Serious Fraud Office v Huang

[2018] NZHC 86

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CRI-2016-004-9392 [2018] NZHC 86

SERIOUS FRAUD OFFICE

v

KANG HUANG

(AKA GANG WANG AKA THOMAS WANG)

Hearing:	9 February 2018
Appearances:	T A Simmonds and E O Jones for Crown P J Davey and K Brosnahan for Defendant
Sentence:	9 February 2018

SENTENCING REMARKS OF LANG J

SERIOUS FRAUD OFFICE v HUANG [2018] NZHC 86 [9 February 2018]

[1]      Mr Huang, you appear for sentence having pleaded guilty to eight charges of obtaining credit by deception,1  one charge of dishonest use of a loan application document2  and one charge of corruptly giving a bank agent consideration as an inducement for approving a loan application.3   The first nine charges were laid under the Crimes Act 1961 and carry maximum sentences of seven years imprisonment. The remaining charge was laid under the Secret Commissions Act 1910, and carries a maximum sentence of two years imprisonment.

[2]      You entered guilty pleas after I gave you a sentence indication on 12 December

2017.4   The remarks made during the sentence indication will form part and parcel of my sentencing remarks and will be annexed to my sentencing remarks so that those who read the remarks can also take into account the observations I made during the sentence indication hearing.

Background

[3]      The factual background to your offending is set out in considerable detail in a summary of facts presented by the prosecution and agreed to by you for the purpose of the sentence indication hearing.  I am required to sentence you in accordance with that summary.

[4]      The summary reveals that for approximately 20 years you have been involved in a construction business specialising in building residential homes.  In order to fund the development of these properties your company obtained finance from financial institutions.

[5]      The offending occurred because you found it was too expensive to fund your company’s operations through a finance company.   This was because the finance companies charged higher interest rates for commercial loans than would be the case

for a loan for the purchase of a residential property. In addition, the finance companies

1      Crimes Act 1961, s 240.

2      Section 228(1)(b).

3      Secret Commissions Act 1910, s 3.

4      R v Huang [2017] NZHC 3100.

charged establishment and rollover fees when they made new loans and when they rolled over existing loans.

[6]      You adopted a strategy of obtaining finance to fund the  development  of properties by obtaining residential loans from three financial institutions, all of which were trading banks operating in New Zealand. The way in which you did this was to forward loan applications to the institutions in the names of various entities.  These included relatives, friends and employees of your company.  On some occasions loan applications were advanced in the names of fictitious entities.

[7]      In order to substantiate the loan applications, a significant quantity of false material was also provided.   This included detailed information regarding the employment circumstances of the loan applicants and the income streams from which they proposed to fund the acquisition and development of the properties.   Having obtained the loans, you then serviced them through your company.  This involved making payments to the borrowers in such a manner that the lenders’ suspicions would not be engaged.

[8]      The strategy also involved the connivance of a staff member of one of the financial institutions who was involved in processing the loan applications.   He processed the loan applications in the knowledge they were false.   He received a payment in the sum of $7,000 for his efforts. This is reflected in the charge laid under the Secret Commissions Act.

[9]      The first two charges are representative charges.  They allege you omitted to advise the three institutions that you and / or your company were the true borrowers under loan applications submitted to them. These resulted in the institutions approving finance totalling approximately $48 million.  Six of the remaining charges allege you assisted in providing false information, including false employment letters and overseas bank statements, in support of applications made for loans from the institutions. The charge of dishonestly using a document relates to a loan application form that you tendered in respect of a property being purchased in your own name. As I have already recorded, the final charge under the Secret Commissions Act relates to the payment  you made to the employee of the financial institution who was

responsible for processing some of the loan applications that you submitted.  That person was also to be charged, but ultimately left the country before the proceedings could be served on him.

[10]     In total you, or more correctly your company, obtained a total of $52.498 million in loans from the financial institutions using 57 separate applications for loan finance.   Of all these, all but two have been repaid.  An additional property was recently sold at a mortgagee sale for a shortfall, and you have recently made good that shortfall.   Two other properties remain subject to loans you acquired using false details. The payments in respect of one of these are being kept up to date, and for that reason it has not been called up.  The remaining property has been sold at mortgagee sale, and the Crown advises me today that it has resulted in a shortfall of approximately

$394,000.  The lender is currently pursuing the person in whose name the loan was obtained. That person was one of your employees. Ultimately, however, true liability for that loan rests with you, and your counsel advises me today that you are going to do what you can to ensure that that loan is repaid.

