyond reasonable doubt either charge against the defendant.

My Findings

380.  The fact that I do not mention a particular piece of evidence or submission does not mean that I have not considered it or factored it in my decision making. It is just not practical to repeat it all nor refer to every piece of evidence I take into account.

381.  The defendant elected to give evidence and I have warned myself he has a clear record. I direct myself as to good character, both as to credibility and propensity as well as the likelihood of a man in his position committing the offences charged in accordance with the direction in HKSAR v Tang Siu Man 1997-98 1 HKCFAR 107.

382.  I have reminded myself of the prosecution’s duty to prove the elements of each charge against the defendant beyond reasonable doubt. The defendant has nothing to prove. Even if I reject his evidence, the prosecution still has that burden to prove all elements of the offences to the prerequisite standard.

383.  I do not hesitate to find from the evidence the defendant was very hands-on in running the Exchange contrary to what he would have me believe. He was at all relevant times the Chairman and the controlling shareholder. He was a signatory to the accounts and had access the accounts at all times. His signature was required on almost all transactions. For example, the outgoing cheques and chats application forms were all signed by the defendant. He knew the conditions imposed with the Authorisation.

384.  The defendant has attempted to show that he was not hands-on and did not know nor needed to know the minute details of the financial position of the Exchange at the relevant times. However, the evidence overwhelmingly suggests otherwise.

385.  The income in the accounts was, subject to some low volume business, all brought in by the defendant on terms only the defendant was aware of. That meant how long the money could stay in the account and how much had to be repaid and when was only known to him. It is inconceivable that he was not aware if the Exchange had sufficient funds to satisfy the SFC every Friday. If his main task was to ensure there were sufficient funds to operate the Exchange, then he must have been aware of the cash balance as well as the need to comply with the SFC’s financial conditions. I am sure he was fully in control of the finances as his main priority.

386.  The evidence shows that the SFC generously relaxed the financial conditions and appeared to give the Exchange much leeway to comply at the beginning. Perhaps the defendant was justified in believing at the beginning that the Exchange would not withdraw the Authorisation just because the cash balance was not always in compliance. However, by mid-2012, the SFC’s concern grew as evidenced by the correspondence and growing demands. The evidence of PW1 and PW2 was that compliance of both the disclosure condition and financial conditions were required by and important to the SFC.

387.  At the same time, one can see from the table in Annex C that most of the incidents of the 5 categories occurred from mid-2012. The defendant was having to continue to borrow but it would appear having difficulties borrowing millions and millions every week and month. By the end of the year 2012, the SFC indicated they wanted the Exchange compliant to the original financial terms and gave the Exchange a deadline. This would of course have increased the pressure.

388.  In November 2012 the defendant had no choice but to implement a 2^nd rights issue and told the SFC that it would be completed in a very short period of time. This would make the Exchange compliant to the original financial terms. However, bearing in mind that the 1^st rights issue took one year and was for a fraction of the US$100 million he intended to raise this time, clearly it was going to be an uphill task even for the defendant.

389.  This proved to be true and he required several extensions. In Annex C one can see from December 2012 that the Exchange was having to either window dress the accounts, give false information to the SFC or make misleading or misrepresent their information to the SFC or engineer favourable snapshots on a continuous basis. It was getting harder and harder for the Exchange to maintain the TMCL. By the 3^rd LOM on 9 April 2013 it was clear the Authorisation was actually at risk. By then the defendant’s evidence was that he was finding it tough to borrow money and would “take what we could get”. Time was of the essence and the issue of funds was critical.

390.  Dai was the defendant’s last hope to save the Exchange. The fact that he was relying on Dai’s investment to also finance his other project, the Pipeline Company joint venture, must have made this period of time very desperate and stressful for the defendant.

391.  Then we have this quite unbelievable turn of events with a $250 million cheque being deposited on the last day of the deadline only for that to not clear. Dai arranging a bridging loan US$30 million with a Mr Chauncey Ng who could not only arrange that in one day but open a corporate account with HSBC overnight to hold this amount of money.

392.  The defendant believed this was all legitimate and was prepared to pay over $4 million as a fee or interest to Ng to secure this deposit in an account in the Exchanges name which would include 2 free account summary statements in a form he approved after he made an amendment. He was also prepared to pay US$50,000 for every bank statement thereafter that may presumably be required by the SFC.

