Convoy sues ex-directors for stealing from financial adviser’s US$520m stock placement

A court filing says Doctor Cho was the mastermind behind a number of share placements and circular financing deals to defraud Convoy of its assets

PUBLISHED : Tuesday, 19 December, 2017, 4:18pm
UPDATED : Tuesday, 19 December, 2017, 10:58pm

Troubled financial firm Convoy Global Holdings is suing its former chairman and related parties involved in a complex network of companies for stealing some assets from the company’s HK$4.043 billion (US$520 million) private placement in 2015, according to a writ obtained by the South China Morning Post on Tuesday morning.

The writ was filed by Convoy Global Holdings and its units Convoy Collateral and CSL Securities, under new management led by interim chairman Johnny Chen Chi-wang.

Hong Kong’s largest financial adviser with about 100,000 clients, which includes the city’s Mandatory Provident Fund, is seeking unspecific damages from 28 defendants. These include former chairman Quincy Wong Lee-man, former vice-chairman Rosetta Fong Sut-sum, former director Christie Chan Lai-yee and Lerado Financial Group chairman Mark Mak Kwong-yiu, a former chief executive of Convoy – all of whom have been arrested by the Securities and Futures Commission and Independent Commission Against Corruption earlier this month.

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The court case is the latest twist in the boardroom battle as it was filed about 10 days before its largest shareholder, Kwok Hiu-kwan, who owns 29.91 per cent of the company, has called for a shareholders meeting on December 29 to expel eight directors, including its president and executive director Ng Wing Fai.

A key person named in the writ is former Convoy director Roy Cho Kwai-chee, known to local stockbrokers as Doctor Cho, because of his medical profession. He has been suspended from the company as Convoy could not contact him.

“To the best knowledge of the plaintiffs, Roy Cho has fled Hong Kong,” the writ said.

The writ said Cho was the mastermind behind a number of placements to create a “false and/or misleading appearance” to all that Convoy had raised HK$4.043 billion for its business development but in fact the money was soon circulated back to other companies in Cho’s network via “circular financing agreement” and thus caused “substantial loss and damage” to Convoy.

Cho could not be reached for comment.

Convoy is seeking claims against the 28 defendants – individuals and companies – as exposed by shareholder activist David Webb in his report “The Enigma Network – 50 Stocks not to own”, dated May 15, 2017.

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Webb’s report said the firms and brokers in the network had cross holdings in each other’s companies and they approved loans and transactions between them that did not make any commercial sense.

In the writ, Convoy described Cho as “a shadow” and “de facto director of Convoy” as he had “gradually acquired ownership and control of Convoy since 2013 by appointing his associates, nominee and/or agents to occupy the various key positions in Convoy”, including Mark Mak and Christie Chan.

The writ also noted that while Cho had no formal role in Convoy until he become an executive director in March 2017, he was able to make management decisions for the group since 2013 through his associates via secret emails and diaries.

Starting in 2014, Cho and his associates induced potential investors to invest in his listed flagship Town Health International Medical Group and Convoy. Town Health, a clinic chain founded and chaired by Cho, has been suspended from trading since late November by the SFC for giving misleading information.

In 2015 Hong Kong businessman Francis Choi Chee-ming and his family as well as Fubon Financial Holding, Taiwan’s second largest listed bank by assets, invested in Convoy via share placements and other related deals. A lot of the money was then diverted to Cho and related parties.