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he used to acquire a controlling interest in Daido. As
transaction had taken place.
• Section 390 of the SFO imposed an accessory or
Mr To’s appeal was therefore dismissed. His conviction
security, TKR Finance held a charge over all the shares
concurrent liability on an officer of a company that
and fine of HK$50,000 were upheld. He was also
acquired.
The company secretary then told SEHK that none
was found guilty of an SFO offence. So because
ordered to pay the SFC’s investigation costs of
of the directors had traded shares that day. He was
Daido was liable, Mr To (as a director of Daido) was
HK$15,166.
In order to reduce Top Synergy’s exposure to the loan,
TKR Finance’s director Victor Chan requested that Mr
To reduce the debt by between HK$10m-HK$20m by
selling some of the shares in Daido. A discussion then
took place in July or August 2003 between Victor
Chan and Mr To regarding the sale of approximately
200 million shares. Mr To said that he could arrange
for some of his friends to buy the shares. During a
further discussion in early October 2003, Victor Chan
again pressed Mr To to sell the shares in order to
repay a portion of the loan and urged him to conclude
the sale quickly, and preferably by the end of October.
Share sale and non-disclosure
On 16 October 2003, TKR Finance sold the 200
million shares in Daido to three buyers. The proceeds
of the sale were paid to TKR Finance the following
day. However, Victor Chan did not immediately
inform Mr To of the transaction. The sale of the 200
million shares – as seen against the daily average of
about 350,000 shares over the previous 10 days –
attracted the attention of the SEHK.
During the afternoon of 16 October, the company
secretary was asked about the high turnover of
Daido’s shares that day. He was specifically requested
to ask all the directors whether any of them had
bought or sold shares that day, and whether they
knew of anything disclosable under the Listing Rules.
When the company secretary asked Mr To, he replied
that he did not trade any shares that day, and did not
refer to the proposed sale of the 200 million shares
he had previously discussed with Victor Chan. It did
not occur to him to ask TKR Finance whether the
asked to issue a public announcement to that effect.
The announcement dated 16 October 2003 was filed
with the SEHK, stating that Daido’s board of directors
noted the large volume of share trading that day but
did not know any reason for the increase in trading
volume. The announcement was published on the
website of the SEHK the same day.
Dual filing
Whenever a listed company files a copy of any
announcement, statement or circular with the SEHK,
it must make the same filing with the Securities and
Futures Commission (SFC). The company may, by
written authorisation, permit the SEHK to file any
announcement, statement or circular on its behalf
with the SFC. This is known as the “dual filing scheme”.
Earlier that year, Daido had given the SEHK a blanket
written authorisation to file any public announcement,
statement or circulars with the SFC. However, on
this occasion, the SEHK did not file the 16 October
announcement with the SFC.
Magistrates’ court ruling
The first hearing was in the magistrates’ court. Mr
Douglas TH Yau, the magistrate, came to the following
conclusions:
• Daido (via Mr To) knew – or should have known
– that the sudden increase in the trading volume
of its shares was the result of the sale of the 200
million shares. Consequently, Daido was guilty of
an offence under section 384(1) of the SFO for
providing false or misleading information to the
SFC.
also criminally liable for the same offence.
• Alternatively, even if the substantive offence under
section 384(1) was not completed – that is to
say, even if the 16 October announcement had
only been given to the SEHK and not to the SFC –
Daido would still be guilty of an attempt to commit
the offence. Consequently, Mr To would also incur
criminal liability by virtue of section 390.
The appeal
Daido and Mr To appealed to the Court of First
Instance on various grounds. However, Madam
Justice Beeson dismissed their appeal and upheld the
magistrate’s decision on both the substantive and
attempted offences. Mr To then appealed to the Court
of Final Appeal, which reaffirmed the decision of the
magistrate. The court made two important rulings:
(1) As it had behaved recklessly, Daido would have
been guilty of an attempt even if it had not
been convicted of the full offence under section
384(1).
(2) An attempt to commit an offence is itself an
offence under section 159H of the Crimes
Ordinance. Mr To would have been criminally
liable for Daido’s attempt to commit the section
384(1) offence. This was due to the combined
effect of sections 159H and 159G of the Crimes
Ordinance, which modified section 390 of the
SFO so as to impose an accessory or concurrent
liability on a corporate officer for the company’s
attempt to commit an offence under the SFO.
The lessons of the case
The criminal convictions of Daido and Mr To were the
first successful prosecutions for providing false and
misleading information under the dual filing scheme.
The SFC’s executive director of enforcement, Mr
Mark Steward, welcomed the decision and said: “The
case provides authoritative confirmation that criminal
prosecution is a real rather than theoretical risk. The
decision will pave the way for more enforcement
action, where appropriate, against listed companies
and their directors who provide false or misleading
information to the SFC or the SEHK”.
The lesson to be learnt from this case is that not only
can companies be convicted of attempting to commit
an offence under the SFO, but that directors may also
be found criminally liable for the same offence.
Chris Sharrock
Partner
c.sharrock@kennedys.com.hk
Jenny Zhuang
Solicitor
j.zhuang@kennedys.com.hk
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