393.  Those events would make any businessman suspicious. How could a corporate account be opened overnight at HSBC and why would an account balance statement one could print off through Internet banking cost US$50,000? The defendant’s explanation was that he was desperate at the time and hoping Dai’s investment would come through. With hindsight, he says he should have seen that he was almost a victim of con artists. It is neither here nor there because the prosecution does not allege he had knowledge of the false HSBC document showing a non-existent deposit.

394.  However, that US$30 million was part of representations made to the SFC. It may very well be that the Exchange believed there was this amount of money in an HSBC account in their name but on the same day, 3 May 2013 both Jacky Choi and Ann Cresce undisputedly gave false information to the SFC. Jacky Choi told them in an email P83 that Mr Dai had deposited US$30 million and that the Exchange had transferred HK$11 million out of that same account to settle some of New Effort’s liabilities. PW7 could not explain why he told the SFC this.

395.  Ann Cresce on the same day in P84 attached a letter to an email confirming the US$30 million deposit and informing the SFC that the Exchange had transferred HK$5.3 million out of that same account to New Effort. These were 2 examples of false information given to the SFC and referred to in category 3.6 and category 3.7 of Annex B.

396.  It is clear from about mid 2012 the pressure on the Exchange to be able to consistently comply with the TMCL slowly mounted. From October 2012 the SFC put pressure on the Exchange to comply with the TMCL or risk losing the Authorisation. The SFC then imposed a deadline of 31 January 2013 to meet the original financial conditions. I am sure the defendant bore the brunt of the pressure and knew time was of the essence to find the funds to meet the more stringent original financial conditions.

397.  I therefore reject his evidence that he was behind the scenes raising funds without any involvement in the day-to-day financing and weekly reports submitted to the SFC. He may not have known what actual cash balance was reported to the SFC every week; I am sure for the most part he left it to Jacky Choi to present a report that satisfied the SFC with a sufficient cash balance.

398.  I am sure the reason he could leave it to Jacky Choi to submit the weekly reports and be confident the SFC would be satisfied is because he had given general instructions to Jacky Choi to do what he needed to do to present an acceptable cash balance to the SFC. As a result, Jacky Choi did what he could to deliberately conceal, when it was necessary, the true financial position of the Exchange from the SFC.

399.  Having said I am sure for the most part he left it to Jacky Choi to present a report that satisfied the SFC with a sufficient cash balance, there were indications that not only did Jacky Choi and the defendant discuss specific reported cash balances but that even PW6 the accounting manager at the time undeniably knew the importance of the TMCL. PW6 wrote in an email P199 on 30 November 2012 a Friday, to Jacky Choi informing him the Exchange was about to receive $34.2 million that day of which $30 million had to be transferred out on the following Monday. He told Jacky Choi that “we are safe today”. That sentence can only mean one thing and that is the Exchange had sufficient cash balance that week, for that Friday to report to the satisfaction of the SFC.

400.  The chain of emails in exhibit P224 show clearly Jacky Choi informing the defendant 3 times during that day when the sums of money they had been waiting for arrived. That was on a Monday, 27 August 2012. In his last email, he told the defendant that the Exchange had received the whole $27.7 million and that would be the bank balance sent immediately to the SFC. This bank balance is a reference to the cash balance weekly report for the previous Friday. The Exchange was expected to report the closing balance on the previous Friday not the following Monday’s in its weekly report which was $733,371.84, way below the TMCL. The defendant was obviously concerned about the cash balance reported and  being kept very up-to-date.

401.  I do not accept the evidence that he had no motive to give such an instruction because he knew and always believed that the SFC would not withdraw the Authorisation because the Exchange sometimes failed to comply with the relaxed financial condition. He may at the beginning have hoped that this would be the case but with deadlines imposed, the evidence of the witnesses especially PW1 and PW2 as well as the plain and ordinary meaning of the SFC’s correspondence with him show that there could not have been any misunderstanding on his part. His evidence that he had no motive to conspire with Jacky Choi is designed to distance himself from the dishonest means used to defraud the SFC. His stake was so high in the Exchange that he had the most to lose.

