(16-Jul-2012 MP)
張鴻在念中文大學商學院時，已經是高材生，我記不起他是一級榮譽或二級甲等畢業。由於他長得高大靚仔，在大學時，接任了一份旅行團領隊的高薪兼職，這份優 差人工高、福利好，兼且有得免費遊埠，所以一直是中文大學學生代代流傳的「遺產」，由一位師兄傳給張鴻，而張鴻畢業時，又傳了給一位師弟，這就是薪火相 傳，但有沒有傳至今日，則不得而知了。
張鴻畢業後的第一份工，應該是在百富勤當分析員，以當時百富勤的聲勢，這份工應該比今日的高盛更勝一籌了。也許是他曾經在美國的大學當過交換生吧，總之他有「西方來的賓客」之雅號，這雅號另有一個簡潔本，不贅。
他在創業前的最後一份工，應該是在國泰君安，在2000 年後的君安，是快速驚人的幾年。我記得張鴻的助手Icy 是少數懂得股票的後輩，我們都覺得她非池中物，但不知她的近况如何了。
大學時代已是高材生
為什麼我會提起張鴻這位「賓客」呢？因為那天我發現了他既是朗力福（8037） 的主席， 又是中國金石（1380）的行政總裁，就我所知，這是開創前從所未有的先河。真的是天才式的人物。
有一個朋友，打電話來問功課，就是問我中國金石的前景。我說，我約了張鴻星期三打牌，到時一定去探他的口氣。
至於當日張鴻的腳，除了我之外，還有清洪。因為張鴻有一個一生最大的冤屈，據他所言，不惜花數百萬元打官司，都要還回清白。所以我特意約埋金牙大狀，看看有沒有機會為他洗清那次的受氣。當然了，在打牌時，他非得鬆章不可。
============
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i
The report of the Market Misconduct Tribunal into dealings
in the shares of Sino Katalytics Investment Corporation
on and between 2 January 2009 to 9 January 2009
Part I : A report pursuant to section 252(3)(a) and (b) of the Securities and
Futures Ordinance, Cap 571
INDEX
Paragraphs
Chapter 1 The Financial Secretary’s Notice
1
Chapter 2 The Law
2-17
Chapter 3 The Material Received by The Tribunal 18-87
Background 18-20
Trading in the shares of Sino Katalytics 21-28
The explanations by Mr Peter Yau and Mr
Duncan Chui for their respective
sales and purchases of Sino Katalytics
shares on 9 January 2009
29-42
SUBSEQUENT RELEVANT EVENTS
Announcements:
43-44
13 January 2009: suspension of
trading
15 January 2009: placement
12 January 2009 45-47
12 January 2009 - trading in Sino
Katalytics shares
48-50
Sino Katalytics Board Meeting 51-52
13 January 2009 53
The placement agreement 54
Steps taken to place the shares with
placees
55-58
ii
Paragraphs
Mr Ben Cheung 59-70
Placing letters 71
Placement proceeds 72
The accounts of Mr Duncan Chui and Mr
Peter Yau as to the genesis and
development of the placement of Sino
Katalytics shares
73-87
Chapter 4 A Consideration of the Material Received 88-114
Attestation to Part I of the Report
iii
INDEX – APPENDICES
PAGE
Appendix I A summary of the material received by the
Tribunal
A1-A7
Appendix II
Schedule of Mr Peter Yau and Mr Duncan
Chui respective trading and the percentage
their holdings represented of the issued share
capital of Sino Katalytics
A8-A9
Appendix III
Stock Historical Data records for the period 1
December 2008 to 13 February 2009
A10-A11
Appendix IV
Orders and Trades executed for Mr Duncan
Chui (via Onshine) and Mr Peter Yau (via
Quam Securities and UOB Kay Hian) in Sino
Katalytics shares on 9 January 2009
A12
1
CHAPTER 1
THE FINANCIAL SECRETARY’S NOTICE
1. The Tribunal was constituted in consequence of the Financial
Secretary’s (“FS”) Notice dated 12 April 2011.
“IN THE MATTER OF THE LISTED SECURITIES
OF SINO KATALYTICS INVESTMENT CORPORATION
(Stock Code 2324)
NOTICE TO THE MARKET MISCONDUCT TRIBUNAL
PURSUANT TO SECTION 252(2) AND SCHEDULE 9
OF THE SECURITIES AND FUTURES ORDINANCE, CAP. 571
(THE “ORDINANCE”)
Whereas it appears to me that market misconduct within the meaning of
Section 274 ( “False Trading”), section 275 ( “Price Rigging” ) and section
278 (“Stock Market Manipulation”) of Part XIII of the Ordinance has or
may have taken place in relation to the securities of Sino Katalytics
Investment Corporation (stock code 2324)(the “Company”), the Market
Misconduct Tribunal is hereby required to conduct proceedings and
determine -
(a) Whether any market misconduct has taken place;
(b) The identity of any person who has engaged in the market misconduct;
and
(c) The amount of any profit gained or loss avoided as a result of the market
misconduct.
Persons Specified
Mr Chui Tak Keung, Duncan (“Chui”) and
Mr Yau Chung Hong, Peter (“Yau” ).
2
Statement for Institution of Proceedings
1. At all material times Chui was th e Company’s chairman and executive
director as well as its single largest shareholder and Yau was an
executive director of the Company as well as a substantial shareholder as
that term is defined in the Ordinance.
2. Between July 2007 and early December 2008 the Company raised
additional capital of $121 million af ter expenses through two rights
issues and two placements. On 16 December 2008 the Company
issued bonds in the principal amou nt of $8.1 million convertible into
new shares representidng approximately 19.48% of the then issued share
capital at $0.045 per share.
3. On and between 2 January 2009 and 9 January 2009 (the “Specified
Period”) Chui and Yau instructed their brokers to transact in the
Company’s shares. Yau was responsible for 100% of sales in the
Company’s shares on 2 January 2009, 86% of sales in the Company’s
shares on 5 January 2009 and 90% of sales in the Company’s shares on
6 January 2009. Chui was responsible for 92% of purchases in the
Company’s shares on 7 January 2009 and 85% of purchases in the
Company’s shares on 8 January 2009. The closing price in the
Company’s shares was $0.042 on each of those days other than 5
January 2009 when it was $0.041. Between 2 January 2009 and 8
January 2009 turnover in the Company’s shares averaged 2.6 million
shares.
4. On 9 January 2009 turnover in the Company’s shares increased to 8.85
million shares and Yau was responsible for 89% of sales, whereas Chui
was responsible for 62% of purchases. Over 97% of Chui’s purchases
on that day came from Yau’s sales and such purchases took place within
20 minutes of the market close duri ng which time the market price rose
from $0.049 to close at $0.055, a rise of 31% over the previous day’s
close.
5. Turnover in the Company’s shares on 12 January 2009 fell to just
650,000 shares and the closing pric e dropped from $0.055 to $0.054.
Neither Yau nor Chui transacted in the Company’s shares on that day.
3
6. Chui and Yau did not work from the same office premises but
communicated by office and mobile telephone frequently during the
Specified Period.
7. In compliance with paragraph 8 of Appendix 10 to the Rules Governing
the Listing of Securities on The St ock Exchange of Hong Kong Limited
(the “Model Code”) Yau notified Chui as th e Company’s chairman of
his intention to deal in the Company’s shares and obtained prior written
acknowledgment. In similar complia nce Chui informed Yau of his
intention to deal in the Company’s shares and obtain prior written
acknowledgment. In compliance with the provisions of Part XV of the
Ordinance both Chui and Yau notified the Company’s corporate
communications officer once they had dealt in the Company’s shares.
The corporate communications of ficer’s duties included furnishing
appropriate disclosure notices to the Stock Exchange of Hong Kong
Limited and maintaining the required register of direct ors’ interests.
8. Chui told the Securities and Futures Commission (the “SFC” ) in
interviews that as a re sult of the July 2008 rights issue Yau increased his
interest in the Company beyond his own, also that in August 2008 Chui
negotiated to purchase 55 million shares in the Company from Yau in an
off-market transaction, also that he thereafter wished to monitor Yau’s
shareholding as he was concerned to remain the single largest
shareholder.
9. The corporate communications officer’s duties also included furnishing
Chui with copies of directos’ disclosure notices and, commencing
around August 2008, maintaining in spread sheet form a record of Yau’s
interests and sending a copy to Chui whenever Yau’s interest changed.
10. By reason of the means by which they complied with the Model Code,
each of Chui and Yau had advance know ledge of the other’s intention to
deal in the Company’s shares. By reason of instructions given to the
corporate communications officer, Chui knew when Yau had dealt in the
Company’s shares.
4
11. On 31 December 2008 Yau complied with the Model Code and
informed Chui of his intention to acquire 6 million shares in the
Company at $0.042 from 2 January 2009 to 6 January 2009. On 8
January 2009 Yau again complied with the Model Code and informed
Chui of his intention to dispose of 8 million shares in the Company at
$0.050 on 9 January 2009. Chui acknowledged both notifications.
12. On 2 January 2009 Chui complied with the Model Code and informed
Yau of his intention to acquire 10.5 million shares in the Company at
$0.047 from 5 January 2009 to 9 January 2009. Yau acknowledged the
notification.
13. Chui told the SFC in interviews that he was pleased to learn of Yau’s
notification to dispose. He was prep ared to pay market price in order
to maintain a higher level of inte rest. He guessed he was buying on 9
January 2009 those shares Yau was selling.
14. Yau told the SFC in interviews that although he had seen Chui’s
notification to acquire he did not know if Chui had in fact purchased.
That his desired selling price was se t by having to meet margin calls on
his account, also to have funds in advance of Chinese New Year.
15. In interviews with the SFC both Chui and Yau denied working with each
other on the afternoon of 9 January 2009 to push up the Company’s
share price, notwithstanding that each knew of the other’s intention to
buy and sell from Model Code notifications.
16. Chui and Yau were in frequent telephone contact on 9 January 2009 and
their transactions during the 20 minutes prior to the market close had the
appearance of being coordinated.
17. On 7 January 2009 Yau approached Guoyuan Securities Brokerage
(Hong Kong) Limited and discussed the prospects for a placement of the
Company’s shares (the “Placement”). Discussions continued over the
weekend of 10 and 11 January 2009 and on 12 January 2009 the
Company’s secretary was instructed to convene a board meeting for 5:00
p.m. the same day. The Company’s boa rd resolved to proceed with the
Placement in order to raise a further $8.31 million by allotting new share
5
equivalent to around 20% of the Company’s then issued share capital,
also at $0.045 per share. Tradi ng in the Company’s shares was
suspended on 13 January 2009 at 10: 42 a.m. The Placement was
undersubscribed by 19% and raised $6.76 million.
