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Andrew Chetham

Financial regulators in the US have started legal proceedings against two Hong Kong-born businessmen who it claims duped investors into believing they had substantial telecommunications interests in the mainland when they had none.

 The Securities and Exchange Commission (SEC) alleges that between 1990 and 1993, Miko Leung and his brother, Sit Wa Leung, made more than US$16 million by what it describes as 'pump and dump' stock manipulation.

 A Hongkong Bank of Canada official is also alleged to have played a role in the scam.

 The allegations relate to a period early in the 1990s when entry into the mainland market was seen as a golden ticket for investors.

 During that time, Mico Leung was president and Sit Wa Leung corporate secretary of Canadian-based electronics export/import firm MTC Electronic Technologies, listed on the US Nasdaq exchange.

 The company - under different management - is now an associate of Stanley Ho's Grande Holdings.

 The SEC complaint, lodged with a district court in Washington DC, alleges that the Leung brothers engaged in a false disclosure and accounting fraud scheme and stole about 1.5 million shares of MTC stock which they then sold at inflated prices.

 The commission alleges that between 1990 and 1993, MTC claimed it had developed a new telecoms business in the mainland.

 MTC claimed it had agreements that made it the exclusive supplier of fax machines to China.

 For each of the fiscal years between 1991 and 1993, MTC said it had received millions of dollars in revenues from sales of fax machines, accounting for between 31 and 46 per cent of total revenues.

 However, the SEC said that in fact, MTC had no sales of faxes at all and deceived its accountants by providing false documentation.

 In 1992, the brothers are alleged to have gone further - claiming that MTC had tied up an exclusive deal to provide cellular phone services and paging services to about 300 million people in the mainland.

 As a result, MTC's stock price soared from US$5.125 to $30.

 During this time, the two persuaded the rest of the MTC board to issue 1.52 million stock options, below market price, to be used for incentives for employees, which the SEC alleges were never distributed. Instead, the brothers stole and fraudulently exercised them themselves, laundering the $12 million proceeds through a series of bank accounts around the world, the SEC said.

 The SEC claimed they made another $4 million by selling other MTC shares at a profit and that Ronald Driol, who managed MTC's accounts at the Hongkong Bank of Canada in Vancouver, had assisted the defendants' scheme by placing the bank's signature guarantee on the stolen stock certificates.

 The SEC claims he then helped transfer the proceeds of sales of stolen stock from nominee brokerage accounts to other nominee bank accounts at the Hongkong Bank of Canada and the subsequent transmission to other nominee accounts in Hong Kong.

 As well as civil penalties, the SEC is seeking to force the Leung brothers to pay back their trading profits and have them banned from holding company directors' posts in the future.



Hong Kong brothers face US charges over stock manipulation