A former chairman (D1) and a former executive director (D2) of a listed company (Company A), charged by the ICAC, have been convicted at the District Court of conspiracy to defraud shareholders of the company and the Stock Exchange of Hong Kong (SEHK) in relation to a bogus joint venture in a gas pipeline project in Chongqing, the Mainland.

D1, 51, and his wife D2, 48, were found guilty of two counts of conspiracy to defraud.

D1 and D2, together with two executive directors (D3 and D4) of another listed company (Company B), aged 62 and 49, and a former independent non-executive director (D5) of Company B, 52, were also convicted of one count of conspiracy to deal with property known or believed to represent proceeds of an indictable offence.

A finance company (Company C), a subsidiary of Company B, was the financial adviser of Company A.

Judge Albert Wong Sung-hau remanded D1 and D2 in the custody of the Correctional Services Department. D3 was granted cash bail of $1.2 million with a surety of $50,000, while D4 and D5 were each granted bail of $200,000 in cash and $50,000 in surety.

The judge adjourned the case until March 15 for mitigation by D3, D4 and D5 and sentence on all defendants.

The case arose from a corruption complaint. Subsequent ICAC enquiries revealed the above offences.

The court heard that in April 2002, the couple initiated a fraudulent scam by first instructing an accountant to form a company (Company D). D1 arranged for two British Virgins Island-registered companies (Company E and Company F) to become shareholders of Company D together with the accountant.

D1 and D2 then caused Company D to team up with a Mainland firm to form a joint venture, purportedly to invest in a gas pipeline project in Chongqing. In fact, they never intended to inject capital into the Chongqing joint venture.

In June 2002, Company A announced to buy 75% of Company D at $63 million by issuing 315 million consideration shares.

To complete the fraudulent scam, D1 and D2 further caused the SEHK and the shareholders of Company A to approve the issue and allotment of the 315 million consideration shares to the three shareholders of Company D.

The court heard that upon receipt of a complaint alleging foul play, the SEHK raised queries on the genuineness of the project. D1 and D2 then devised another scam to ward off the SEHK's queries.

With the assistance of D3, D4 and D5, the couple decided to use Company E to buy back Company A's 75% of Company D at $32 million. Company C was to provide a bridging loan purportedly to show that Company E had paid the $32 million to Company A. However, the money, after routing through a convoluted channel including bank accounts of Company E, D1 and various off-shore companies, eventually reverted back to Company C on the same day.

D1 and D2 then falsely represented to the SEHK that Company A had sold its interest in the Chongqing joint venture for a consideration of $32 million, and provided a deposit slip of $32 million to the SEHK as a proof of payment received from the buyer. In fact, the purported sale of Company D was false, the court was told.

The prosecution was today represented by Senior Public Prosecutor Paul Ho, assisted by ICAC officers Ringo Yung and Irene Lau.