402.  I have carefully considered the credibility of Jacky Choi. I repeat his evidence must be carefully scrutinised in view of his motive to benefit from a larger discount in sentence. Much was made by Mr Kwok about the circumstances of his decision to give a non- prejudicial statement to the police after his plea. It is clear from the transcript of the hearing that the question of him giving evidence on behalf of the prosecution had been raised privately between himself and his eminent counsel, Mr Graham Harris SC. There was an adjournment during that hearing where Mr Harris gave advice to his client Jacky Choi before returning to court and indicating his decision to assist the prosecution. What was said by the court after that decision was made is neither here nor there.

403.  The reason for a co-accused to give evidence on behalf of the prosecution is almost always the same, for a selfish reason hoping for a lighter sentence. There is a danger of the possibility of fabrication which is why such evidence is always carefully scrutinised.

404.  The fact is the prosecution have demonstrated from the documentary evidence and the bank account statements that the Exchange did make misleading and/or false representations to the SFC at the material time. PW7 admitted he was behind it. The defence did not put to Jacky Choi that those misleading and/or false representations were not made.

405.  The credibility of the witness Jacky Choi pivots on whether he did this all by himself, on his own volition or whether he did it according to the instructions given to him by the defendant. Be it specific instructions like not to report those 7 dishonoured cheques to the SFC or less particularised instructions such as try your best to make the accounts look their best to satisfy the SFC or to keep the SFC in the dark as long as possible about the true financial position of the Exchange.

406.  Having watched PW7 give evidence, I do not believe that he took it upon himself to manipulate the SFC so that they would not assess and scrutinise the financial position of the Exchange and consider withdrawing the Authorisation. He said on numerous occasions that he followed the instructions given to him by the defendant. The impression he gave me was one of a man who followed instructions. I found him credible and truthful, there were no discrepancies or anomalies so serious that I could not rely on his evidence.

407.  He did tell the SFC in 2014 during interviews that he was unable to remember why he acted the way he did. He said whilst preparing his non-prejudicial statement he had an opportunity and time to review the emails and documents so that his memory was now clear. He said when interviewed by the SFC he was put on the spot and could not answer immediately. In any event, he does not now give conflicting evidence, he does not contradict himself. Telling the SFC that he essentially could not recall why he did or said things is not the same as giving them different evidence to that which he gave in court.

408.  The defence highlight the fact in cross examination that Jacky Choi agreed he had no motive to lie to the SFC to suggest that no conspiracy or agreement existed. If neither the defendant nor Jacky Choi had any motive to lie to the SFC then why would they agree to defraud the SFC.

409.  The prosecution is right when it submits it does not have to prove what motive or motives named conspirators had to act the way they did, merely that they did so with the realisation that their acts might cause the SFC to act contrary to its public duty. It is clear from PW1 and PW2’s evidence, the correspondence, the mounting pressure from the SFC and the SFC’s growing concern that there was a possibility of the SFC withdrawing the Authorisation. The defendant, I repeat, had the most to lose and therefore a motive.

410.  In order to keep the Authorisation and the SFC unaware of the real financial position for as long as it took to raise more funds, the defendant had to instruct Jacky Choi who was responsible for these weekly reports relied on by the SFC to conspire with him to defraud the SFC.

411.  I find Jacky Choi a credible witness who followed instructions from his employer. Instructions that led him to do what he did as set out in the 5 categories over a period of time and when it was necessary. When it was necessary was when there were insufficient funds to show the required cash balance or those funds had not yet arrived for that purpose.

412.  As far as the defendant’s own evidence is concerned, I was of the view that it was tailor-made to exonerate himself or distance himself from the offences. The picture he paints of Jacky Choi acting on his own without his knowledge or consent is unrealistic bearing in mind his position and his stake in the Exchange. His denial he gave Jacky Choi instructions defies belief in light of the evidence to the contrary.

413.  The same applies to his evidence of his mindset that he had no motive because he truly believed the SFC would not act on the Authorisation granted; the evidence from the prosecution does not support that belief at all. I did not believe the defendant in the witness box.