[11]     One of the most important features about your offending is demonstrated by the loan in respect of which there is now a shortfall. This is that you obtained loans in the names of other people.  Some of these people signed documentation in support of the loan applications. They did not know, however, that they were acquiring a property or that they were making themselves personally liable to the institutions if payments were not kept up to date and the property was sold for a loss.  Those persons were always at the risk of exposure by way of claim by the lender if the property was ultimately sold and the proceeds of sale did not meet the amount owing under the mortgage.

[12]     The fact that so few loans resulted in a loss is a direct result, in my view, of the fact that your activities occurred in a rising market.  This meant that properties were almost invariably worth more than they were purchased for when they were subsequently sold. This is a fortuitous result that is not attributable in any way to you. At any stage the housing market could have fallen and that would have exposed all of the borrowers to potential claims by the lenders.

Starting point

[13]     In my sentence indication remarks I canvassed the various authorities that informed me regarding the starting point to be selected to reflect your overall culpability.  I do not propose to repeat that process here.  I took the following factors into account in setting the starting point.

[14]     First, I noted that you were the instigator of the offending.  Although others played very important roles in it, you were the person who provided the impetus for the offending and ensured it was ongoing. Secondly, the offending was on a significant scale not only because of the sums that you borrowed based on false information, but also because of the length of time over which it occurred. It occurred over a period of about three years ten months between the calendar years 2011 and 2015.  Most of the offending occurred within a two year period. The offending obviously involved a very large number of individual loans and a very significant sum of money being advanced.

[15]     The summary of facts needs to be read as a whole in order to appreciate just how sophisticated this scheme was. It involved the creation of a large amount of false documentation, and must have been the result of a considerable amount of effort by you.  In addition, the type of information that was provided was by its nature difficult for the lenders to verify.  Many of the documents purportedly came from entities in China who employed, or otherwise provided income streams to, the persons who were purportedly applying  for loans.    It  would  obviously have been  difficult  for the institutions to have made any meaningful enquiries to ascertain whether the information was genuine.

[16]     In addition, it was necessary for you to involve several other persons to make the scheme work. These included the persons who unwittingly signed documentation on your behalf, as well as those within the banking institutions who processed it.  In addition,  a solicitor has  been  charged  with  offending  arising out  of his  alleged involvement in your scheme.  For these reasons the scheme can only be described as premeditated and sophisticated.

[17]     I also noted, however, that the offending was not motivated from greed in the traditional sense.  This is not a situation in which you sought to dishonestly obtain

funds belonging to others as is often the case when allegations of fraud are made. Rather, you endeavoured to lower the running costs of your business by obtaining finance from institutions that normally operated only in the residential market.   In reality, however, you were forcing those institutions unwittingly to become involved in lending in the commercial market given that you were involved in property development. Institutions ordinarily protect themselves from the risk inherent in such lending by charging higher interest rates and fees of the types I have described. In the present case the institutions could not do that because they did not know the nature of the loans that they were effectively making.

[18]     Having regard to those factors, I said I would ordinarily adopt a starting point of around six years imprisonment.  I was concerned, however, at the fact that you had involved an employee of one of the financial institutions in your offending.   This amounts to a form of bribery and corruption that this country has thankfully been largely free of in the past. It is the type of conduct that simply cannot be tolerated and the courts must ensure is deterred.   Although the bank employee was not paid a significant sum in the overall scheme of things, it is the principle that is important in this context rather than the sum paid.  This aspect of the offending led me to select a starting point of six years nine months imprisonment.

[19]     In part, I selected that starting point because the overall effect of the offending goes far greater than the financial loss that might be suffered by any individual financial institution.  As I observed during the sentence indication hearing, banks in this country deal with customers on the basis that customers are being honest with them. Once that proves not to be the case, there is a significant flow-on effect. Banks will inevitably tighten their controls and will take steps to ensure that the customers with whom they deal have provided correct and genuine financial information in support of housing loans.   The end result of all this is that the criteria for honest homebuyers will be tightened, and they will find it more difficult to obtain loans.

