Two persons (D1 and D2), charged by the ICAC, were today (Monday) convicted at the District Court of their roles in fraudulent trading of derivative warrants.

D1, 42, operator of an investment company (Company A), was found guilty of four counts of conspiracy to defraud, and one of doing an act tending and with intent to pervert the course of public justice, contrary to Common Law.

A co-defendant (D2), 35, who was a staff member of Company A, was convicted of one count of conspiracy to defraud.

D1's associate (D3), 30, who was also charged for his role in the case, had earlier pleaded guilty to three counts of conspiracy to defraud, while a similar charge against him was ordered to be left on court file.

Judge Douglas Yau Tak-hong will continue to deliver his verdict tomorrow. The defendants were remanded in the custody of the Correctional Services Department.

The case arose from a corruption complaint in relation to the trading of derivative warrants. Subsequent ICAC enquiries revealed the above offences.

The court heard that at the time of the offences, the case involved four derivative warrant issuers and four Liquidity Providers (LPs) appointed by them.

The LPs have a function of providing liquidity of derivative warrants in the market by continuously quoting to investors bid and ask prices to ensure that there is a source of derivative warrants for trading.

The court heard that between September 2005 and May 2008, D1, D2 and D3 conspired with other persons to defraud the above LPs, and such companies, firms and persons as might be induced to trade in tens of derivative warrants issued by the four issuers concerned.

To materialise their scam, D1 set up various bases in Hong Kong and on the Mainland.

D1, D2 and D3 conspired to create a false or misleading appearance of active trading in the afore-mentioned derivative warrants daily through a number of dummy accounts operated by people associated with D1 from those bases.

The trio dishonestly caused traders based in Hong Kong of four other companies respectively associated with the derivative warrants issuers to render favourable prices to be quoted to people connected with D1 for the said derivative warrants.

Under this scam, secret profits were also alleged to have been offered to the said traders as their rewards for doing so.

The court also heard that D1 had approached an immunised witness and asked him not to co-operate with the ICAC and to give false and misleading information.

The prosecution was today represented by prosecuting counsel Joseph Tse, SC, assisted by ICAC officers Kevin Cho and Ada Lau.