"Think big and implement to the finest detail" was the motto of Chun Chi-wai, chairman of China Metal Recycling (CMR), once the darling of fund managers and stock commentators. Judging from the way he cooked the company's books, the 44-year-old entrepreneur practised what he preached. "This was fraud on an industrial scale," said Mr Justice Jonathan Harris while approving an unprecedented winding up application by the Securities and Futures Commission against CMR. When one has to turn a self-styled recycler of scrap metal into the largest in China within five years to fool the regulators into allowing a listing, the scale can only be grand. First, you need to "invent" a business. What CMR did was it purchased scrap from suppliers and sold it, processed or unprocessed. Under Chun's instructions, dozens of companies were set up in Hong Kong, Macau, Bermuda and the US to play supplier and customer, the court heard. Chun then told the market these shell companies were agents working for the big boys. CMR set up a subsidiary in Macau, called Central Steel Macao (CSM), to trade with these suppliers and customers. Macau may not sound too grand, but the city's lax corporate and tax surveillance suited Chun. The Macau subsidiary accounted for 36.6 per cent of CMR's business and contributed 128 per cent of its profit in 2012. Second, you need to "invent" some cash flow to make the business look real. Chun resorted to "round robin funds flow" schemes under which more than 90 per cent of funds paid out by CSM to "suppliers" was passed on to customers and circulated back to CSM within days. In 2008, US$320 million was circulated within eight days. The figure rocketed to US$2.3 billion in 2012. It was not done through a few deals, which might have aroused suspicion, but through a hundred transactions. Where did the money come from? That brings us to the third step - fabrication of shipping documents, namely bills of lading issued by a carrier to detail the shipment of goods. These bills are a must for a firm to secure letters of credit, or trade loans, from banks. Among CMR's bankers were four listed state banks, providing 3.5 billion yuan (HK$4.4 billion) of credit in 2010 alone. An expert witness found 80 per cent of the 1,042 bills of lading related to the CSM transactions between 2007 and 2013 were false. This may sound easy to a layman. However, those who have seen such a bill know it is not - it requires a huge effort to falsify hundreds of them. Theoretically, the banks should vet these documents carefully and spot the problem. Some documents mentioned vessels that did not exist or operate at the time, while some had missing contact details. With its high fees and turnover, the letters of credit business is a piece of juicy fat in this low-interest, low-profit environment, and banks are quite lax in verifying them. One problem for Chun must have been to convince professionals, in particular the auditor, that the numbers were genuine. After all, CMR was talking about a kind of profit growth that, for many, was too good to be true. It claimed its revenue and profit rose three and 10 times respectively between 2007 and 2011. Chun obviously knew how professionals operate. A CSM employee told the court she was told to send emails from her work account to Gmail and Yahoo addresses of purported suppliers and customers to confirm purchases or sales that did not exist. Her supervisor said this was to create proof of contact to satisfy the auditor. In another case, Chun ordered a sales manager of a purported supplier in the US to impersonate different individuals. The guy played Wilson Chan of supplier A in 2008 and then Jo Huang of supplier B in 2009 in phone interviews by CMR's sponsor. He read off a script provided by Chun. He also signed confirmations under different names. The auditor, Deloitte Touche Tohmatsu, did ask for third-party proof. More fabrication. In preparing the 2012 audit, Chun produced 17 falsified master bills of lading purportedly issued by Orient Overseas Container Line. With these tricks, CMR was able to overstate profit in its 2009 prospectus by 72 per cent and in 2012 by 49 per cent, fooling fund managers along the way.