18. The transactions in most of the sh ares disposed of by Yau and acquired
by Chui on 9 January 2009 were undertaken in a manner designed to
manipulate the market in the Company’s shares ahead of the Placement.
19. Accordingly, Chui and Yau engaged or may have engaged in market
misconduct contrary to sections 274, 275 and 278 of the Ordinance.
Dated this 12
th
day of April 2011
[Signed]
(John C. Tsang)
Financial Secretary”.
6
CHAPTER 2
THE LAW
False trading
2. Section 274(1) of the Ordinance provides that :
“(1) False trading take s place when, in Hong Kong or elsewhere, a
person does anything or causes anything to be done, with the intention that,
or being reckless as to whether, it has, or is likely to have, the effect of
creating a false or misleading appearance -
(a) of active trading in securities or futures contracts traded on a
relevant recognized market or by means of author ized automated
trading services; or
(b) with respect to the market for, or the price that dealings in,
securities or futures contracts traded on a relevant recognized
market or by means of authorized automated trading services.
…
(3) False trading takes place whe n, in Hong Kong or elsewhere, a
person takes part in, is concerned in, or carries out, directly or indirectly,
one or more transactions (whether or not any of them is a dealing in
securities or futures contracts), with the intention that, or being reckless as
to whether, it or they has or have, or is or are likely to have, the effect of
creating an artificial price, or maintaini ng at a level that is artificial (whether
or not it was previously artificial) a price, for dealings in securities or
futures contracts traded on a relevant recognized market or by means or
authorized automated trading services.
…
(5) Without limiting the general nature of the conduct which
constitutes false trading under subsec tion (1) or (2), where a person -
(a) …
(b) offers to sell secutities at a price that is substantially the same as
the price at which he has made or proposes to make, or knows
that an associate of his has made or proposes to make, an offer to
purchase the same or substantially the same number of them; or
(c) offers to purchase securities at a price that is substantially the
same as the price at which he has made or proposes to make, or
knows that an associate of his has made or proposes to make, an
7
offer to sell the same or substa ntially the same number of them,
[Italics added.]
then, unless the transaction in questi on is an off-market transaction, the
person shall, for the purposes of subs ections (1) and (2), be regarded as
doing something or causing something to be done, with the intention that, or
being reckless as to whether, it has, or is likely to have, th e effect of creating
a false or misleading appearance -
(i) where the securities are traded on a relevant recognized market
or by means of authorized automated trading services, of active
trading in securities so traded; or
(ii) …
(6) A person shall not be regarded as having engaged in market
misconduct by reason of false trading taking place through the commission
of an act referred to in subsection (5)(a), (b) or (c) if he establishes that the
purpose
1
for which he committed the act was not, or , where there was more
than one purpose, the purposes for which he committed the act did not
include, the purpose of creating a false and misleading appearance of active
trading in securities, or with respect to the market for, or the price for
dealings in, securities, referred to in subsection (1) or (2) (as the case may
be). [Italics added.]”.
“associate”
3. Section 245(1) of the Ordiance provides that for Part XIII, unless the
context otherwise requires -
“ ‘associate’, in relation to a person, means -
(a) the person’s spouse or reputed spouse, any person cohabiting with
the person as a spouse, the person’s brother, sister, parent,
step-parent, child (natural or adopted) or step-child;
(b) any corporation of which the person is a director;
(c) any employee or partner of the person;
(d) where the person is a corporati on, each of its directors and its
related corporations and each director or employee of any of its
related corporations;
1
The burden imposed is the persuasive burden of proof, which is discharged on the balance of probabilities
[see paragraph 88 of the judgment of Gleeson NPJ in the Court of Final Appeal in Fu Kor Kuen & Another v
HKSAR, unreported, FACC No. 4/2011; 24 May 2012
to the effect that is the burden even in criminal proceedings.]
8
(e) without limiting the circumstances in which paragraphs (a) to (d)
apply, in circumstances concerning the securities of or other
interest in a corporation, or rights arising out of the holding of such
securities or such interest, any other person with whom the person
has an agreement or arrangement -
(i) with respect to the acquisition, holding or disposal of
such securities or such interest; or
(ii) under which they undertake to act together in exercising
their voting power at ge neral meetings of the
corporation;”.
“active trading”
4. In having regard to the phrase “activ e trading” the Tribunal is to have
regard to all the material received in respect of trading in Sino Katalytics
Investment Corporation (“Sino Katalyti cs”) shares in the Specified Period,
namely on and between 2 and 9 January 2009, and is not confined only to a
consideration of the number of such trades.
“likely”
5. The word “likely” means that it is more probable than not. It is not
necessary that the false or misleading appearance, as particularised in section
274(1)(a) or (b), is created . Breach of the section occurs when a person does
anything or causes anything to be done with the intention that, or being reckless
as to whether, it has, or is likely to have, the effect of creating that result. [See
paragraph 42 of the judgment of Mason J in the High Court of Australia in
North v Marra Development Ltd 4 ACLR 585 in construing section 70 of the
Securities Industry Act 1970 (NSW) :
“A person shall not create or cause to be created or do anything which is
calculated to create, a false and misleading appearance of active trading in
9
any securities on any stock market in the State, or a false or misleading
appearance with respect to the market for, or the price of, any securities.”.
“Reckless”
6. The Chairman has directed the Tribuna l in respect of the ingredient of
recklessness in accordance with the judgm ent of Sir Anthony Mason NPJ, with
whose judgment all the other judges agre ed, in the Court of Final Appeal in Sin
Kam Wah v HKSAR [2005] HKCFAR 192 at paragraph 44, page 210 D-G. A
person acts recklessly in respect of a circum stance if he/she was aware of a risk
which did or would exist, or in respect of a result if he was aware of a risk that it
would occur, and it was, in the circumstances known to him unreasonable to
take the risk. If, due to his/her age or personal characteristics, he/she genuinely
did not appreciate or foresee the risks invo lved in his/her actions he/she is not
reckless.
Price rigging
7. Section 275 of the Ordinance provides that :
“(1) Price rigging takes place when, in Hong Kong or elsewhere, a
person -
...
(b) enters into or carries out, directly or indirectly any fictitious or
artificial transaction or device, with the intention that, or being
reckless as to whether, it has th e effect of maintaining, increasing,
reducing, stabilizing or causing fluctuations in the price of
securities, or the price for dealings in futures contracts, that are
traded on a relevant recognized ma rket or by means of authorized
automated trading services.
…
(3) For the purposes of subsections (1)(b) and (2)(b), the fact that a
transaction is, or at any time was, inte nded to have effect according to its
10
terms is not conclusive in determining wh ether that the transaction is, or was,
not fictitious or artificial.
(4) A person shall not be regarded as having engaged in market
misconduct by reason of price rigging taking place through any transaction
of sale or purchase of securities referred to in subsection 1(b) … if he
establishes
2
the purpose for which the securities were sold or purchased was
not, or, where there was more than one purpose, the purpose for which the
securities were sold or purchased did not include, the purpose of creating a
false or misleading appearance with re spect to the price of securities.”.
Stock market manipulation
8. Section 278 of the Ordinance provides that :
“(1) Stock market manipulation takes place when, in Hong Kong or
elsewhere -
(a) a person enters into or carries out , directly or indirectly, 2 or more
transactions in securitie s of a corporation that by themselves or in
conjunction with any other transaction increase, or are likely to
increase, the price of any securities traded on a relevant recognized
market or by means of authorized automated trading services, with
the intention of inducin g another person to purchase or subscribe
for, or to refrain from selling, securities of the corporation or of a
related corporation or of the corporation;”.
The word “likely” means that it is more probable than not.
The Standard of Proof
9. Section 252(7) of Ordinance provides that :
“ … the standard of proof required to determine any question or issue before
the Tribunal shall be the standard of pr oof applicable to civil proceedings in
a court of law.”.
10. That standard is the “balance of probabilities”. In Solicitor (24/7) v
The Law Society of Hong Kong [2008] 2 HKLRD 576 the Court of Final Appeal
2
The persuasive burden, on the balance of possibilities.
11
accepted, the correctness of the approach to the civil st andard of proof expressed
by Lord Nicholls of Birkenhead in Re H & Others (Minors) (Sexual Abuse:
Standard of Proof) [1996] AC 563 at p 586 D–G :
“The balance of probability standard means that a court is satisfied an event
occurred if the court considers that, on the evidence, the occurrence of the
event was more likely than not. When assessing the probabilities the court
will have in mind as a factor, to whatever extent is appropriate in the
particular case, that the more serious the allegation th e less likely it is that
the event occurred and, hence, the stronger should be the evidence before
the court concludes that the allegation is established on the balance of
probability.”.
11. In his judgment in the Court of Final Appeal in Koon Wing Yee and
Insider Dealing Tribunal (unreported) FACV No. 19 of 2007 Sir Anthony
Mason NPJ cited that acceptance with approval (see para graph 89). That is the
approach to the standard of proof that has been adopted by this Tribunal.
Circumstantial evidence and inferences
12. In his judgment in the Court of Fi nal Appeal, with which all the other
judges agreed, in HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336 Sir Anthony
Mason NPJ, having cited wi th approval the passage from the speech of Lord
Nicholls quoted above, went on to address the proper approach to the drawing of
inferences in circumstances of allegati ons of gross misconduct by senior officers
of the SFC. Sir Anthony said :
“…that conclusion was not to be reach ed by conjecture nor, as the respondent
submitted, on a mere balance of probabilities. It was to be plainly established
as a matter of inference from proved facts. It is not possible to state in
definitive terms the nature of the evidence which the court will require in order
to be satisfied, in a civil proceeding, th at a serious allegation of this kind, is
made out. It would not be right to say that the requisite standard prescribes
that the inference of wrongdoing is the only inference that can be drawn (cf
12
Sweeney v Coote [1907] AC 221 at 222, per Lord Loreburn) for that is the
standard which applies according to the criminal standard of proof. In the
particular circumstances, it was for the respondent to establish as a compelling
inference that very senior officers of the SFC had deliberately and improperly
terminated the investigation into Meocre Li’s conduct for the ulterior purpose
alleged, sufficient to overcome the inhere nt improbability that they would have
done so (see Aktieselskabet Dansk Skibsfinansiering v Brothers & Others (2000)
3 HKCFAR 70 at pp. 91H, 96 G-I, per Lord Hoffmann).”.
13. Excerpts from the passage quoted above in the judgment of Sir
Anthony Mason NPJ were cite d with approval in the judgment of Mr Justice
Ribeiro PJ (see paragraph 187) in the Court of Final Appeal in Nina Kung alias
Nina TH Wang and Wang Din Shin (2005) 8 HKCFAR 387. In his judgment,
Lord Scott of Foscote NPJ observed, in the context of allegations that Mrs Wang
had procured the forgery and in a cons piracy with another was attempting to
obtain probate as the will of a document she knew to have been forged, at
paragraph 626 :
“The probability of these allegations be ing true must be judged on the evidence
adduced in the case. But it must also take account of propensity. If such an
allegation is made against a person with a record of involvement in forgery or
fraud, the strength of the other evidence necessary to satisf y the balance of
probability test is obviously less than would otherwise be required. Evidence
of propensity must go into the balance ... Evidence to a very high standard of
cogency indeed is necessary before the cour t can be justified in finding either to
be dishonestly involved in a conspiracy to promote a forged will.”.
