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Note: In an effort to both generate cash for Yue Fung International Group Holding Limited (Applicant) and to inflate Gold Wo International Holdings Limited's (Beneficiary) invoices and accounting records to meet the Stock Exchange of Hong Kong's listing requirements, Applicant secured the issuance of 27 LCs in excess of US$58,000,000 to Beneficiary and its subsidies over about three years. Based on false documentation, Applicant represented to the issuing banks that the LCs were for the supply of goods by Beneficiary. There were, however, no actual underlying commercial transactions, and the LC proceeds were routed back to Applicant through Blooming Sky International Ltd. Additionally, the falsified accounting enabled Beneficiary's Stock Exchange listing application, which without the falsification would not have qualified, to be approved.

Following Beneficiary's listing, Beneficiary's cash flow dissipated. However, because Applicant was now an associated company of Beneficiary, cash could no longer be generated by having Applicant secure LCs for Beneficiary. Thus, Beneficiary's subsidiary Gold Wo Melamine Product Company Limited (Melamine) applied for 29 LCs for more than US$27,000,000 based on false documentation in favor of four of Beneficiary's shell companies, acquired specifically for this purpose, purportedly for the purchase of goods. The LC proceeds, however, were sent via the shell companies to Melamine, Beneficiary's subsidiary Richlink International Holdings Limited (Richlink), the Chairman of Beneficiary Mr. Fu (D1), and other appellant acquaintances, thereby inflating Beneficiary's cash flow.

Additionally, toward the end of this period, D1 and accounting advisor Mr. Ricky Li (D3) also conspired to steal US$23,660,000 from Beneficiary. Fearing that Beneficiary's listing would be undersubscribed to, D1 used 'dummy' subscribers to purchase Beneficiary's shares. The 'dummy subscribers' were funded by a US$50,000,000 loan from AG Capital Limited to Top Master (owned by D1 and Ms. Fu (D5), director and Deputy Chairman of Beneficiary and director of Richlink). Beneficiary's account was credited with US$40,000,000 from the public and 'dummy' subscriptions. D1's shares accounted for US$11,000,000, leaving US$29,000,000 in Beneficiary's account. To repay US$30,000,000 of AG Capital Ltd.'s loan, a back-to-back loan was secured from Standard Chartered Bank. After transferring US$20,000,000 of the US$29,000,000 in Beneficiary's account to a fixed deposit account for collateral, Standard Chartered Bank loaned Beneficiary US$20,000,000, which D1 split among Beneficiary's and Richlink's various accounts. Cash checks in favor of D1 and director of Melamine Mr. Lo (D2) were then used to withdraw US$23,616,000 from these various accounts, while concurrently US$23,400,000 was transferred and divided between D1's account and a separate account owned by the Lee Brothers, key officers and public shareholders of Applicant. Of the US$23,400,000, US$23,000,000 was paid to AG Capital for the loan, with D1 falsifying accounting records to indicate that the funds had been used for normal expenses.

Overall, the prosecution charged that D1 and the Lee brothers decided to list Beneficiary with Applicant's assistance. The prosecution relied primarily upon testimony of Beneficiary and Applicant's financial controller Michael Young Chishan, who had participated in the frauds, but was protected by immunity from the prosecution. Confessions were also given by all of the defendants, with the exception of D5 and accountant for Beneficiary Mr. Roger Wan (D6).

The following counts were alleged against defendants: (1) that defendants D1 and D2 were involved in a conspiracy to defraud numerous banks by securing 27 LCs through misrepresentation; (2) that defendants D1, D2, D3, and D6, as well as financial consultant Connie Kwok (D4), were involved in a conspiracy to defraud the Stock Exchange of Hong Kong by falsely inflating Beneficiary and its subsidiaries' turnover and profit figures to gain approval for a listing application; (3) that defendants D1, D3, D4, and D5 conspired to defraud the shareholders, investors, and creditors of both Beneficiary and the Stock Exchange when appellants falsified financial documentation to present a misleading annual report; (4) that defendants D1, D2, and D5 conspired in additional letter of credit fraud and thereby defrauded the banks by submitting false documents regarding non-existent transactions in order to procure issuance of LCs in favor of Beneficiary's shell companies; and (5) that defendants D1 and D3 conspired to steal US$23,660,000 from Beneficiary. The first trial was aborted because the jury was discharged; at a subsequent trial, each of the six defendants was convicted on all counts brought against them.

The six defendants appealed based on two counts: (1) whether the judge's summing-up properly conveyed each defendant's defense to the jury, and (2) whether the jury was placed under unnecessary pressure to reach a verdict from the judge's summingup. The Court of Appeal, Stock V-P, Hon., dismissed all appeals. The opinion indicated that the defendants failed to demonstrate their claims.

[JEB/anf]

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