[20]     The loss to a financial institution from this type of activity is not restricted to financial loss.  This is evident from the victim impact statement I have received from one of the financial institutions who loaned money in the course of your activities. The victim impact statement contains the following statements:

The impact of fraud and in particular mortgage fraud should not be underestimated. The effects can be wide-ranging and longlasting on the Bank, everyday New Zealanders and the entire economy.

Due to this offending [the bank] has had to dedicate and invest significant resources into the investigation and management of this offending to recover funds and reduce its losses.

The actual cost to [the bank] is difficult to quantify, but has been significant. This can be broken down into two broad categories.

o   Financial cost primarily by way of the anticipated loss raised against customers within this group.

o   Staff costs being the staff resources required to manage the activities associated with this matter.

As a result [the bank] has had to enhance its lending policies, control environment and detection systems to prevent an ongoing offending by this defendant.

This can have an effect of making it more difficult for hard working New

Zealanders to obtain lending for their own homes and businesses.

The defendant obtained lending that he was not entitled to and thereby taken up lending that could instead be provided to legitimate applicants.

The impact of this offending extends to our staff.   Bribing staff through inducements damages staff morale and the working environment, impacts their great reputation, trust and confidence and diminishes the pride they take in their work.

A number of managers have expressed the emotional and reputational damage this offending has had on them personally and their wider lending teams.

Many staff have been involved in investigating this offending taking up valuable resources that could be used to help other customers.

[The bank’s]  reputation also  suffers when  mortgage  fraud is committed. Customers may grow concerned at whether the bank is safely looking after their money, which can impact on trust in the banking system and the economy as a whole. [The bank] is committed to maintaining New Zealand’s respected reputation as one of the least corrupt countries in the world, and attempts to bribe staff undermined efforts to do so.

[21]     The final point I make in this context is that the ripples of offending such as this travel well beyond the financial institutions directly involved.  If it came to be known overseas that New Zealand’s financial institutions are prepared to countenance, or are unable to counter, offending such as this, then the damage to our international commercial reputation will be enormous.

Mitigating factors

[22]     In my sentence indication I took into account several mitigating factors on your behalf.  The first was that you have lived in New Zealand for over 20 years, and you have developed a successful business model. You are now 49 years of age and have a devoted family.  You also have a good reputation within the New Zealand Chinese community.  You have no previous convictions other than for a driving offence in

2002.  For that reason I was prepared to make allowance for previous good character.

[23]     Your counsel also asked me to take into account the fact that you had met your company’s obligations to repay the shortfall that resulted from a mortgagee sale.  I gave you limited credit for this, but said that it was, in reality, no more than you performing your contractual duty to repay losses the lender had suffered.   It was therefore the lessening of an aggravating factor rather than a mitigating factor.  I also gave limited weight to the fact that you had cooperated in the investigative process and made offers to assist in that process.  I was prepared to give a global discount of nine months to reflect those factors, thereby reducing the starting point to one of six years imprisonment.

[24]     It is now necessary to consider whether I should reduce that sentence further to reflect any other mitigating factors the pre-sentence report has brought to light.

[25]     The pre-sentence report is largely positive in that it assesses you as being at low risk of reoffending on the basis of your modest conviction history and otherwise pro-social background.  Your assessed risk of harm to others is also assessed as low for the same reasons.

[26]     The pre-sentence report contains expressions of remorse by you, and this is repeated in a letter you have written to the Court prior to sentencing. I am prepared to give you a limited discount for remorse, but this is restricted by the fact that I view your remorse as being primarily for the position in which you now find yourself and your concern for the effect your offending has had on your family.  I do not detect in your letter or the comments made to the person who prepared the pre-sentence report any hint that you understand the wider implications of your offending.  I am prepared

to make an allowance of three months to reflect remorse, thereby reducing the sentence to five years nine months imprisonment.