14. The Tribunal approached the drawing of inferences adverse to the
Specified Persons with those considerations in mind. Mindful of the fact that
the conduct alleged against the Specified Persons is of a nature that could have
resulted in the bringing of serious crim inal charges the Tribunal did not draw
13
inferences from proved primary facts that any one of the Specifiecd Persons was
culpable of the alleged misconduct unless to do so was very compelling and the
evidence was of a very high standard of cogency indeed.
Lies
15. The Tribunal has reminded itself in its approach to the evidence of the
respective Specified Persons in the Tribunal and their statements outwith the
Tribunal that a lie in itself does not prove th at the maker of the lie is culpable of
the misconduct alleged against that pers on. People innocent of wrongdoing
sometimes tell lies : perhaps, as a mi sguided reaction to a problem, or to
postpone facing up to it or to attempt to deflect ill founded suspicion, or to
fortify their defence. Nevertheless, it may be a matter relevant to credibility.
Good character
16. The Chairman directed the Tribunal that a Specified Person of good
character is less likely than otherwise might be the case to have committed the
alleged misconduct and that good character supports his credibility in respect of
both his evidence in the Tribunal a nd in his records of interview.
Separate consideration
17. The Tribunal has considered the case against and for each of the
Specified Persons separately. Statements made outwith the Tribunal,
inconsistent with the oral testimony of the maker in the proceedings before the
Tribunal, are not evidence of the truth of the matters there asserted. Having
had regard to whether or not in true context the assertion outwith the Tribunal is
14
inconsistent in a material particular w ith oral testimony and to any explanations
proffered for that inconsistency, th e Tribunal may have regard to the
inconsistency in respect of the credibility of the witness.
15
CHAPTER 3
THE MATERIAL RECEIVED BY THE TRIBUNAL
3
Background
18. Sino Katalytics, now known as Capital VC Limited, was incorporated
in the Cayman Islands on 13 November 2002 as China Northern Enterprises
Investment Fund Ltd (“China Northern”). The company’s shares were listed
on the Stock Exchange of Hong K ong on 27 October 2003, when 50 million
shares were placed to professional inve stors. Guotai Junan Securities (Hong
Kong) Ltd (“Guotai”) acted as co-lead managers in th e listing. Mr Peter Yau
Chung Hong (“Mr Peter Yau”) was a shareholder a nd one of the several
executive directors. Mr Ben Cheung Hung (“Mr Ben Cheung”), then an
employee of Guotai, was a non-executive director of Sino Katalytics from its
listing until 6 August 2004.
19. In January 2005, Mr Duncan Chui Tak Keung (“Mr Duncan Chui”)
became a shareholder and executive director of Sino Katalytics. Then, Sino
Katalytics acquired a 30% in terest in the shareholding of CNI Bullion Limited
(“CNI Bullion”), which had been formed in March 2005 and which provided
services in respect of bullion trading. In April 2005, Mr Peter Yau disposed of
his shareholding in Sino Katalytics, but remained as an executive director. In
November and December 2005, Mr Duncan Chui began acquiring Sino
Katalytics shares, becoming its biggest shareholder, holding 26.25% of its
shares in the latter month. The comp any changed its name to Sino Katalytics
on 12 January 2006.
3
See Appendix I.
16
20. On 2 July 2008, Mr Peter Yau began acquiring Sino Katalytics shares
in his own name and in the name of his wholly owned company, Sellwell
Enterprises Ltd. At that date Mr Duncan Chui’s holding of Sino Katalytics
shares had fallen to 11.06% of the issued capital. By about the end of August
2008, Mr Peter Yau had increa sed his shareholding of Si no Katalytics shares to
about 18.5% of its issued share capital, whilst that of Mr Duncan Chui remained
at 11.3%. By an off-market trad e on 28 August 2008 Mr Duncan Chui
acquired 55 million Sino Katalytics shares from Mr Peter Yau, thereby reducing
the latter’s shareholding to 12.6% and increasing that of Mr Duncan Chui to
17.25% of the issued share capital of Sino Katalytics. Thereafter, Mr Duncan
Chui increased his shareholding of Sino Katalytics to more than 23% by
mid-November 2008. [See a schedule of their respective trading and the
percentage their holdings represented of the issued share capital of Sino
Katalytics at Appendix II]
Trading in the shares of Sino Katalytics
21. There is no dispute that at all material times Sino Katalytics was a
thinly traded stock. The Stock Hist orical Data records for the period 1
December 2008 to 13 February 2009 illustrate the point. [see Appendix III]
Trading in the shares of Sino Katalytic s by Mr Duncan Chui and Mr Peter Yau
on and between 2 to 9 January 2009
22. Purchases by Mr Peter Yau: volume and price per share
2 January 2009 2,000,000 shares at 4.2 cents;
17
5 January 2009 50,000 shares at 3.8 cents
50,000 shares at 3.7 cents
2,000,000 shares at 4.1 cents;
6 January 2009 2,050,000 shares at 4.1 cents
700,000 shares at 4.2 cents.
23. Sales by Mr Peter Yau: volume and price per share
9 January 2009 2,000,000 shares at 5.0 cents-through Quam
1,000,000 shares at 5.1 cents-through Quam
900,000 shares at 5.5 cents-through Quam
1,000,000 shares at 4.9 cents-through Barclays/UOB
2,000,000 shares at 5.0 cents-through Barclays/UOB
1,000,000 shares at 5.1 cents-through Barclays/UOB.
24. Purchases by Mr Duncan Chui through Onshine: volume and price
per share
7 January 2009 400,000 shares at 4.2 cents
1,950,000 shares at 4.1 cents;
8 January 2009 250,000 shares at 4.1 cents
2,200,000 shares at 4.2 cents;
9 January 2009 850,000 shares at 5.5 cents
100,000 shares at 5.4 cents
1,300,000 shares at 5.1 cents
2,200,000 shares at 5.0 cents
1,000,000 shares at 4.9 cents.
18
25. 97.2% of the Sino Katalytics shares purchased by Mr Duncan Chui on
9 January 2009 were sold to him by Mr Peter Yau. Prior to their first
transaction, at 15:39:14 for the purchas e and sale of one million Sino Katalytics
shares at 4.9 cents per share, the only two earlier purchases and sales of the
shares that day were at 11:43:03, of 50,0 00 shares at 4.2 cents per share, and at
14:54:21 of 500,000 shares at 4.4 cents pe r share. The last transaction between
them that day was at 15:59:52 involve d the sale of 800,000 Sino Katalytics at
5.5 cents per share. That also proved to be the closing price of Sino Katalytics
shares that day, it having risen from the closing price of 4.2 cents on 8 January
2009.
26. In a period on and between 15:37 :43 and 15:59:22, through a
combination of Quam Securities Limited (“Quam Securities”) and
Barclays/UOB Kay Hian (Hong Kong) Li mited (“Barclays/UOB”), Mr Peter
Yau placed eight selling orders of one million Sino Katalytics shares each. In
the period on and between 15:39:14 and 15:59:52, Mr Duncan Chui placed nine
buying orders for a total of 5.45 million Sino Katalytics shares. The latter’s
‘Bid’ price rose from 4.9 cents to 5.5 cents.
27. The pattern of their orders and the executed orders in that period is
illustrated by exhibit 11 to the witness statement of Mr Eric Cheng Kai Sum
(“Mr Eric Cheng”), a Senior Director of the Surveillance Department of the
Enforcement Division of the SFC. [See Appendix IV]
19
28. The relative dominance of the combin ed trading in the period 2 to 9
January 2009 of Mr Peter Ya u and Mr Duncan Chui is illustrated by an extract
from exhibit 9 to Mr Eric Cheng’s witness statement.
Trades conducted by CHUI and YAU in SKIC shares between 2 January 2009 and 10 February 2009
(the Review Period)
Trading by Duncan Chui and Peter Yau SKIC shares
Duncan Chui Peter Yau
Date Quantity
Price
Range Quantity
Price
Range
Combined
Dominance
Market
Volume
without
Duncan
Chui and
Peter Yau Volume
Turnover
(HKD) High Low Close
2/1/2009 2,000,000 $0.042 100.0% - 2,000,000 84,000 0.04 2 0.04 2 0.04 2
5/1/2009 2,100,000
$0.037 -
$0.041
86.6% 325,00 0 2,425,00 0 98,375 0.041 0.037 0.041
6/1/2009 2,750,000
$0.041 -
$0.042
89.9% 310,48 6 3,060,48 6 126,211 0.042 0.041 0.04 2
7/1/2009 2,350,000
$0.041 -
$0.042
92.2% 200,000 2,550,00 0 104,650 0.04 2 0.039 0.04 2
8/1/2009 2,450,000
$0.041 -
$0.042
84.5% 450,000 2,900,00 0 120,600 0.04 2 0.03 7 0.04 2
9/1/2009 5,450,000
$0.049 -
$0.055
(7,900,000)
$0.049 -
$0.055
89.3% 950,00 0 8,850,00 0 445,900 0.05 5 0.04 2 0.05 5
The explanations by Mr Peter Yau and Mr Duncan Chui for their respective
sales and purchases of Sino Katalytics shares on 9 January 2009
29. Although Mr Peter Yau had brought 6,850,000 Sino Katalytics shares
on and between 2 and 6 January 2009, he explained his sale of 7.9 million Sino
Katalytics shares on 9 January 2009 as his response to persistent margin call
made by Mr Lawrence Hung Sing Kwong (“Mr Lawrence Hung”), his broker at
20
Quam Securities. He said that often those calls were relayed through his
secretary and that was a cause of embarrassment. In a record of interview,
conducted of him by an officer of th e SFC on 21 May 2009, Mr Peter Yau
explained the circumstances in which he had come to sell Sino Katalytics shares
on 9 January 2009 :
“… because I can remember that as the Chinese New Year was approaching in
January and the margin amount of his brokerage house ... was damn tightened;
well he then said that … I owe him money; that is what I can remember and then
on 8
th
$50,000 was deposited on 8
th
... well, and he also said, that is, the brokerage
house was dunning him very hard for payment; when I was damn troublesome.
