A DISTRICT Court judge erred in imposing a suspended sentence on a bank manager and a company proprietor for defrauding Ka Wah Bank of $4.8 million through a cheque-kiting scheme, the Appeal Court heard yesterday. Senior Crown Counsel Mr Ian McWalters, seeking a review of the sentences, argued it was a serious breach of trust on the part of Lee Kun-wai and a suspended sentence failed to reflect the criminal conduct of Lee and Chan Siu-ming, who was the instigator of the fraud. Lee, 39, former assistant manager of Ka Wah Bank, and Chan, 43, had pleaded guilty before District Court Judge Daniell to having conspired together between May and November 1990 to defraud the bank. While Lee was sentenced to six months' jail, suspended for one year, Chan was sentenced to one year, suspended for two years. The court heard Chan had cash problems in his marine products business. Knowing he would not be able to obtain legitimate credit facilities from the bank, Chan sought help from Lee, who allowed him to have overdraft and loan facilities without adequate security. When the fraud was discovered that November, the bank had been exposed to a risk of $4.8 million. Asking the court to review the sentences on the grounds they were manifestly inadequate and wrong in principle, Mr McWalters said it was a serious breach of trust on the part of Lee who held a senior position in the bank. The sentencing judge had taken into account the lack of supervision of the bank, he said, and it appeared he thought everyone should be blamed for the criminal conduct except Lee. Chan was the instigator of the offence and had initiated the proposal to Lee, he said, adding that Chan had only made $270,000 restitution to the bank. Mr McWalters said there was nothing which amounted to exceptional circumstances to justify a suspended sentence. He proposed that 18 months was a more appropriate term. Counsel for Lee, Mr Gilbert Rodway, QC, on appeal, argued that the judge certainly could take into consideration the situation of the bank, which was indeed extremely lax. Lee had given Chan similar facilities in 1987 and all he got from the bank was a reprimand and been transferred to another branch. It was not fair to say the bank would not tolerate such conduct, he said, stressing the bank did continue to tolerate this kind of conduct until 1990. While it was not a defence, Lee certainly could use the bank's laxity as a mitigating factor, he said. Lee did not benefit even one cent from the scheme and he was only helping a friend, Mr Rodway said, asking the court not to interfere with the sentence. Chan's counsel, Mr Richard Wong, will make his submission today. Vice-President Mr Justice Silke, Mr Justice Power and Mr Justice Macdougall made up the Appeal Court.