[27]     The final mitigating factor for which I need to give you credit relates to your guilty pleas.  Your trial was due to commence on 26 February 2018.  For that reason your guilty pleas came late in the piece.  In addition, it is unlikely that your absence from the trial will shorten it greatly.  Nevertheless, the Crown accepts that you are entitled to be given significant credit for your guilty pleas because they amount to an acceptance of responsibility for the offending in question and also reduce the number of issues the Crown will need to prove at trial.

[28]     For that reason I allow a discount of 14 months, or approximately 20 per cent, to reflect those guilty pleas. This produces an end sentence of four years seven months imprisonment.

Sentence

[29]     On each of the charges laid under the Crimes Act 1961, you are sentenced to four years seven months imprisonment. On the charge under the Secret Commissions Act 1910, you are sentenced to nine months imprisonment.

Minimum term of imprisonment

[30]     The remaining issue is that relating to minimum term of imprisonment. I heard extensive argument regarding this issue at the sentence indication hearing.  The issue is whether it is necessary to impose a minimum term of imprisonment to ensure that the sentencing principles of deterrence, denunciation and the need to hold you accountable for your conduct are properly met.

[31]     In the ordinary course of events you would be eligible for parole after serving just one-third of your sentence.  In this case that would amount to approximately one year six months. I do not consider this would be sufficient to recognise the sentencing principles I have identified.  For that reason I impose a minimum term of 50 per cent on the charges laid under the Crimes Act.  As a result, on those charges, I order that

you serve a minimum term of two years three months imprisonment before being eligible to apply for parole.

[32]     All of the sentences are to be served concurrently.

[33]     Stand down.

Lang J

Solicitors:

Serious Fraud Office, Auckland

P Davey, Barrister, Auckland

NOTE: PUBLICATION OF THE JUDGMENT AND OF THE REQUEST FOR A SENTENCING INDICATION IN ANY NEWS MEDIA OR ON THE INTERNET OR OTHER PUBLICLY ACCESSIBLE DATABASE IS PROHIBITED BY SECTION 63 OF THE CRIMINAL PROCEDURE ACT

2011 UNTIL THE DEFENDANT HAS BEEN SENTENCED OR THE CHARGE DISMISSED.

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CRI-2016-004-9392 [2017] NZHC 3100

SERIOUS FRAUD OFFICE

v

KANG HUANG

(AKA GANG WANG AKA THOMAS WANG)

SENTENCE INDICATION OF LANG J

[1]      Mr Huang is to stand trial in this Court on ten charges laid under the Crimes Act 1961 and the Secret Commissions Act 1910.  His trial is scheduled to commence on 26 February 2018.

[2]      Mr Huang seeks a sentence indication.  This is an indication of the sentence that would be imposed on him in the event that he was to enter guilty pleas to the charges that he faces within the near future.  In the event that he does not accept the indication and is found guilty at trial, he will be sentenced in accordance with the view that the trial Judge takes of the facts.  The effect of the sentence indication will be spent.

The facts

[3]      For approximately 20 years Mr Huang has been involved in a construction business specialising in the building of residential properties. In order to develop these properties his company obtains loans from financial institutions.

[4]      The charges that he faces were laid after Mr Huang adopted a strategy designed to ensure he obtained loans at cheaper rates than those he could obtain through his company as a commercial entity.  He developed a system whereby he went to three banks and obtained loans from the banks on the basis of false information that he provided to them.

[5]      The first two charges are representative charges, and allege he omitted to advise the three financial institutions that he and/or his  company were the true borrowers in respect of loan applications submitted to the institutions. These resulted in the institutions approving finance totalling approximately $48 million.

[6]      Six of the remaining charges allege that Mr Huang assisted in providing false information, including false employment letters and overseas bank statements in support of applications that he had made for loans from the three financial institutions. There is also a charge alleging dishonest use of a loan document.

[7]      The final charge, laid under the Secret Commissions Act 1910, is an allegation that Mr Huang paid the sum of $7,000 to an employee of a financial institution who

was responsible for processing loans that he submitted for finance.  That person was also to be charged, but left the country before summonses could be served on him.