But after I made the calculation (I found) that if I sold the shares at about that
price, it would just be the case that th ere would be no need for me to make any
payment ... on the contrary, I would make money …”.
30. However, having listened to a tape recording of the telephone
conversation he had with Mr Lawren ce Hung on 8 January 2009 during the
course of proceedings in the Tribunal, Mr Peter Yau accepted that there was
nothing in the tone or language that Mr Lawrence Hung had used that was
unpleasant.
31. Mr Lawrence Hung said that his colleagues in Quam Securities
provided him with a ‘margin report’ each morning identifying those clients of
his of whom a margin call might be made. It was as a result of such contact
with Mr Peter Yau, his name having appeared in such margin reports, that
payments were made by Mr Peter Yau to Quam Securities of $8,000 on 2
January, and $50,000 on each of 6 and 8 January 2009.
21
32. Mr Lawrence Hung identified his voice and that of Mr Peter Yau on
audio tape recordings of conversations in which he made requ ests for deposits of
money from Mr Peter Yau on 6 and 8 January 2009. Mr Lawrence Hung’s
request of Mr Peter Yau on 6 January was made in the following way :
“is it convenient for you to deposit some money in to your account? ... because
you now have 4 million shares of 2324 in your account.”.
The request for the deposit of $80,000 wa s met with a simple agreement by Mr
Peter Yau. However, as noted earlie r only $50,000 was in fact deposited.
33. Mr Lawrence Hung’s request of Mr Peter Yau on 8 January was that
he :
“help (me) out on your account ... deposit 80,000 bucks, is it okay?”
Mr Lawrence Hung explained, “there is a shortfall of 204,000 ...”. Then, he
asked for around $100,000. Although Mr Peter Yau responded in the
affirmative to the request, in fact onl y $50,000 was deposited that day in Quam
Securities’s bank account. Not surprisingl y, in light of that dialogue, in
cross-examination by counsel for Mr Pete r Yau, Mr Lawrence Hung denied that
there was, “some kind of urgency in th e tone and in … the words you used, for
the margins to be deposited by Mr Yau”.
34. Mr Duncan Chui explained that he had bought Sino Katalytics shares
on and between 7 and 9 January 2009 in part because he considered them to be
good value. Also, having become awar e that Mr Peter Yau was buying Sino
Katalytics shares in early January he wanted him to be aware that he too was a
buyer of those shares. He was motivated to send that messa ge and to be buyer
22
to avoid what had happened in July a nd August 2008, when Mr Peter Yau had
built up a sizeable holding of Sino Kataly tics shares, surpassing his own holding,
before he became aware of that fact. Although Mr Dunc an Chui acknowledged
that by 29 December 2008 their respectiv e percentage shareholding of Sino
Katalytics shares was in his favour 23.37% to Mr Peter Yau’ s 11.86%, he said
that nevertheless he wished to send the latter the message that:
“ ... I would also be interested in maintaining or even increasing my shareholding
level.”.
35. Although Sino Katalytics purported to operate the ‘M odel Code for
Securities Transactions by Directors and Listed Companies’, as provided for by
Appendix 10 of the Listing Rules, both Mr Duncan Chui and Mr Peter Yau
accepted that there was no timely complian ce with its provisions. Ultimately,
there was no dispute that the requisite written notices passing between directors
of their intention to trade in Sino Katalytics shares, the details of those proposed
trades and the signed acknowledgement of receipt were all prepared
retrospectively by Ms Sarah Tsang Yin Kau (“Ms Sarah Tsang”). However,
both men said that messages were sent by the one and received by the other of
the fact that they intended to trade in Sino Katalytics shares.
36. Mr Duncan Chui said that in a telephone conversa tion on 8 January
2009 Mr Peter Yau had informed him that he intended to sell a few million Sino
Katalytics shares the following day. He was given no other details. Mr Peter
Yau responded to Mr Duncan Chui’s enquiry as to why he was selling shares,
given that he had been buying them in th e previous few days, by explaining that
“he needed the money”.
23
37. For his part, Mr Peter Yau said that to the best of his memory on 8
January 2009 he had told Mr Duncan Chui by telephone that he wished to
dispose of 7 to 8 million Sino Katalytics shares. In response to his enquiry as
to why he wished to do so, he had said simply that he needed money. He had
hoped that Mr Duncan Chui might offer to buy his shares in a block trade, as he
had bought from him in August 2008. Howe ver, no offer was forthcoming.
38. Mr Duncan Chui said that although he had checked trading activity in
Sino Katalytics shares on the market se rvice provided by ET Net in the morning
of 9 January 2009 it was not until he had noticed two ‘Sell’ Orders for 1 million
Sino Katalytics shares, made at 15:37 and 15:38 respectively, that he had
responded with a ‘Buy’ orders at 15:39. He explained that his “biggest and
main objective was to buy the shares from Mr Yau, if I could.” He went on to
say that, given what he had been told the previous day, he was expecting Mr
Yau to be selling. He added :
“ … so my only motivation going into the market on that day is to look for his
shares. It has nothing to do with whether th e price was four cents or five cents or
six cents, because in my mind, you know, the shares should have been worth ten
cents, twelve cents.”.
Of his object, he said:
“…my main motivation was to protect my interests and perhaps to fight off any
threat that Mr Yau was posing to me.”
39. Mr Duncan Chui accepted from the telephone records that he and Mr
Yau had spoken to one another at 11:46 on 9 January 2009, shortly after the only
matched transaction in Sino Katalytics shares that morning (50,000 shares at 4.2
24
cents), but they had not discussed trading in Sino Katalytics shares in that
telephone conversation.
40. In a period of about 20 minutes follo wing his first purchase at 15:39 at
4.9 cents per share Mr Duncan Chui brought a total of over 5 million Sino
Katalytics shares, the last purchase of which was at 5.5 cents per share.
41. Of the alternative method of acquiring Mr Peter Yau’s shares, namely
by a ‘block trade’ off-market, Mr Duncan Chui said :
“I wasn’t prepared to do another bought-sold note arrangement with Mr Yau after
the August transaction. Second of all, I was … I couldn’t read him: he was
buying on a few days and suddenly he wa s selling. So I could only speculate
and I just did not want to get into anot her detailed discussion or negotiation with
him.”.
42. Of his sale of Sino Katalytics shar es on 9 January 2009, Mr Peter Yau
said, that he did not know that Mr Duncan Chui was the buyer.
SUBSEQUENT RELEVANT EVENTS
Announcements :
13 January 2009: suspension of trading in Sino Katalytics shares
43. At 10:42 on 13 January 2009 trading in the shares of Sino Katalytics
on the Stock Exchange of Hong Kong was suspended. The market was
informed by Mr Duncan Chui, on behalf of the Board, that was at the request of
the company, “pending the release of an announcement in relation to a top-up
placing”.
25
15 January 2009: placement
44. On 15 January 2009, Sino Katalytics announced to the market that on
13 January 2009 it had entered into a placing agreement with Guoyuan in those
terms. Of the placing price, it was said that it represented:
“(i) a discount of approximately 16.67% to the closing price of HK$0.054 per
Share as quoted on the Stock Exchange on the Last Trad ing Date; (ii) a discount
of about 4.26% over the average closi ng price per Share of about HK$0.047 as
quoted on the Stock Exchange for the last five trading days up to and including
the Last Trading Date; and (iii) a disc ount of about 82.53% to the unaudited net
asset value per share of HK$0.2576 as at 31 December 2008.”.
The last trading day was defined as being:
“12 January 2009, being the la st trading day immediately prior to the suspension
of trading in share pending the publication of this announcement.”.
Of the use of the anticipated net proceeds of the placement of approximately $8
million it was stated:
“Depending on market conditions and availa bility of investment opportunities, the
Board intends to apply the net proceeds fo r future potential investment in working
capital.”.
12 January 2009
45. In the morning of 12 January 2009 Mr Peter Yau held discussions
with Mr David Hui Lam Chiu (“Mr David Hui”) of Guoyuan Securities
Brokerage (Hong Kong) Ltd (“Guoyuan”) at which the subject of Guoyuan
acting as the placing agent in a placing by Sino Katalytics was discussed. Mr
Ben Cheung, recently employed by Guoyua n, had suggested the meeting to Mr
Peter Yau, arranged for it to take place and was pres ent at least at some of the
meeting.
26
46. Mr David Hui, the responsible officer of Guoyuan and in charge of its
Equity and Capital Market Department, said that he met Mr Peter Yau of Sino
Katalytics for the first time at a meeting on the premises of Guoyuan in the
morning of 12 January 2009. The meet ing was attended by Mr Ben Cheung,
who had suggested a meeting for business discussions between the parties
earlier that morning. At the meeting, for the first time, Mr Ben Cheung
identified a placement by Sino Katalytics as being the specific business
concerned. He was told it was to be a top-up placement. He could not
remember which of the other men had told him that. He said Mr Ben Cheung
was present in the meeting throughout. Mr Peter Yau stipulated the price of
the placement shares to be 4.5 cents. He did so, “as a matter of fact”. There
were no discussions. In prospect, this was to be Mr David Hui’s first
placement as a placement agent.
47. A letter to Guoyuan from Sino Katalytics signed by Mr Peter Yau
bearing facsimile data transmission fr om Guoyuan and the date and time of
“12:51 12 Jan 2009” recorded the acceptance by Mr Peter Yau on behalf of Sino
Katalytics of Guoyuan as the placing agent.
12 January 2009 - trading in Sino Katalytics shares
48. Trading in Sino Katalytics shares was very thin on 12 January 2009,
turnover being only 650,000. No transactions were executed at all until
15:44:10 when a ‘Bid’ that had been made at 10:13:23 to buy 500,000 shares at
4.8 cents per share was matched by an offer to sell 100,000 shares. At
15:47:05 a second tranche of 150,000 shares was matched at 4.8 cents per share.