414.  I find on careful examination of the evidence of the correspondence, the SFC witnesses and Jacky Choi, the prosecution can prove there was a conspiracy between the defendant and Jacky Choi to defraud the SFC. There was an agreement to employ means to conceal from or mislead the SFC as to the true financial position, namely that the Exchange at various times between May 2012 and May 2013 did not have sufficient financial resources and were in breach of financial conditions imposed. The aim and the result of the deception was the SFC did not investigate whether the Authorisation should have been withdrawn.

415.  I find the evidence proved that they did conceal from or fail to disclose to the SFC material information in relation to the financial position of the Exchange. I find the evidence proved that they did cause and/or permit false or misleading information in relation to the financial position to be supplied to the SFC. I find the evidence proved that they did cause and/or permit the Exchange’s report to the SFC to be prepared in such a way as to show a false or misleading financial position of the Exchange.

416.  I draw the irresistible inference from the evidence as a whole that there was a conspiracy. I find the primary facts from which the prosecution invites an inference of guilt have been proved themselves beyond reasonable doubt. From those primary facts, I draw the one reasonable inference and that is they were carrying out an agreement to engage in a common enterprise to defraud the SFC. What Jacky Choi did and said was following and executing the instructions from the defendant.

417.  Did the defendant and Jacky Choi act dishonestly? Were those means employed by them to keep the SFC in the dark dishonest according to the two-part test? The evidence can and must be looked at as a whole, meaning all of the acts must be considered collectively as opposed to individually. It is because there are so many acts over a period of time with the same aim, one can infer that the defendant and Jacky Choi intended and induced the SFC to act contrary to their duty. Some of those acts were lies and falsehoods; indisputably dishonest means to deceive. It is the accumulative effect of all these acts, from a failure to report dishonoured cheques to a lie how money was spent which proves the element of dishonesty.

418.  I have applied the two-part Ghosh test to the means I find the defendant and Jacky Choi agreed upon and I am sure they were dishonest according to the ordinary standards of reasonable and honest people as well as sure that the parties realised that those means were, by those standards, dishonest. Their actions were dishonest by anyone’s standards. In Ghosh, the court observed that in most cases it would be obvious the defendant himself knew that he was acting dishonestly.

419.  I reject the defendant’s submission that those means were not dishonest, I find that the means agreed upon were to bring about a state of affairs which the parties realised would or may cause the SFC to act contrary to their duty. Both PW1 and PW2 gave evidence that this was the result of their actions. The means were dishonest because they were designed to stop the SFC from carrying out their public duty. I am sure a reasonable and honest man would see that and the defendant must have known that.

420.  To summarise my findings, I found the evidence of Jacky Choi credible. I found the defendant was a party to a conspiracy; there was an agreement with Jacky Choi to defraud the SFC. The prosecution can prove beyond reasonable doubt that the 2 men were acting in pursuance of a criminal purpose held in common between them. I found the alleged categories of acts and means were dishonest and designed with the intent to cause the SFC not to withdraw the Authorisation granted in April 2011. That means the SFC were caused to act contrary to their public duty. The prosecution has proved both the mens rea and actus reus of the conspiracy.

421.  The evidence is overwhelming against the defendant. The 2 men could not have done it without each other. Accordingly, and despite the defendant’s clear record, I find the prosecution has proved Charge 1 against the defendant beyond reasonable doubt. The defendant is found guilty as charged.

422.  In relation to charge 2, PW4’s evidence that the New Effort share had been pledged by the defendant when they entered into an agreement for his company, Fully Field to loan HK$80 million to New Effort in November 2012 was not challenged. By the time the defendant approached PW5 for a $30 million loan in April 2013, that share certificate still remained pledged to Fully Field as security.

423.  PW5’s evidence must be analysed carefully. He was a man giving evidence who was clearly not well health-wise. It appeared to me when observing him give evidence, he was a somewhat reluctant witness who was clearly in awe of or somewhat star struck by the defendant after meeting him. If I had to rely on his oral evidence alone to make a finding that the defendant did offer him the New Effort share as collateral for a $30 million loan when it was already pledged to PW4’s company Fully Field as collateral, I may have had some difficulty.

424.  However, the other evidence to take into account is the physical evidence and the terms of the loan agreement as well as the extension of the loan agreement. Clause 1.3 in the loan agreement dated 17 April 2013 specifically says the borrower is willing to use all the shares of New Effort as collateral for this loan. Should the borrower fail to carry out any stipulation in the agreement, all the shares of New Effort will be transferred to the lender. PW5’s evidence was that he first received what we now know was a copy of a New Effort share certificate, P170. This was not challenged. The defendant’s recollection was the same.

