Hong Kong scrap metal magnate remanded after being found guilty of $730 million stock exchange con

The defendants ran the scam in an attempt to have the company listed on the Hong Kong Stock Exchange.
PHOTO: South China Morning Post

Two senior members of a delisted company in Hong Kong were remanded by a court on Thursday, following their convictions for faking transactions worth more than HK$4.2 billion (S$730 million) to get listed on the city's stock exchange a decade ago.

China Metal Recycling (Holdings) co-founder Lai Wun-yin, 48, was found guilty of one count of conspiracy to defraud, after the High Court jury spent more than 11 hours in deliberation.

The jury also unanimously found the company's administration manager Choy Ling-ling, 52, guilty of the same charge.

The 66-day trial stemmed from a fraudulent scheme to get the scrap metal business listed on the main board of the Hong Kong stock exchange in 2009, by grossly inflating material financial results via bogus transactions in wholly owned subsidiaries.

Mr Justice Alex Lee Wan-tang ordered background reports on the duo, and put them behind bars before their lawyers submit mitigation on January 20.

Police officers from the Commercial Crime Bureau arrested the two defendants, and Lai's husband Chun Chi-wai, the other co-founder of the company, in 2013.

The trio were officially charged three years later, but Chun, who held a 53 per cent interest in the company, fled to mainland China two months before the first court hearing.

Prosecutor Newman Wong Hing-wai told the court the offence occurred between June 2, 2008, and June 22, the following year, when the defendants conspired with Chun and others to deceive the stock exchange by dishonest means.

While the stock exchange expected full and frank disclosures to perform its public duty to vet applications, the participants in the scheme grossly overstated the company's material financial results and information, with the intent to induce the stock exchange to accept them as true and accurate and approve the listing application, according to the prosecution.

Prosecutors said these transactions involved round robin fund flows worth more than HK$4.2 billion, accumulated in the three years before the company went public.

Wong said the money paid by China Metal Recycling's subsidiary, Central Steel (Macau Commercial Offshore), to suppliers found its way to customers, who then used the same funds to pay back the subsidiary.

Lai, one of Central Steel's two company signatories, was said to have instructed more than 10 per cent of these loop transactions.

Founded in the Cayman Islands in July 2007, the disgraced company claimed to be the largest recycler of scrap metal in mainland China.

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It successfully raised a total of more than HK$1.78 billion when it went public, and issued 345 million shares at HK$5.18 each on June 22, 2009.

But its price plunged by 24 per cent on November 2009 following the resignation of Wong Hok-leung, its chief financial officer, who said he was denied information about the firm's financial status.

Its trading was suspended in January 2013, soon after American short-seller Glaucus Research Group cast serious doubt on its integrity.

The Securities and Futures Commission subsequently petitioned to wind up the listed company, the first application of this nature. The High Court ruled in favour of the financial market regulator in February 2015.

One year later, the stock exchange cancelled the company's listing in a bid to protect the interests of minority shareholders.

This article was first published in South China Morning Post.