27
The final transaction of the day occu rred at 16:10:07 when a ‘Bid’ made at
16:06:11 to sell 400,000 shares at 5.4 cents per share was matched in respect of
350,000 shares. The closing price of Si no Katalytics shares that day was 5.4
cents per share.
49. The buyer of the 350,000 shares trad ed at 16:10:07 shares was Ms
Chan Wai Yan, an employee and colleague of Mr Peter Yau at CNI Bullion.
She had been employed as the marke ting and sales mana ger in CNI Bullion
since 2007. She described Mr Peter Yau as her “big boss”. At the invitation
of Mr Ben Cheung, whom she had known for some years, she had become a
non-executive director of Longlife Group Limited in January 2010. In
December 2008, she traded in Sino Katalytics shares in her Citic Securities
account and at the end of that month held 1 million Sino Katalytics shares.
Although she could not remember why it was that she had bought 350,000 Sino
Katalytics shares at the end of trading on 12 January 2009, it must have been
because she thought the share price would rise. She did not ask anyone at CNI
Bullion about buying those shares nor did anyone make any such suggestion.
Certainly, she did not discuss buying the shares with Mr Peter Yau. She did
not want him to know that she was trading in shares during her working hours.
Similarly, she never discussed securities with Mr Ben Cheung.
50. Ms Chan Wai Yan said that through Yahoo! Finance she thought that
she had seen the price at which Sino Katalytics shares had traded in the 15-20
minutes prior to her own purchase, namely in the range 4.8-4.9 cents. She said
that perhaps she had paid 5.4 cents because she was unable to buy Sino
28
Katalytics shares at this lower price range. Further, she said that she placed her
order earlier in the day and it had been matched. However, there were no other
orders at all that day by her broker.
Sino Katalytics Board meeting
51. A meeting of the Board of Sino Katalytics was arranged for and took
place at 5 p.m. on 12 January 2009. The meeting was c onducted by way of
telephone conference in which Mr Alex Chow, the third executive director of
the company, participated with Mr Duncan Chui and Mr Peter Yau together with
non-executive directors. Mr Duncan Chui and Mr Peter Yau ha d separate
offices in different buildings in diffe rent parts of Hong Kong. The minutes
were made up several weeks later by the company secretary, Mr Kasper Chan
Kwan Pak (“Mr Kasper Chan”), who was present at the meeting. They record
that the board resolved to authorise a director to execute a placing agreement
with Guoyuan, as placing agent, to place up to 184,850,000 new shares of the
company to no fewer than six placees in dependent of the company at 4.5 cents
per share.
52. The first draft agreements prepared by solicitors on instructions of
Guoyuan and sent to Sino Ka talytics on the evening of 12 January 2009 were in
the form suitable for a top-up placement, not the issue of new shares simpliciter.
Mr David Hui said that evening he had a telephone conversation with Mr
Duncan Chui which he initiated but he could not recall what they discussed.
29
13 January 2009
53. At 10:15:49 an order to sell 1 million Sino Katalytics shares had been
placed by Mr Lawrence Hung for the account with Quam Securities in the name
of Mr Terence Hui Wai Yung (“Mr Terence Hui”), the brother-in-law of Mr
Peter Yau. The order ma tched a buy order for 1 million Sino Katalytics shares
and a sale was made, establishing the traded price that morning. Mr Terence
Hui said that he had given full discre tion to trade in that account to Mr
Lawrence Hung. The latter denied that to be case and said that he received
specific instructions for each trade. The sell order was placed immediately
after Mr Lawrence Hung received a telephone call from Mr Peter Yau.
The placement agreement
54. By the afternoon of 13 January 2009 the new draft placement
agreement called for the issue of new sh ares only. That agreement, dated 13
January 2009, was signed by Mr Peter Yau and Mr Davi d Hui on behalf of Sino
Katalytics and Guoyuan resp ectively. For its part, Guoyuan undertook to use
its “best efforts” only to secure placees , rather than committing themselves as
underwriting the placement. Expenses were to be borne by Sino Katalytics.
Steps taken to place the shares with placees
55. For his part, Mr David Hui said that he adopted a “couldn’t care less”
attitude to whether or not the agreem ent was brought to fruition. Guoyuan bore
no risk. He took no steps whatsoever for several days to secure any placees.
Then, on 14/15 January 2009 he contacted Mr Ben Cheung and sought his help.
He said that he did so because, although Mr Ben Cheung was a new colleague,
30
he understood him to have good connections with brokers in the industry. In
response, Mr Ben Cheung came down to his office and wrote out in his own
hand a simple schedule of brokers, a ccount executives and account holders,
providing contact details of account execu tives and a stipulation of the monetary
size of their participation in the placement. The pape r on which Mr Ben
Cheung wrote out the schedule bore facsimile transmission data including the
date, “2009-1-14”. As far as Mr David Hui recalled, Mr Ben Cheung had not
made any telephone calls before writing out the schedule, which he made in one
sitting.
56. Mr David Hui testified that he had contacted the persons identified by
Mr Ben Cheung in the schedule. He did not contact anybody other than
persons stipulated by Mr Ben Cheung. When he contacted those persons he
did not try to “sell” the placement, nor was he asked any questions about Sino
Katalytics. He simply identified the company by its stock code, stipulated the
placement price, namely 4.5 cents, and asked if the recipient of the call was
interested. He said that he got the impression that there had already been a
disclosure of information of the placement to them. That disclosure could have
been before or after the announcement of the placement by the company.
57. For his part, Mr David Hui crea ted a spreadsheet in which he
replicated the information set out in the handwritten schedule made by Mr Ben
Cheung and updated it to reflect the prog ress of commitments in the placement.
On one of the copies of the spreadsheet he had written “please check the
31
subscribe amount and subscribe quantity for each one” and marked the
document “Attn Mr Peter Yau”.
58. In the event, 150,150,000 placemen t shares were placed of the
184,850,000 available for subscription, raising just over $6.5 million which was
deposited by Guoyuan into the Hang Se ng Bank savings account of Sino
Katalytics on 10 February 2009. All of the brokers identified by Mr Ben
Cheung, save for Kim Eng, participated on behalf of the account holders he
stipulated for the respective brokers.
Mr Ben Cheung
59. Mr Ben Cheung had first met Mr Peter Yau whilst they were at
university in Hong Kong in the period 19 87 to 1991. Mr Ben Cheung worked
as a broker for Guotai from 2001 until the autumn of 2008. He was involved in
Guotai’s role in the public listing of Sino Kata lytics, as China Northern in 2003.
He was an executive director, as was Mr Peter Yau, of Si no Katalytics from its
listing until mid-2004. Notwithstanding his resignation from the board of Sino
Katalytics, Mr Ben Cheung said that he maintained his frequent social contact
with Mr Peter Yau.
60. In early January 2009 Mr Ben Cheung became the Deputy Chief
Executive Officer of Guoyuan. He was res ponsible for marketing, in particular
Asset Management. He met Mr David Hui and they discussed Mr Ben Cheung
introducing business to his new employers . During the weekend of 10 and 11
January 2009 he raised the subject of Sino Katalytics exploring doing business
32
with Guoyuan with Mr Peter Yau in a telephone conversation. In light of Mr
Peter Yau’s expression of interest in pur suing that course he arranged for Mr
Peter Yau to come to the offices of Guoyuan on Monday 12 January 2009. He
had no discussions with Mr Peter Yau in respect of the placement in their many
telephone conversations in th e period 1 to 9 January 2009.
61. On the morning of 12 January 2009 he made arrangements with Mr
David Hui to meet Mr Peter Yau. He in troduced them, but did not take part or
get involved with their discussions. Th ere was no discussion between them at
which he was present in which mention was made of the price of a placement of
Sino Katalytics shares, namely at 4.5 cents , or of the size of such placement,
namely about 184 million shares. Mr Ben Cheung had no recollection of any
discussion with Mr Peter Yau, prior to the weekend tele phone conversation,
about Sino Katalytics doing business with Guoyuan, in particular by placement
of shares. They had not discussed that issue in their many telephone calls in
the period on and between 1 and 9 January 2009. After the meeting he had
spoken by telephone to both Mr David Hui and Mr Peter Yau who each made
inquiries about the business of the other.
62. Initially, Mr Ben Cheung testified th at he was not involved in the
implementation of the placement. He ha d no role to play. He did not contact
the placees. Those various matters were the responsibility of Mr David Hui.
Further, he said that he had no contact with Mr Duncan Chui in respect of the
placement.
33
63. On being recalled to give evidence, following the provision to the
Tribunal of material from the relevant f iles maintained by Mr David Hui and on
being confronted with the handwritten schedule in respect of the placement
detailing brokers, account executives and placees, Mr Ben Cheung resiled from
his earlier evidence. Now, he remembered that he had been contacted by Mr
David Hui a few days after the meeting at which he had introduced Mr Peter
Yau and Mr David Hui. He said that at the latter’s request he had written out
the schedule providing that information, in particular as to potential placees.
However, he said that he was not involved in the follow-up resulting from his
having given that information to Mr David Hui. Certainly, at the time that he
had written up the handwritten schedule he had not contacted any of the persons
named on the schedule in respect of the placement.
64. Mr Ben Cheung then said that after he had written the schedule he
might have had contact with some of the persons then named in respect of issues
raised by them about the placement. Acknowledging that the handwritten
schedule did not contain any contact details of Mr Tommy Lui Chun Bing (“Mr
Tommy Lui”), detailed as a subscriber for the placement, he accepted that he
could/should have contacted him about th e placement at some time after he had
written the schedule.
65. The telephone records of phone calls made between telephones used
by Mr Ben Cheung and Mr Peter Yau evidence regular contact between them in
the period on and between 2 and 9 January 2009. On the afternoon of Monday
12 January 2009 there were no fewer than four telephone calls between them.
34
That pattern of regular contact between them by telephone continued in the
following days.