[8]      I do not propose to go into the facts of the offending any further.  That will be appropriate in the event that Mr Huang enters guilty pleas.  The principal allegation that is relevant for present purposes is that Mr Huang obtained a total of $52.498 million from the financial institutions by means of 57 separate applications for loan finance.  Of these, all but two have been repaid.  One property was recently sold at mortgagee sale for a shortfall, but Mr Huang has now made good the difference with the lender.  Another property has also recently been sold at mortgagee sale and this has resulted in a shortfall of approximately $382,000 to the lender. Mr Huang says he is going to endeavour to reach agreement with the lender regarding repayment of this loan as well.  The institution may incur a loss in respect of the remaining loan if the property against which the loan is secured is sold but, at present, the loan instalments are being kept up to date so there is no reason for apparent concern.

[9]      One important feature about the offending, however, is that it involved loans being made to third parties, many of whom appear to have only sketchy knowledge of the transactions into which they were entering on Mr Huang’s behalf. In entering into those  transactions  these  parties  exposed  themselves  to  risk  in  the  event  that

Mr Huang’s company failed to meet mortgage payments and the loans fell into default. Any shortfall would of course be recoverable from the person in whose name the loan had been obtained.

Starting point

[10]     The starting point for offending in respect of unlawful conduct such as this falls within a wide range.   Counsel have referred me to a large number of authorities.5

Perhaps the most directly analogous is that of Mayer v R.6   In that case the appellant

had applied on 26 occasions between December 2003 and August 2007 for loans for

5      R v Stone [2016] NZDC 15958; SFO v Armitage DC Auckland CRN: 04090500767, 1 December

2005; R v Slack [2017] NZHC 2330; R v Letele [2016] NZDC 4365; D’Viliers v R [2010] NZCA

85; Serious Fraud Office v Essex DC Manukau CRI-2006-092-7290, 21 February 2007; R v Wenzel DC Manukau CRI-2006-092-014379, 14 December 2012; Aryasomayajula v R [2011] NZCA 633; Devoy v R [2017] NZCA 213; Cherry v R [2013] NZCA 636] R v Stirling [2007] NZCA 106.

6      Mayer v R [2015] NZCA 206.

himself and other entities using false documents. This enabled him to obtain advances totalling $47.845 million and the lender ultimately suffered net losses of just over $19 million. This offending mainly related to creating false sale and purchase agreements to purchase properties at inflated prices.  He then sold the properties to himself or an associated entity at a higher price.

[11]     The present case does not involve any element of price manipulation. The only fraudulent conduct is that relating to the provision of false information to the banks regarding the identity and financial positions of the borrowers.   In addition, the loss in the present case is negligible by comparison to that in Mayer.

[12]     In  Mayer  the  Court  of Appeal  described  a  starting  point  of  seven  years imprisonment as generous to the appellant.7  I take the Court of Appeal’s comments to indicate it was of the view that a starting point significantly higher would have been within the available range.

[13]     I take the following factors into account in setting the starting point. First, Mr Huang was the instigator of this offending. Although others played significant roles, and indeed pivotal roles, it was he who provided the impetus for the offending and ensured it was ongoing.

[14]     Secondly, the offending was on a significant scale because of the length of time during which it occurred.  It occurred between the calendar years 2011 and 2015, but with most of the offending occurring within two years during that overall period.  It involved a very large number of loans and a very significant sum of money being advanced.  The scheme can also properly be described as sophisticated, because it required the creation of false documentation.   It also required the participation of several other persons in the scheme to make it work. This included persons within the organisations from whom finance was obtained. For the same reason the scheme must also be described as premeditated.

[15]     As against that, I accept that the offending was not motivated out of greed in the traditional sense. It is not analogous to a case where an employee has stolen money

7 At [62].

or money has been misappropriated in other ways.  Mr Huang’s motivation was to obtain finance at a better rate than he could obtain it elsewhere.  I also accept that he did not anticipate that the institutions would suffer losses, and indeed, this has largely proved to be the case.

[16]     Mr Huang explains that he believes that any loss that may be suffered will occur through a combination of factors.   These include the fact that he has been arrested, the fact that loan value ratios have now changed and a slow-down in the housing market as a consequence. That may well be so, but those types of factors can always affect a housing market. The scheme always had a significant element of risk because the housing market, like any other, is susceptible to changes in financial policy by a Government and to economic downturns in general.  For that reason the scheme was only safe so long as it operated in a rising market. Once that trend reversed there was a significant degree of risk for the persons in whose names the loans were obtained.

