SECURITIES AND FUTURES COMMISSION v. SOUND GLOBAL LTD AND OTHERS

SECURITIES AND FUTURES COMMISSION v. SOUND GLOBAL LTD AND OTHERS

The court found overwhelming and uncontradicted evidence that five key bank accounts were materially and fictitiously inflated in Company records compared to authenticated bank records obtained from banks via CSRC; Deloitte relied on fabricated documents; Mr Wen had actual control, authority and access to the...

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Citation
[2022] HKCFI 3025
Parties
Petitioner: Securities and Futures Commission; 1st Respondent: Sound Global Ltd.; 2nd Respondent: Wen Yibo; 3rd Respondent: Zhang Jingzhi; 4th Respondent: Wang Kai; 5th Respondent: Zhang Xiquan
Court
Court of First Instance
Jurisdiction
Hong Kong
Judgment Date
30 September 2022
Case Number
HCMP868/2019
Procedural Posture
S.214 Petition Under the Securities and Futures Ordinance (cap. 571) / Trial With Judgment on Merits
Outcome
Judgment for the Petitioner in material respects: findings that Schemes occurred, Mr Wen orchestrated them, and he gave false explanations; conduct falls within s.214(1)(b),(c),(d) SFO; remedies ordered.
Legal Topics
Director Disqualification, Misfeasance and Misconduct, Fraudulent Financial Statements, Share Purchase Order, Hearsay and Use of Records of Interviews, Auditor Reliance and Audit Irregularities
Source Language
en
Securities Law Company Law Corporate Governance Regulatory Enforcement Evidence Law Director Disqualification Misfeasance and Misconduct Fraudulent Financial Statements +3 more

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Parties

Securities and Futures Commission

Petitioner

Sound Global Ltd.

1st Respondent

Wen Yibo

2nd Respondent

Zhang Jingzhi

3rd Respondent

Wang Kai

4th Respondent

Zhang Xiquan

5th Respondent

Procedural Posture

S.214 Petition Under the Securities and Futures Ordinance (cap. 571) / Trial With Judgment on Merits

Legal Issues

  1. 1 Whether the Group’s 2012 and 2013 audited financial statements were inflated by fabricated bank balances (Falsification/Fabrication Schemes)
  2. 2 Whether Mr Wen knowingly caused, directed or orchestrated the Schemes
  3. 3 Whether alternatively Mr Wen turned a blind eye to the Schemes

Ratio Decidendi

The court found overwhelming and uncontradicted evidence that five key bank accounts were materially and fictitiously inflated in Company records compared to authenticated bank records obtained from banks via CSRC; Deloitte relied on fabricated documents; Mr Wen had actual control, authority and access to the subsidiaries and accounts, made financial approvals, and his conduct and post-investigation actions (false explanations, allowing disappearance of personnel and documents, account closures and chop changes) demonstrate he knowingly caused, directed and orchestrated the Falsification and Fabrication Schemes. His conduct therefore constituted misfeasance, withholding of material...

Court Disposition

Judgment for the Petitioner in material respects: findings that Schemes occurred, Mr Wen orchestrated them, and he gave false explanations; conduct falls within s.214(1)(b),(c),(d) SFO; remedies ordered.

Orders

  • Disqualification order: Mr Wen disqualified from being a director for 12 years from date of judgment
  • Share purchase order: Mr Wen to make an offer to purchase shares held by other members (excluding companies owned/controlled by him) at a price to be determined by the court; SFC to submit draft proposed terms and directions within 14 days for determination