http://legalref.judiciary.gov.hk/lrs/common/ju/ju_frame.jsp?DIS=97425&currpage=T
Extent of the overstatement
- It is instructive to conclude by illustrating the extent of the overstatement arising from the round robin transfers described earlier in this decision. The following are the overstated revenue and gross profit of the Company for the years 2007 to 2009 calculated respectively by the Commission and by Mr Morrison under the two approaches used by him in his report, the precise details of which are not relevant for present purposes:
| Calculated by: | Overstated gross profit | Overstated revenue |
| The Commission | US$143,291,911 (73.22%) |
US$1,049,036,307.00 (46.67%) |
| Mr Morrison under Approach 1 | US$140,555,466.41 (72%) |
US$1,034,447,611.47 (46%) |
| Mr Morrison under Approach 2 | US$113,480,065.38 (58%) |
US$817,478,313.33 (36%) |
- As for the year 2012, Mr Morrison’s calculation is as follows:
| Calculated by: | Overstated gross profit | Overstated revenue |
| Mr Morrison | US$147,185,227.18 (49%) |
US$1,341,877,306.15 (12%) |
Conclusion
- In my view the evidence adduced by the Commission establishes that a fraud on a massive scale has been perpetrated by those in charge of the Company on investors, the Stock Exchange and others involved in the listing of the Company. It seems highly likely that Mr. Chun caused the round robin transactions and the creation of bogus bills of lading with a view to producing significantly better figures than would otherwise be the case. This must have been done in order to advance the IPO and induce investors to subscribe for shares. Having started this process necessarily it had to be continued. There would appear to have been at the very least serious contraventions of section 298 of the SFO and section 342F of the C(WUMP)O.
- As will be clear from the earlier parts of this decision this is not a case of isolated wrongful acts which are unlikely to be repeated. Neither is this a case of wrongdoing which initially was limited in scope but which circumstances caused the instigator to lose control of as it grew like topsy. Clearly this was a carefully planned and carefully implemented scheme to create accounts which significantly overstated the business and profit of the Company for the purposes of the listing and thereafter. This was fraud on an industrial scale, which goes directly to the integrity of the listing. It is difficult to think of a clearer case of it being in the public interest that a petition be brought by the Commission for a winding up. This case would appear to fall firmly into the category of cases in which the courts take the view that a winding-up order is appropriate.
AsianExtractor: Unearthing Accounting Fraud in Asia 