[17]     Having regard to those matters, I would ordinarily adopt a starting point of around six years imprisonment.  There is one further factor, however, that affects the overall culpability of the offending. This relates to the payment of $7,000 to the bank employee who was processing loans to the institution by whom he was employed. Although this person was not paid a significant sum in the overall scheme of things, it was nevertheless a significant amount of money by the standards of many people. The amount of money that was paid is not, however, the point.  The point is that this was a form of blatant corruption.   Mr Huang was paying a person in a  position of responsibility within a financial institution to effectively close his eyes to falsehoods that were being perpetrated. It was by any standard a form of bribery and that type of conduct has significant repercussions within the commercial community.

[18]     It means that the banks and financial institutions cannot trust their employees. Secondly, it means that such institutions cannot trust their customers either. That type of conduct has a widespread effect and can cause significant harm within the commercial community. For that reason I am satisfied that an overall starting point of six years nine months imprisonment is appropriate.   This reflects Mr Huang’s culpability in relation to all the charges that he faces.

Mitigating factors

[19]     Mr Davey asks me to take into account several mitigating factors on Mr Huang’s behalf.  The first is that he has lived in New Zealand for over 20 years and has developed a successful business model.  He is 40 years of age and has family members that  he  cares  for.    He  also  has  a  good  reputation  within  the Chinese community in New Zealand.  He has no previous convictions other than a conviction for a driving offence in 2002.  Mr Davey therefore asks me to apply a significant discount to reflect previous good character.

[20]     In addition, Mr Davey asks me to take into account the fact that Mr Huang has repaid the loan that was left outstanding following the shortfall on the mortgagee sale. I acknowledge that this is a form of making amends but, in reality, it was really Mr Huang performing his contractual duty to repay the losses the lender had suffered.  In that sense it is the lessening of an aggravating factor rather than a mitigating factor. Nevertheless, I do take it into account to some extent.

[21]     Finally, Mr Davey asks me to take into account the cooperation Mr Huang has displayed to the investigative process and offers he has made to assist in that process. I give that factor limited weight, although I accept that it is worthy of some credit.

[22]     I propose to apply a global discount of nine months to reflect these factors. This reduces the starting point to one of six years imprisonment.

[23]     Mr Huang’s guilty pleas would come relatively late in the piece.  Given the fact that his trial is due to commence within three months it is virtually at the last opportunity, although he could have waited to the beginning of the new Court year before entering them.  I also acknowledge, however, that although his absence may not make the trial greatly shorter, the fact that he has entered guilty pleas is an important factor for the Crown.  It is also an acceptance of responsibility by him for his offending.

[24]     For that reason I propose a discount of 14 months, or approximately 20 per cent, to reflect guilty pleas if they were entered shortly. This produces an end sentence of four years ten months imprisonment.

Should a minimum term be imposed?

[25]     One of the most important features about the present sentencing exercise is that the Crown asks me to impose a minimum term of imprisonment of at least 50 per cent. The Court may impose a minimum term of imprisonment when it is satisfied the usual parole provisions are not sufficient to recognise any or all of four factors.  These are the need to deter the offender and others from engaging in similar conduct, the need to denounce the offending, the need to hold the offender accountable and the need to protect the community.   I do not consider there is any further need to protect the community from offending by Mr Huang, but I am satisfied the remaining factors are important in this context.

[26]     In the ordinary course of events, Mr Huang would be eligible for parole after serving approximately one year and seven months of his sentence.  I do not consider that would be sufficient to recognise the sentencing principles of deterrence, denunciation and the need to hold Mr Huang accountable for his conduct.  I would therefore impose a minimum term of 50 per cent. As matters stand, this would require Mr Huang to serve two years five months before being eligible to apply for parole.

[27]     The sentence indication will be open for acceptance until 5 pm on Tuesday

19 December 2017.  If Mr Huang wishes to accept the indication his counsel should file a memorandum to that effect no later than 5 pm on 19 December 2017. Mr Huang

would then be arraigned at 9 am on Thursday 21 December 2017.

Lang J

Solicitors:

Serious Fraud Office, Auckland
P Davey, Barrister, Auckland