Hong Kong court overturns convictions of broker and 3 executives in alleged scheme to defraud Convoy of HK$51 million

Hong Kong court overturns convictions of broker and 3 executives in alleged scheme to defraud Convoy of HK$51 million

A Hong Kong appellate court has overturned fraud convictions of three former executives of Convoy Financial Service Holdings and a local broker arising from an alleged scheme to defraud HK$51 million (US$6.5 million) in commissions and bonuses, marking the latest setback in a crackdown on white-collar misconduct.

Former Convoy executive director Mak Kwong-yiu, financial controller Christine Chan Lai-yee and manager Wong Shuk-on did not violate market protocols by not disclosing Mak’s stakes at a bond placement subagent hired to help sell the firm’s debts a decade ago, the Court of Appeal ruled on Tuesday.

The court cleared them of two charges of conspiracy to defraud while also quashing the conviction of the fourth defendant, former Gransing Securities general manager Lee Yick-ming, who faced one count of the same offence.

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The latest court ruling left what was then Hong Kong’s largest financial fraud investigation in decades without a successful prosecution since it was launched by the Independent Commission Against Corruption (ICAC) in December 2017.

Convoy was a crucial piece of the so-called Enigma Network, a cluster of interrelated companies with layers of overlapping shareholdings that have defied years of regulatory crackdown amid suspicions of fraud, market manipulation and corporate wrongdoing.

At the time a joint investigation was launched by the ICAC and the Securities and Futures Commission, Convoy was the largest independent financial adviser in Hong Kong with more than 100,000 customers.

Trading in Convoy’s shares was halted and its management changed after the high-profile probe went public. The firm was delisted in 2021.

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Mak and his three associates were jailed for up to seven months for allegedly conspiring to conceal the true identity of the agent involved in the firm’s four bond placements from Convoy and the Hong Kong stock exchange in 2014 and 2015.

The four engaged with Gransing Securities to arrange Convoy’s bond offerings, while the brokerage secretly hired Convoy Investment Services (CIS), in which Mak and two other former Convoy executive directors held significant stakes, to help sell the debts, the District Court heard in the 2021 trial.

CIS received HK$49.6 million in commissions and HK$1.2 million in bonuses, but the details of the bond offerings were never disclosed to Convoy’s board of directors and the company’s shareholders, according to the evidence.

Prosecutors argued Mak had used Gransing Securities to cover up what would have been considered a connected transaction between Convoy and CIS and to circumvent relevant market rules.

But the Court of Appeal held that disclosure in the present case was not required.

Madam Justice Anthea Pang Po-kam, who penned the judgment, highlighted that Convoy neither engaged in a direct transaction with CIS, nor was there evidence to show the agreement between the three companies was a sham as the indictment suggested.

She said Gransing Securities was an independent third party at the time and the respective dealings it had with Convoy and CIS were on its face legal.

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The judge stressed the key consideration was whether the agreement in contention was in substance or effect a connected transaction requiring public disclosure and shareholders’ approval.

“Even if the prosecution’s evidence is indeed able to show that the [business] arrangement concerned can achieve circumvention of [market] rules, the court cannot take its eyes off of the legal substance or effect arising from that arrangement, and infer that it was a sham and that each appellant harboured a dishonest intent,” the judge said.

Former financial controller Chan was charged by the ICAC in separate criminal proceedings alongside ex-Convoy director Roy Cho Kwai-chee and another for allegedly plotting to defraud HK$89 million from the firm to acquire an investment company where Cho was a substantial shareholder.

The District Court cleared the trio in 2020 after finding insufficient evidence to show the accused, rather than Convoy’s entire board of directors, was at fault for failing to disclose information.



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