Chinatrust’s fomer vice chairman Jeffrey Koo Jr given lengthy prison sentence for financial scam

June 1, 2013 Leave a comment

Chinatrust’s Koo Jr given lengthy prison sentence for scam

CNA 2013-06-01

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The former vice chairman of Chinatrust Financial Holding Co was sentenced Friday to nine years and eight months in prison and fined NT$150 million (US$5 million) for his role in a financial scandal.

The Taiwan High Court found Jeffrey Koo Jr guilty of violating the Securities and Exchange Act and the Banking Act with regard to irregularities in transactions of structured notes linked to Mega Financial Holdings during the period 2005-2006.The financial scam allowed an offshore paper company, Red Fire Developments, which was set up by Koo’s trusted subordinates, to pocket a windfall that caused losses for Chinatrust Financial, the court found.

The court said that Koo, as a well-known banker in a senior position, and several of his subordinates, including former financial head of Chinatrust Financial Perry Chang, former top legal adviser Deng Yan-dun and former financial official Lin Hsiang-hsi, should have shown high ethical standards, but instead evaded internal regulation to arbitrarily dispose of the bank’s assets and manipulate stock transactions for their own profit.

Red Fire Developments became a “personal coffer” and it is a “major property crime,” the court ruled.

The court also sentenced Chang to eight years and six months in prison, with a fine of NT$50 million (US$1.67 million), while Deng was sentenced to seven years and six months and Lin got eight years. Both Chinatrust Financial and the defendants’ lawyers said they would appeal.

The company said in a statement that the profits made by Red Fire Developments, as a special purpose vehicle, in the re-sale of structured notes went to Chinatrust Financial, which did not suffer any loss. None of the defendants pocketed any money from the deals, the company said.

A statement from Koo’s lawyers denied that Red Fire Developments was his “personal coffer.”

Koo, 48, was indicted in December 2009 for masterminding the scam. He is the oldest son of the late Jeffrey Koo, founder of Chinatrust.

He was accused of instructing Chinatrust Commercial Bank, one of Chinatrust Financial units, to buy structured notes linked to Mega Financial from issuer Barclays Bank PLC without approval from the board of directors.

Through its branch in Hong Kong, Chinatrust Commercial Bank bought a total of US$390 million of structured notes and then sold the securities at a low price to Red Fire in what prosecutors deemed a non-arm’s length deal, so that the paper company, which had been capitalized at just US$1, garnered about NT$1 billion (US$33.35 million) in profit.

After the transaction, Red Fire wired the proceeds to several other offshore companies so that the illegal funds would not be traced, prosecutors said.

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