66. Mr Ben Cheung said that he did not think that he had contacted Mr Li
Yiu Keung, another of the names on the schedule, prior to writing at the
schedule and had no recollection of having done so afterwards. Similarly, he
said that he had not contacted Mr Loui s Lui Chi Lung (“Mr Louis Lui”), another
of the names on the schedule, about th e placement prior to writing out the
schedule but did not discount having done so afterwards. The telephone
records of telephones used by Mr Ben Cheung on the one hand and Mr Li Yiu
Keung and Mr Louis Lui respectively on the other hand evidence a pattern of
regular contact in the period on and betw een 2 and 20 January 2009, the more so
between Mr Ben Che ung and Mr Li Yiu Keung. The latter said that Mr Ben
Cheung had drawn his attention to the placement, but he could not remember if
he done that before or after th e announcement made by the company.
67. In January 2009, Mr Tommy Lui worked as a consultant for
Omnicorp Limited, introducing business opportunities to them. He said that he
learned of the placement of Sino Kata lytics shares from Mr Ben Cheung who
told him that it was a good deal: a good price at the usual discount. When his
attention was drawn to the telephone records of conve rsations on telephones that
the two of them used, he said that it was probably not as early as the
conversation of 2 January 2009 that he had learned of the Sino Katalytics
placement. It was possible that it had been mentioned in the conversation of 6
January 2009, not as specific as a plac ement but as “something good coming up
35
-- would you be interested?” Noting that there had been th ree or four calls
between them on each of 12 and 13 January 2009, he said that he was more sure
that Mr Ben Cheung was sounding out his inte rest in terms of the amount of the
placement he would take. Mr Tommy Lui said that being approached for
interest in a prospective placement before the announcement by the company
was normal practice.
68. Of the relative importance of the discounts stipulated in respect of the
shares of Sino Katalytics, namely as to the last trading price, the average over
the last five trading days and as to net asset value, Mr Tommy Lui said:
“all three are important, and all will be considered, but normally, of course, you
need to have a reasonable discount, and then the asset value shows whether it, in
theory, is a good or bad sort of value.”.
69. Mr Alex Au Wai Chi (“Mr Alex Au”), the founder and managing
director of Richland Capital, one of the placees in the Sino Katalytics placement,
said that he had had contact with Ms Icy Lau Ying (“Ms Icy Lau”) of Guotai in
connection with that placement. However, he said that he was not sure
whether he had been contacted in advance of contact with her, to gauge his
interest in participating in the placement . In that context, he said that his
original broker with Guotai had been Mr Ben Cheung. He was not sure if he
had contacted him or whether that had been done before or after the
announcement made by a Sino Katalyti cs of its prospective placement.
70. Mr Louis Lui said that Mr Ben Cheung has been his account manager
at Guotai. They were in regular telephone contact in January 2009. In
36
January 2009 he was the pe rson who made the decision to buy Sino Katalytics
placement shares for the account of his wife. He could not remember if his
attention to the fact of a placement had been drawn by the announcement itself
or whether he had been contacted by someone.
Placing letters
71. Beginning on 20 January 2009 and in the following few days
Guoyuan sent out placing letters to the various placees, in which confirmation
was made of the oral contract between the placee and Guoyuan for the former to
buy stipulated quantities of the placement shares. In response, in the following
days the placees returned Forms of Acknowledgement to Guoyuan.
Placement proceeds
72. On 10 February 2009 Guoyuan transferred the net proceeds of the
placement, $6,554,000.00 odd, to the Hang Seng Bank account of Sino
Katalytics, of which Mr Peter Yau was the signatory. In the several days that
followed, $5.4 million was transferre d to CNI Bullion and $1 million to a
personal account of Mr Duncan Chui.
The accounts of Mr Duncan Chui and Mr Peter Yau as to the genesis and
development of the placement of Sino Katalytics shares
73. Although Mr Duncan Chui acknow ledged that he had frequent
telephone conversations with Mr Peter Yau in th e week ending Friday, 9
January 2009, he said that he first beca me aware of a possible placement of Sino
Katalytics shares only as a result of a telephone conversatio n he had with Mr
37
Peter Yau on the evening of Sunday, 11 January 2009, in which the latter
conveyed that information to him. He said that he had responded by telephone
to an SMS message from Mr Peter Yau at 21:58 that evening. Mr Peter Yau
told him that he wished to engage G uoyuan to do a placement exercise for Sino
Katalytics.
74. In his witness statement, submitted to the Tribunal as his evidence in
chief, he said that Mr Peter Yau had aske d if it would be “possible to apply for
suspension of trading on the following Monday”. In cross-examination by Mr
Bernard Mak he said of Mr Peter Yau :
“ ... he was most concerned with the tim ing of the suspension of … trading, so
that was the urgency why I had to make a call to Mr Chow and Mr Chan on the
evening of the 11
th
, to find out what was the pr oper procedure. And hence I
replied to Mr Yau that we need to ge t a placement agreement signed before we
can submit to the Stock Exchange for an application to suspend trading.”.
75. Mr Duncan Chui explained that he was unsuccessful in contacting Mr
Alex Chow, a director of Sino Katalytics. However, he spoke by telephone to
Mr Kasper Chan, the company secretary of Sino Katalytics, and was advised of
the need for a signed placement agreement before an application for suspension
of trading in the shares of Sino Kata lytics could be made , which advice he
passed on to Mr Peter Yau late that evening. Nevertheless, Mr Duncan Chui
went on to agree with Mr Bernard Mak that it was possible that Mr Peter Yau’s
enquiry was simply whether or not it was necessary for Sino Ka talytics to seek a
suspension of trading in its shares because he was about to approach a placing
agent. However, in cross-examination by Presenting Officer, having been
reminded that in his record of intervie w by the SFC he had said that Mr Peter
38
Yau’s enquiry was whether the shares “c ould be suspended”, Mr Duncan Chui
said that the enquiry was, “whether suspension of trading was possible on
Monday”.
76. Mr Duncan Chui said that Mr Alex Chow finally made contact with
him at 13:28 on Monday 12 January 2009. Having been informed by Mr
Duncan Chui of Mr Peter Yau’s proposed placement of Sino Katalytics shares,
at Mr Alex Chow’s insistence, a board meeting was arranged fo r 5 p.m. that day
to discuss the matter. He was not awar e at that time that Mr Peter Yau had
already met Mr David Hui of Guoyuan to discuss the placement that morning.
77. Mr Peter Yau said that Mr Ben Cheung and he were long standing
friends who had conducted business with one another over the years. They
were in frequent contact with each other both by telephone and in person. He
accepted that in the days leading up to the week ending Friday 9 January 2009
they were in frequent te lephone contact with one another. Although he knew
that Mr Ben Cheung had left Guotai several months earlier he did not know of
his employment at Guoyuan until he was informed of that fact by Mr Ben
Cheung in a telephone call on either Saturday or Sunday 10/11 January 2009.
In that conversation Mr Ben Cheung raised the prospect of business being
conducted between his new employer and Sino Katalytic s. Since he was now
employed in asset management Mr Peter Yau said that he agreed to meet Mr
David Hui of Guoyuan’s ECM Department on Monday morning, “to explore the
chance of doing any business”. He expected it to be a handshaking session.
He knew nothing about Mr David Hui. In cross-examination by the Presenting
39
Officer, he denied that a decision to go ahead with placement had been reached
prior to 11 January 2009, following detailed discussions with Mr Ben Cheung.
11 January 2009
78. Mr Peter Yau accepted that there were telephone records of two
telephone calls initiated on his telephone to Mr Ben Cheung on the evening of
11 January 2009, respectively at 8:05 p. m. and 8:25 p.m. and one call at 9:58
p.m. to Mr Duncan Chui, the last of which calls was immediately returned by
Mr Duncan Chui. Mr Peter Yau said that he had informed Mr Duncan Chui of
his prospective meeting at Guoyuan th e following day telling him that he
proposed, “to see what can be done: it coul d be a placement.” He said that he
had gone on to ask Mr Duncan Chui whether a suspension of trading in the
shares of Sino Katalytics was necessary. He was not asking that it be
suspended.
12 January 2009
79. Mr Peter Yau said that he met Mr David Hui at the offices of
Guoyuan sometime after 10 a.m. on Monday, 12 January 2009. He did not
remember Mr Ben Cheung introducing him to Mr David Hui, although he was
present for a very short part of the meeting. Mr David Hui suggested that the
business between them be a placement by Sino Katalytics. The only mention
as to the size of the placement was that it be within the general mandate, namely
20% of the issued capital of Sino Katalytics. There was no mention of it being
a top-up placement. Mr David Hui proposed that the placement price be in the
middle of the range of Sino Katalytics’s share price the previous week, namely
40
between 4 to 5 cents. In doing so, Mr David Hui referred to a chart which he
brought up on a terminal at his desk.
Board meeting
80. The board meeting convened at 5 p.m. on 12 January 2009 was
conducted by way of telephone, Mr Duncan Chui and Mr Peter Yau being in
their respective offices. Mr Duncan Chui said that Mr Peter Yau led the
discussion, informing the board that Mr Ben Cheung, who had recently moved
to Guoyuan, had said that Guoyuan wanted to do a placement for Sino
Katalytics. Mr Duncan Chui agreed that Sino Katalytics wa s “low on cash” at
that time, but said that he did not think that “we had to panic because of the low
working capital”. Of the issue of ‘panic’, he said that the company had
outstanding loans that could be recalled and listed equitie s that could be
liquidated.
81. Mr Duncan Chui said that there was no “specific discussion on the use
of proceeds” at the board meeting. There was no dispute that on receipt of the
monies in the Hang Seng bank account of Sino Katalytics in early February
2009 within days, $5.4 million was transferred to the account of CNI Bullion
and $1 million to the account of Mr Duncan Chui. He said that, although it
was not recorded in the board minutes, “ ... there was no objection from the
directors that the money ought to be us ed for Bullion capital requirement”. For
his part, he “asked the board ... to reimburse the money that I advanced to the
company recently.”
41
82. For his part, Mr Peter Yau said that shortly after his meeting with Mr
David Hui the latter had faxed him a letter in wh ich Guoyuan agreed to act as
placing agent for Sino Katalytics. However, no draft placing agreement was
available at the board meeting held at 5 p.m. that day. There was no dispute
that the board minutes, which were compile d some weeks later, were inaccurate
as to the assertion to the contrary.
83. The initial draft placement agreements received by Mr Peter Yau on
the evening of 12 January 2009 provided fo r a top-up placement in which he and
Mr Duncan Chui participated in broadly similar volume of shares. He said that
he did not know why it was that Mr David Hui had instructed his solicitor to
draft the agreement in that form. He had not agreed to a placement in the form.
