Six people are facing charges connected with a scam that employed letters of credit (L/Cs) to inflate the value of a Hong Kong company as it headed for an initial public offering (IPO).

The defendants are accused of trying to convince the Hong Kong Stock Exchange (HKSE) to list household products manufacturer, Gold Wo International Holdings, by producing false accounts that showed the company's turnover higher than it really was.

Charges

Former Gold Wo Group chairman, Fu Chu-kan, his sister, Fu Yin-ling, her husband, Lo Chun-nam, and three accountants face five charges of conspiring to defraud the HKSE.

Fu and certified accountant Ricky Li face an additional charge of conspiring to steal over HK$23.5 million from Fu's own company.

Forgeries

Prosecutors say that the conspirators forged documents to secure L/Cs, thus inflating the value of their company.

They are accused of falsifying cargo receipts to trick banks into issuing the L/Cs, which had a total face value of nearly HK$100 million.

Obscure cash flow

The court heard that 32 L/Cs were issued to Yue Fong, a manufacturer of electronic goods, to purchase rubber parts from Gold Wo. The L/Cs were issued between November 1998 and January 2002.

The proceeds of the L/Cs were received by the Gold Wo group and, according to prosecutors, that company then transferred that money through one of its subsidiaries, Blooming Sky International back to Yue Fong.

Several associated companies held accounts in different banks, thus making it difficult according to the prosecution to see that the L/C proceeds ultimately finished up where they started, at Yue Fong.

Public company

Banks that issued the L/Cs include HSBC, Bank of America and Standard Chartered Bank.

Gold Wo's IPO raised HK$26 million and it became a public company in March 2001.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.