Founder and manager of China Metal Recycling accused of making bogus transactions worth more than HK$4.2 billion to get listed on Hong Kong stock exchange

Hong Kong prosecutors on Tuesday accused China Metal Recycling’s founders and administration manager of making bogus transactions worth more than HK$4.2 billion (US$538 million) to get listed on the city’s stock exchange 10 years ago.

But the company’s co-founder Lai Wun-yin and administration manager Choy Ling-ling have denied the allegations and pleaded not guilty to one joint count of conspiracy to defraud.

The High Court trial centred on how China Metal Recycling (Holdings), a scrap metal business founded in the Cayman Islands in July 2007, came to be listed on the main board of the Hong Kong stock exchange two years later.

Prosecutor Newman Wong Hing-wai said the stock exchange expected full and frank disclosures to perform its public duty to vet applications, but the defendants lied and conspired with Lai’s husband and company co-founder Chun Chi-wai and others to orchestrate a scheme to get listed by dishonest means.

The scheme allegedly spanned from June 2, 2008, to June 22, 2009, when the participants grossly overstated material financial results and information through bogus transactions in wholly owned subsidiaries. This was done with the intent to induce the stock exchange to accept them as true and accurate and approve the listing application.

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According to prosecutors, these transactions involved round robin fund flows worth more than HK$4.2 billion, accumulated in the three years before the company went public on June 22, 2009.

Wong said that the money paid by China Metal Recycling’s subsidiary, Central Steel (Macao Commercial Offshore), to suppliers found their way to customers, who then used the same funds to pay back the subsidiary.

Lai, being one of Central Steel’s two company signatories, was said to have instructed more than 10 per cent of these loop transactions.

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“If the stock exchange had known the financial information, in particular the profits, were false, it would not have approved China Metal Recycling’s application,” Wong said, as he opened the case to a nine-member jury.

China Metal Recycling issued 345 million shares at HK$5.18 each when it went public in June 2009, raising a total of more than HK$1.78 billion.

But its trading was suspended in January 2013 and the company was taken off the board in February 2016, after the Securities and Futures Commission successfully petitioned for its winding up in February 2015.

The trial continues before Mr Justice Alex Lee Wan-tang.