Judge Garry Tallentire said in his verdict delivered in Hong Kong’s District Court today that he found the banker Cheung Kwai-kwai honest and some of the witnesses for the prosecution unreliable.
The Hong Kong case underscores how the fallout from the biggest bankruptcy in U.S. history continues to ripple around the world, three years after Lehman collapsed with $613 billion in liabilities. About 43,000 investors in Hong Kong bought an estimated $1.8 billion of equity-linked notes known as minibonds that were connected to Lehman and sold by commercial banks.
“Despite the political heat and emotion of the Lehman minibonds, the court has adopted a rigorous and objective approach to determining very serious questions of potential criminal liability,” said Martin Rogers, head of litigation and dispute resolution in Asia at Clifford Chance LLP.
The law firm, which advised Cheung during regulatory investigations into the products, didn’t act in the criminal proceedings.
Lehman’s collapse angered many members of the public, Tallentire said. The prosecution failed to prove its case against Cheung, he said.
Cheung, 48, warned customers that they risked losing their investments in the custom-made securities, which lost their value after Lehman’s bankruptcy in 2008, her lawyer Peter Duncan had told the court.
She burst into tears on hearing the verdict, which was read out over several hours today.
Jonathan Man for the prosecution declined to comment on whether the government would appeal.
The Hong Kong unit of Bank of China Ltd. was the biggest seller of the notes and was among 16 institutions that agreed to buy them back for at least 60 cents on the dollar in a settlement brokered by regulators.
BOC Hong Kong spokeswoman Angel Yip said last month Cheung is still employed by the bank. Another employee charged for the same offence, Tai Ching, is scheduled to be tried next month.
Lehman’s collapse wiped out the value of investments in the notes, sparking a public outcry, street protests and allegations of misselling. The heads of the city’s central bank and securities watchdog were called to testify before lawmakers and scolded in public.
“We are disappointed,” said Chan Ho-wai of a group called the Alliance of Lehman Brothers Victims after the verdict. They will continue to seek to recover their money, he said.
Securities and Futures Commission spokesman Jonathan Li said yesterday the participating banks have paid about HK$5.5 billion ($706 million) to 98 percent of the almost 30,000 eligible investors who bought minibonds from them.
The Hong Kong Monetary Authority said today that more than 99 percent of the 21,747 complaints it has received on Lehman- related products have been resolved, closed or acted upon.
Investigation work is underway on the remaining 91 cases, it said.
The case is Hong Kong SAR v. Cheung Kwai Kwai, DCCC526/2010, in Hong Kong District Court.
To contact the editor responsible for this story: Douglas Wong in Hong Kong at firstname.lastname@example.org