84. Mr Duncan Chui said that he had a telephone conversation with Mr
David Hui that evening in which they discussed the proposed top-up placement
exercise. He told Mr David Hui that he was not prepared to participate in a
top-up placement. Since neither Mr Peter Yau or Mr Duncan Chui agreed to
proceed with those agreements, a single new share placement agreement, which
both signed, was produced on the afternoon of 13 January 2009.
85. Mr Duncan Chui said that after the single placement agreement was
made:
“his involvement in the placement was lim ited. I left it to Sarah and Kasper to
complete the process and the documentation.”.
42
The securing of placees
86. Mr Peter Yau said that he knew Mr Louis Lui, Mr Tommy Lui and Mr
Li Yiu Keung, but that he had not contacted them to subscribe to the placement.
There was no dispute that they were associated with the huge majority of the
placed shares. Having been reminded of the evidence of Mr David Hui and Mr
Ben Cheung in respect of the hand written list of placees, written out by Mr Ben
Cheung and given to Mr David Hui, Mr Peter Yau responded to the suggestion
that it was Mr Ben Cheung who was actually assisting in implementing the deal
by saying that he had no idea what ha ppened between Mr Ben Cheung and Mr
David Hui. Of the evidence of dir ect contact by telephone between Mr Ben
Cheung and various placees, in the period leading up to the agreement of the
placees to participate in the placement, Mr Peter Yau said that it was possible
that “David Hui find that he was unable to cope with it, and seek assistance from
Ben Cheung”.
Ms Chan Wai Yan
87. Mr Peter Yau confirmed that Ms Chan Wai Yan had been employed
as the marketing and sa les manager of CNI Bullio n since 2007. Of her
purchase of 350,000 Sino Katalytics shares at 5.4 cents per share at 16:06 12
January 2009, which had the effect of raising the closing price to 5.4 cents from
5.0 cents per share, he denied having me ntioned to her that Sino Katalytics was
going to place shares.
43
CHAPTER 4
A CONSIDERATION OF THE MATERIAL RECEIVED
88. From the outset of the proceedings the Tribunal had been invited to
examine the juxtaposition of two different events, namely trading in the shares
of Sino Katalytics on 9 January 2009 be tween Mr Duncan Chui and Mr Peter
Yau and the subsequent placement of sh ares by Sino Katalytics, in respect of
which the company entered a placement agreement on 13 January 2009 with
Guoyuan which fact was described in the comp any’s announcement of 15
January 2009. At issue, is whether or not the two events were linked. Did the
trading between the two men have the e ffect of creating a false or misleading
appearance with respect to the price fo r dealing in Sino Katalytics shares? Was
their trading done with that intention or were they reckless as to whether it had
or was likely to have that effect? Was their purpose to facilitate an imminent
placement of Sino Katalytics shares, in particular at a price of 4.5 cents per share?
Or, was the juxtaposition of the two events coincidental? Most importantly,
was the trading of the two men genuine trading between a genuine seller and a
genuine buyer?
Expert evidence
89. Although the Tribunal received the re ports and oral evidence of Mr
Eric Cheng and Mr Richard Witts as expert witnesses, with no disrespect to
them, they have been of limited assist ance to the Tribunal in determining the
material matters at issue. As is apparent from the identification of the material
matters at issue in this report almost all of them are issues that lie squarely
44
within the domain of the Tribunal and do not require the assistance of expert
evidence. There is no dispute that Sino Katalytics shares traded at a substantial
discount to net asset value. Mr Duncan Chui’s explanation for his trading in
Sino Katalytics shares on 9 January 2009 is a matter for the Tribunal to accept
or not. It is not an area in which Tribun al is assisted by expert evidence. On
the other hand, the Tribunal has been a ssisted by the provision of statistical
information, in particular as to trading in Sino Katalytics shares.
90. We regret to say that Mr Eric Cheng’s report en croached on many
areas outwith the province of an expert. He expressed opinions on matters that
are not the business of an expert. As a result, the Tribunal was prepared to
receive his report only in edited form. Inevitably, in his report Mr Richard
Witts was drawn into responding to areas in which Mr Eric Cheng ought not to
have expressed opinions. The observations of Gleeson NPJ as to the role of an
expert in his judgment in the Court of Final Appeal in Fu Kor Kuen Patrick &
Another v HKSAR (FACC No. 4 of 2011unreported May 2012 at paragraphs
25-27) are apposite.
91. There is no dispute that trading between Mr Duncan Chui, as buyer,
and Mr Peter Yau, as seller, in the last 20 minutes or so of trading on 9 January
2009 resulted in a sharp rise in the price at which Sino Kata lytics shares were
bought and sold on 9 January and provide d the closing price of 5.5 cents per
share. There were two only previous transactions that day, namely sales of
50,000 and 500,000 Sino Katalytics shares at 4.2 cents and 4.4 cents per share.
The closing price of Sino Katalytics sh ares on 8 January 2009 was 4.2 cents per
45
share. That had been the closing price on the two trading days, whereas on 5
January 2009 it had closed at 4.1 cents per share. 4.2 cents per share was the
‘High’ in trading on those four previous trading days.
92. As noted earlier, the huge majority of the proceeds of about $6.5
million received by Sino Katalytics from the placemen t of its shares was
dispersed to CNI Bullion ($5.4 million) and Mr Duncan Chui personally ($1
million). Although an associate company of Sino Katalytics, CNI Bullion was
run by Mr Peter Yau. The payment to Mr Duncan Chui was the repayment of
monies advanced by him to Sino Katalytics, whereas the monies advanced to
CNI Bullion were used in its various businesses. Clearly, the placement was of
mutual benefit to them.
93. There is no doubt that Mr Ben Cheung played a crucial role in the
genesis of the placement and in bringing it to fruition. We are satisfied that in
evidence he downplayed that role, only reluctantly accepting that he actually
played a greater role when confronted by contemporary records or other
evidence. He was an unreliable and untruthful witness. Although he knew
and was known to both Mr Duncan Chui and Mr Peter Yau a nd had contact with
each of them, in the material period prior to the trading between them on 9
January 2009, that day itself and in th e period up until the placing agreements
were signed in late January 2009 by far the greater c ontact was with Mr Peter
Yau.
46
94. It is clear, and we so find, that on 12 January 2009 Mr David Hui did
not negotiate the terms of a placement with Mr Peter Yau, rather he was
presented with the deal by Mr Ben Cheung and Mr Peter Yau. No doubt,
ultimate approval lay elsewh ere within Guoyuan. Price was not negotiated, it
was stipulated by Mr Peter Yau as being 4.5 cents per share. Perhaps, Mr
David Hui was prepared to play that role because he was a novice in the field of
placements and the deal was to be done on a ‘best efforts’, no cost basis to
Guoyuan basis. The flurry of telephone calls between Mr Ben Cheung and Mr
Peter Yau that day speaks eloquently as to whom were the drivers of the deal.
The fact that Mr David Hui did nothing whatsoever to find placees after the
signing of the placement agreement on 13 January 2009 until he approached Mr
Ben Cheung for him to do so is further evidence that all concerned looked to
him to bring the placement to fruition. Clearly, the benefit to Mr Ben Cheung
was that at the outset of his employment he was able to demonstrate his ability
to deliver business to his employer.
95. Whilst it is clear that Mr Ben Cheung played a crucial role in
providing Mr David Hui on 14/15 January 2009 with the list and contact details
of the persons, most of whom subscribed to or arranged for others to subscribe
to the placement, and that he had contact ed some of them in respect of the
placement, it is unclear as to when he first sounded out those placees for their
interest in participating in the placement. Certainly, there is no direct evidence
that he did so on or before 9 January 2009. The fact that on 14/15 January
2009 Mr Ben Cheung was able to provide a schedule of potential placees to Mr
David Hui immediately, without making any telephone call or other contacts
47
with people, suggests strongly that contact with those placees had been made
prior to that event. However, it is to be remembered that tr ading in the shares
of Sino Katalytics had been suspended in the morning of 13 January 2009 and
the market had been informed that was pending an announcement in relation to a
top-up placing.
96. Mr Duncan Chui’s evidence was that he first learnt of any prospective
placement of Sino Katalytics shares from Mr Peter Yau in a telephone
conversation at 21:58 on Sunday, 11 Janua ry 2009. Whether or not that was
the first time that he had learnt of that matter it is clear from his subsequent
conduct that he sprang into action immediat ely: firstly, in attempting to contact
Mr Alex Chow, the third executive director of Sino Katalytics and, secondly in
contacting Mr Kasper Chan, the company secretary, soon thereafter at 22:31.
97. Mr Kasper Chan said that he had learned of the proposed placement
from Mr Duncan Chui in this telephone conversation. Mr Duncan Chui had
asked him if there was a need to apply to suspend trading in the company’s
shares. For his part, he had told him that it was necessary for a placing
agreement to be signed befo re arrangements could be made for a suspension of
trading in the shares. It is to be noted that there were tw o subsequent telephone
calls from Mr Duncan Chui to Mr Kasper Chan 23:03 and 23:55. Immediately
before the last telephone call between them, there were two telephone calls
between Mr Duncan Chui and Mr Peter Yau.
48
98. The flurry of late night telephone calls on a Sunday between two of
the company’s directors and between one of them and the company secretary is
supportive of Mr Duncan Chui’s evid ence that the matter required a degree of
urgency in its resolution. We accept th e ultimate thrust of Mr Duncan Chui’s
evidence, namely that the nub of Mr Peter Yau’s request was aimed at the
‘possibility’, not the need for, having trading in the shares of Sino Katalytics
suspended the following day.
99. The question posed by Mr Peter Ya u was: could it be done? In
context, the fact that he raised the question in that way is to be viewed against
the rise in the price at which Sino Katalytics shares were traded in his sales in
the last 20 minutes of 9 January 2009 and the resulting closing price of 5.5 cents.
If trading in the shares was suspended before the market opened on Monday, 12
January 2009 it was beyond per adventure that the last trading day would be
taken as 9 January 2009. If it was not suspended in that way, the possibility
was that another subsequent day would be taken as the last trading day with
perhaps a different closing price.
100. Although it is clear on Mr David Hui’s evidence that the approach by
Mr Peter Yau and Mr Ben Cheung to him, as head of ECM of Guoyuan, was not
made until the morning of 12 January 2009, it is necessary to consider whether
the trading between Mr Duncan Chui and Mr Peter Yau in the last 20 minutes or
so of trading on 9 January 2009 was done so that the closing price of Sino
Katalytics shares was inflated with the purpose that an approach could be made
49
then to Guoyuan for their agreement to a placement at a discount to the closing
price on the last trading day, but nevertheless at 4.5 cents per share.
