Minibond investors misled, says prosecutor

PUBLISHED : Friday, 26 November, 2010, 12:00am
UPDATED : Friday, 26 November, 2010, 12:00am

A bank manager appeared in court yesterday accused of misleading six investors, some barely educated and retired, to buy HK$6.8 million of Lehman Brothers minibonds.

Cheung Kwai-kwai, 47, a former personal financial services manager at Bank of China (Hong Kong), pleaded not guilty in the District Court to nine counts of fraudulently or recklessly inducing the victims to invest money between 2005 and 2008, violating the Securities and Futures Ordinance.

Senior prosecutor Jonathan Man Tak-ho said that Cheung misrepresented to the victims the minibonds were 'principal protected', 'of very low risk' or 'highly secured' while experts said the products were complicated structures whose principal - the sum invested - was not protected, meaning investors could lose all of their money.

The alleged victims are now aged 51 to 78. Three were retirees when they were induced to buy the products, the court heard on the first day of the trial.

Their losses after the US investment bank's collapse in September 2008 ranged from HK$200,000 to HK$3 million, Man said. Five of the six only finished primary school.

Cheung is alleged to have told some of the investors that the products were linked to 'big companies' which had strong financial backing.

Man said Cheung told the investors the minibonds were credit-linked to the People's Republic of China, Standard Chartered, Citigroup, Coca-Cola Enterprises, HSBC Holdings, IBM, McDonald's, Hutchison Whampoa, the MTR Corporation, Sun Hung Kai Properties and Swire Pacific.

She told some that they would not lose their principal and represented to others that they would lose it only if all the linked companies collapsed.

Cheung told one of them that 'if one of the ... companies closed down, Hong Kong would be in dire straits', Man said.

She told another investor that a minibond was better than a fixed bank deposit because the interest rate of fixed deposits fluctuated and was low whereas minibonds guaranteed a high and fixed interest rate.

She also said buying the minibonds meant lending money to the linked companies.

Man said the victims trusted her. He said one alleged victim, security guard Fong Kwok-tung, 62, had made clear that he did not want to invest in high-risk products. Before he agreed to subscribe HK$50,000 Cheung had told him he would 'definitely' get his principal back after 6 1/2 years.

Giving evidence, retiree Siu So-chun, 62, said Cheung told her that generally there would not be any problem with minibonds. She said she told Cheung: 'I trust you.'

Siu said that between 2005 and 2007 she invested US$65,000 in minibonds which Cheung never told her were related to Lehman Brothers.

She will continue her evidence, before Judge Garry Tallentire, on Monday

How much they lost

The losses of the six investors involved in the case ranged from HK$200,000 to: $3m