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Securities in Hong Kong

Jan 30, 2015
Rogue traders in such as Jérome Kerviel, Toshihide Iguchi, and Nick Leeson have made international headlines in recent years. But a recent Court of Appeal case was considered to be “the first of its kind” in Hong Kong. This was the case of HKSAR v Tsang Pui Yu Shirlina CACC 349/2013 and the Hong Kong Court of Appeal was recently asked to reconsider the sentencing. 

The Defendant was a securities trader at an international bank. Between mid-2011 and 2012, she entered into the Bank’s system false details of the bonds in which she had traded. As a result of her manipulation, the Defendant made a “profit” and was awarded a bonus of HK$1,055,822.31.

The Bank had a monitoring system called Independent Pricing Verification (“IPV”) in which the Bank would obtain prices published by two independent brokers. The average of these two quoted prices would be compared to the prices of the relevant securities recorded in the Bank’s systems. In this way, any discrepancy between the prices entered by the Defendant and the market price should have been detected.

However, the Defendant circumvented the IPV by providing false prices for the relevant bonds to the persons who were responsible in updating the prices listed by the two independent brokers. Therefore, the prices published by these two brokers would be similar to the mismarked prices in the Defendant’s records, and so the Defendant’s mismarked position would be concealed.

The Defendant’s misconduct was discovered by the Bank in October 2011 and she was subsequently charged with fraud.

The Defendant pleaded guilty at the District Court. Before she was sentenced, she had agreed to return the entire bonus to the Bank. However, the trial judge held that the amount of bonus was just a small percentage of the loss the Bank has suffered, i.e. around HK$238 million. Thus, her personal restitution was insignificant and she was sentenced to 50 months’ imprisonment.

In her appeal against sentence, the Defendant relied on, inter alia, two grounds:

1. The starting point of 75 months’ imprisonment was too high as the trial judge failed to properly consider, inter alia, (i) the Bank would have in any event suffered some loss; and (ii) the offence was not committed for personal gain.

2. The trial judge did not give significant weight to the fact that the Defendant had made restitution by returning the bonus in full.

The Court of Appeal found that the offence involved a gross breach of trust lasting a substantial period of time involving numerous, carefully planned and executed acts of deception and subterfuge which enabled the Defendant to continue in her trading and result in a loss to the Bank of HK$238 million. Hence, the court would be failing in its duty to the community if it did not, by its sentence, send an unequivocally clear message denouncing such conduct.

In this case, although personal deterrence was not needed (there being very low risk of re-offending as she would be unlikely to be employed by another bank again), there was a need for a deterrent sentence to be imposed.

Further, the Court held that the absence of “personal gain” was a common feature of rogue trader offences. The relevant “personal gain” in this case was the opportunity to conceal the losses from the Bank, to remain employed and to keep trading in the hope that over time these losses could be recovered.

Although the Defendant argued the Bank would have suffered some loss in any event, the Court opined that the Defendant did not volunteer her misconduct to the Bank. Had the Defendant not been found out, she presumably would have continued trading. The Court could not speculate on what the loss might have been had the Defendant been discovered earlier, or what it might have been had the Defendant not been discovered until later. The Court was obliged to sentence the Defendant on the basis of the actual loss. In white collar crime cases, a ready, but not necessarily complete, measure of harm is the financial loss caused by the offender’s conduct.

Based on the above, the Court of Appeal held there was no reason to intervene with the trial judge’s starting point of sentence.

For more information on Criminal & Commercial Crime matters, please contact:-

Kevin Steel | | +852 2861 8419
Johnny Ho | | +852 2861 8486



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