101. The nub of Mr Duncan Chui’s e xplanation for his purchases of
millions of Sino Katalytics shares on 9 January 2009 is twofold: first, that the
shares were good value and second, that he wished to buy shares from Mr Peter
Yau to increase the overall percentage of his shareholding in the company at the
same time as reducing that of Mr Peter Yau.
102. One puzzling feature of Mr Duncan Chui’s explanation is that, if he
was motivated to purchase the shares because they were good value, in order to
do so he paid a significantly higher price than Mr Peter Yau paid in his
acquisition of millions of shares just a few days earlier, in the period on and
between 2 to 6 January 2009. If Mr Duncan Chui thought the shares such good
value why did he not buy the shares in that period? Clearly, there were ready
sellers at a lower price than on 9 Janua ry 2009. Or, if he was so motivated,
why had he not bought shares earlier, for example in the last week of December
2008, when over 8 million shares were sold at a much lower price than he paid
on 9 January 2009? If good value of the shares was a driving force for Mr
Duncan Chui’s purchases on 9 January 2009, having bought 4.75 million Sino
Katalytics shares on 7 and 8 January 2009 in the range of 4.1-4.2 cents per share,
why was he prepared to buy Mr Peter Yau’s shares in the much higher range of
4.9-5.5 cents per share?
50
103. Mr Duncan Chui’s professed anxiety at the relationship between the
percentage of his shareholding and that of Mr Peter Yau of Sino Katalytics
shares is equally puzzling. On 9 January 2009, prior to buying any shares, Mr
Duncan Chui held about double the number of shares than Mr Peter Yau. The
percentage change in their shareholding, resulting from the purchases by the one
and the sales by the other that day, was small in that Mr Peter Yau’s
shareholding fell from 12.60% to 11.75% a nd that of Mr Duncan Chui rose to
24.48% from 23.89%. Clearly, both before and after 9 January 2009, Mr
Duncan Chui held a commanding shareholding of Sino Katalytics shares
compared with that of Mr Peter Yau. Furthermore, since their off-market trade
at the end of August 2008, when Mr Duncan Chui acquired 55 million shares
from Mr Peter Yau, Mr Dun can Chui had always held substantially more shares
than Mr Peter Yau’s 12.6% shareholding. Thereafter, the percentage of shares
held by Mr Peter Yau never varied by more than 1%.
104. In the result, we reject Mr Duncan Chui’s explanation for his purchase
of Sino Katalytics shares on 9 January 2009.
105. Although margin calls were made by Mr Lawrence Hung of Quam
Securities of Mr Peter Yau on 6 and 8 January 2009 and earlier, nevertheless it
is clear that they were polite requests fo r payments of modest sums of money,
which he had been able to manage on a regular ba sis by making payments of
some, rather than all, of the amount s requested. There was nothing in the
demand of 8 January 2009 which was any di fferent to earlier demands. He was
not being “dunned very hard”. We reject his evidence that his indebtedness to
51
Quam Securities, in the context of those earlier margin calls, played a part in his
sale of Sino Katalytics shares in th at account on 9 January 2009. That
indebtedness was merely $154,558.88. It is to be noted that as a result of
purchases of Sino Katalytics shares on between 19 and 22 January 2009 his
indebtedness to Quam Securities at the end of the month was about $130,000.
106. In any event, we are satisfied that Mr Peter Yau had ready access to
monies with which to satisfy the mode st margin call made by Quam Securities
or with which to repay all his indebt edness to them. Not only did he have
monies and shares in his own accounts but we are satisfied that he had a
significant interest in the account in the name of Mr Terence Hui with Quam
Securities. Cheques drawn on Mr Peter Yau’s bank account were used to make
payment for the purchase of shares in th e account in the name of Mr Terence
Hui. Conversely, monies from the latter account were transferred to Mr Peter
Yau’s account. We accept Mr Terence Hui’s evidence that he handed over
control of the operation of the account in his name. We reject Mr Lawrence
Hung’s evidence that he received instructions from Mr Terence Hui in respect of
all trades in that account. Having regard to all the evidence , in particular the
fact that Mr Lawrence Hung received telephone calls from Mr Peter Yau
immediately before and after the sale of 1 million Sino Katalytics shares in that
account at 10:15:49 on 13 January 2009, we are satisfied that the instructions to
sell came from Mr Peter Yau. Similarly, given the timing of the sale, about 30
minutes before suspension of trading in the shares, we are satisfied that the
purpose of the sale was to maintain the trading price prior to suspension at 5.4
cents per share.
52
107. We do not accept that Ms Chan Wai Yan’s purchase of 350,000 Sino
Katalytics shares at 5.4 cents per share just prior to the close of trading on 12
January 2009 was coincidental or unrelated to the fact that Mr Peter Ya u was her
‘boss’. Her evidence that she had placed that order earlier in the day and that it
was matched after 4:00 p.m. was untrue. Her purchase lifted the price of the
last trade from 4.9 cents to 5.4 cents, which price was the closing price. We
reject her evidence that her trade was not known or disclosed to Mr Peter Yau.
We are satisfied that Mr Peter Yau had a hand in her purchase, in particular that
he was instrumental in causing her to make that purchase.
108. Having rejected the accounts of bot h Mr Duncan Chui and Mr Peter
Yau in respect of their respective purchases and sales of Sino Katalytics shares
on 9 January 2009 we turn to consider why those trades occurred. Was it
coincidence that 97.2% of the Sino Kataly tics shares bought by Mr Duncan Chui
were sold to him by Mr Peter Yau? Was it significant that those trades
occurred in the last 20 minutes or so trading that day? Why did Mr Duncan
Chui buy those shares at such a significantly increased price than he had bought
shares in the previous two days? Was th e fact that the trading between the two
men raised the closing price of Sino Katalytics shares 30.95% above its closing
price on 8 January 2009 connected with the suspension of trading in their shares
pending a placement announced by Sino Katalytics on 13 January 2009?
109. For his part, Mr Duncan Chui accep ted that he guessed or understood
that the seller from whom he bought shares in that period of trading at the end of
53
9 January 2009 was Mr Peter Yau. Indeed, he said that was one of the two
driving motives for those purchases. Not only was he buying good value
shares but also he was buying from Mr Peter Yau and therefore increasing the
difference between the percentage shareh olding each had in the company in his
favour. Mr Peter Yau said that he did not know to whom he was selling. We
reject that evidence. We are satisfi ed that each knew with whom he was
trading. Each was trying to trade with the other. Similarly, we are satisfied
that the sharp increase in the price in which shares were traded between them
and the only earlier trade (4.2 cents per sh are) and their initial trade (4.9 cents
per share) and their final trade (5.5 cen ts per share) was because it was arranged
between them that they would drive up th e price at which Sino Katalytics shares
were traded so that the closing price woul d be increased, as it was. That is why
they traded in the last 20 minutes or so of the trading day. Similarly, that is
why the trading occurred in the last 20 minutes of the last trading day of the
week. Having secured the desired in crease in the closing price of Sino
Katalytics shares the weekend afforded a period of time in which the closing
price would remain unchanged in whic h arrangements coul d be pursued in
respect of the placement that was announ ced the following trading week. They
were not trading as genuine buyers and sellers.
False trading: section 274
110. We are satisfied that each of them intended that their trading in Sino
Katalytics shares in the last 20 minutes or so of trading on 9 January 2009 have
the effect of creating a false or misleading appearance with respect to the price
for dealing in Sino Katalytics shares. A lternatively, each of them was reckless
54
as to whether it had or was likely to have that effect. Furthermore, we are
satisfied that each of them took part in that trading with the intention of creating
an artificial price for dealings in Sino Katalytics shares, namely the price set by
the forces of genuine demand and supply . Alternatively, each of them was
reckless as to whether their trading had the effect of creating an artificial price
for dealings in Sino Katalytics shares. Accordingly, we are satisfied that they
are each culpable of false trading, contrary to section 274(1)(b) and (3) of the
Ordinance.
Price rigging: section 275
111. In reaching that determination, the Tribunal has not had regard to or
relied on section 274(5) of the Ordinance. The Chairman accepted Mr Bernard
Mak’s submission, made on behalf of Mr Peter Yau, and directed the Tribunal
that neither he nor Mr Peter Yau were ‘associates’ of each other, as defined in
section 245(1) of the Ordinance.
112. We are satisfied that in trading with each other in the material period
on 9 January 2009 Mr Duncan Chui and Mr Peter Yau en tered into and carried
out artificial transactions with the inten tion that the trading had the effect of
increasing the price of Sino Katalytics sh ares traded on the Stock Exchange of
Hong Kong. The trading constituted artificial transactions because they were
not genuine buyers and sellers in that the resulting increase price of Sino
Katalytics shares did not reflect the fo rces of genuine supply and demand.
Alternatively, each of them was reckless as to whether it had that effect. In
reaching that determination, we had rega rd to the provisions of section 275(4),
55
and were satisfied that neither of th em had established that the purpose for
which they bought and sold Sino Katalytics shares respectively was not or did
not include the purpose of creating a false or misleading appearance with respect
to the price of Sino Katalytics shares.
113. Accordingly, we are satisfied that each of them was culpable of price
rigging, contrary to section 275(1)(b) of the Ordinance.
Stock market manipulation: section 278
114. As noted earlier, in the period of around 20 minutes at the end of the
trading day on 9 January 2009 no less than eight transactions, purchases and
sales of tranches of Sino Katalytics shares, were made betwee n Mr Duncan Chui
and Mr Peter Yau. Having begun with a trade of 1 million shares at 4.9 cents
per share, they concluded w ith a sale of 800,000 shares at 5.5 cents per share.
They intended to trade with each other. Clearly, the trading had the effect of
increasing the price at which those shares were traded on the stock market. As
noted earlier, we have found that it was th eir intention to increase the price of
Sino Katalytics shares by their trading, in particular to achieve a higher closing
price than had obtained the previous day or in that day of trading. They
pursued that pattern of trading intending by its success to launch a placement of
Sino Katalytics shares in the market. Their intention, in so trading with each
other with the effect of increasing the price at which the shar es were traded, was
to induce others to subscribe in the placement of those shar es. They knew and
anticipated that the placement shares would be offered at a discount to the last
traded price. Accordingly, we are satis fied that Mr Duncan Chui and Mr Peter
56
Yau are culpable of stock market manipulation, contrary to section 278(1)(a) of
the Ordinance.
