A court yesterday handed down some of the most severe penalties for a mainland-related company in Hong Kong, sending three former executives of scandal-plagued Guangnan Holdings to jail. The trio were sentenced to between two years and six years for fraudulent accounting, conspiracy to defraud and misappropriation of funds from Guangnan and its subsidiaries. Mr Justice Gareth Lugar-Mawson said the scandal could jeopardise Hong Kong's reputation as an international business centre. Guangnan, the listed food arm of Guangdong Enterprises (Holdings), is undergoing a comprehensive financial, corporate and management restructuring to resolve debts of US$5.95 billion. Its problems emerged after the spectacular collapse of Guangdong International Trust and Investment Corp in 1998. The judge said the three, who had embezzled funds of Guangnan subsidiary Chaozhou Industries (Holdings) and had 'gambled' them on the stock market, 'ignored company law as if it was 'a children's game'. 'These are serious offences, particularly in Hong Kong, which enjoys an excellent international reputation as a place for honest business,' he said. The judge said the share prices of listed companies should reflect their genuine status, but the deception scheme embarked on by the management of Guangnan had 'defeated that purpose'. The company's auditors, the Securities and Futures Commission and the stock exchange were successfully deceived from the fact that the food company had exaggerated its annual profit for three financial years from 1996 to 1998. Guangnan, burdened by US$488 million in debts, reported a net loss of HK$3.47 billion for last year and a negative shareholders' equity of HK$1.18 billion as of December. Huang Xiao-jiang, 35, formerly an executive director of Guangnan, was jailed for six years on five counts of conspiracy to defraud and one of conspiracy to commit false accounting. Former deputy financial controller Xie Ping, 35, was jailed for four years on two counts of conspiracy to defraud, two of conspiracy to commit false accounting and one of false accounting. The judge accepted he was not an active player and in the middle-management level. Chen Li-bin, 38, previously a director of Chaozhou but with no part in Guangnan, was jailed for two years on one count of conspiracy to commit false accounting. The judge believed he was pressured to take part in the scam as he was a junior in the hierarchy. The judge also accepted none of the three were the ringleader and were not personally enriched in the 'rotten, corrupted and dishonest' scam. Former chairman Sun Guan, 52, believed to be the mastermind of the fraud, remains at large. Huang and Xie admitted more than doubling Guangnan's profit through fraudulent accounting and fabricating business transactions. They and Chen further admitted embezzling more than HK$46 million from Chaozhou for share speculation. They committed the offences on instructions from top management, the Court of First Instance heard. They were among nine Guangnan executives arrested by the Independent Commission Against Corruption, sending shock waves through the stock market worried about the quality of management of locally listed mainland companies.