425.  When an extension to repay the loan agreement was signed on 16 May 2013, Clause 2.3 again refers to the same collateral. It says the borrower is willing to pledge all its shares of New Effort and deliver the relevant original share certificate & share transfer document to the lender for custody. PW5 did have possession of an original share certificate, P158, the original of the copy he received earlier but he could not recall exactly when he was given it. There was evidence from a police officer PW9 that he seized P158 from PW5. This was not challenged.

426.  This witness not only had been given a copy of and a purported original share certificate, there is clear reference to the New Effort share being collateral for the loan. Why would he have 2 such documents if not offered it as collateral and why would there be such clear reference to it in the agreement if it was not offered as collateral? Like PW5 I do not see much difference in the use of the word “willing” to use the New Effort shares. I take into account that unlike the normal practice for Sinomax when lending money, no lawyers were engaged here to draft the terms of the agreement. PW5 mentioned several times that this was because of his trust in the defendant.

427.  He may have been confused at times during his evidence but when he said his company would need collateral for a $30 million loan, I believe him. He may have told the SFC that Jacky Choi drafted the loan agreement but he explained that he assumed it was Jacky Choi. All he knew is that it came from the borrower, Sinomax did not drafted it.

428.  Certain questions were put to him designed to suggest that the defendant did not negotiate the terms of this agreement with PW5. He asked for a loan and left, leaving PW5 and Jacky Choi to finalise it. I am sure those questions were an attempt to distance the defendant himself from the terms of the loan, including the offer of collateral. The same applies to his denial of all knowledge of the 2^nd purported original share certificate and its origin.

429.  I do not believe the defendant was not involved in discussing this loan and its terms, after all, this loan was critical to the cash balance of the Exchange less than 2 weeks before the SFC’s deadline and a day before the defendant presented a PowerPoint to the SFC. Without that loan received on the same day as the loan agreement was signed, 17 April 2013, the cash balance of the Exchange would have been about $2 million. On 18 April, the following day the Exchange reported a cash position of $32 million to the SFC, P149. It was a desperately needed loan.

430.  PW5 did not agree with the suggestions. He said he negotiated terms with the defendant directly. Moreover, this line of questioning was not put to Jacky Choi in cross examination. It was Jacky Choi’s evidence that he was not involved in borrowing money or negotiating loans. That was the defendant’s remit. That was one of the reasons his job at the Exchange was so stressful, he had no idea when money was coming into the Exchange, how much and for how long. He relied on the defendant to tell him all these details.

431.  I accept enough of PW5’s evidence to find him reliable in his recollection that he was offered collateral at the time of the loan in the form of New Effort shares. He may very well have been told there was a problem with it but I am sure that was later when there was an issue with repayment of the loan.

432.  I reject the defence submission that the offer of New Efforts shares as collateral was only referred to in May 2013, not in April as particularised by the Charge 2. PW5 did say that later in May he was probably told then there was a problem and definitely no repayment so that was why lawyers were engaged and proper documentation for share transfer was drawn up in order to protect Sinomax’s legal position. I’m sure he was at that time offered the shareholdings of Sino Energy as collateral instead with an obligation to take up the joint venture shares.

433.  I find the oral evidence, the physical possession of a New Effort share certificate and its copy as well as the written terms of the loan referring to New Effort shares as collateral make me sure that the defendant, leading up to the signing of that loan on 17 April 2013, did offer the New Effort share as collateral when it had already been pledged to another. I suspect a second original share certificate was created because the New Effort share was offered as collateral. There is no other explanation and the defendant denied any knowledge of its creation or existence.

434.  The prosecution has proved beyond reasonable doubt a deceit was practised by the defendant with an intent to defraud Sinomax which induced them to loan him $30 million resulting in a benefit to New Effort or prejudice or a substantial risk of prejudice to Sinomax.

435.  Accordingly, and despite the defendant’s clear record, I find the prosecution has proved Charge 2 against the defendant beyond reasonable doubt.

436.  The defendant is found guilty of Charges 1 and 2 as charged.

Annex