Use of Fake Transaction to Steal Client Money

Another licensed person has been "killed" by SFC for theft of client assets.

SFC has revoked the licence of Liu Ka Hin, a former licensed representative of Goldbond Securities Ltd and Goldbond Futures Ltd (now taken over by Piper Jaffray after the offences were committed) and banned him for life from re-entering the industry.

An SFC investigation revealed that from 5 Feb 2007 to 4 Oct 2007, Liu had opened trading accounts in his relatives' names to facilitate his own personal trading without the knowledge of his employer (once again "secret account"). After Liu lost money by investing through these accounts, he persuaded a client to invest in a financial product (what? accumulator?) through Piper Jaffray, knowing that Piper Jaffray did not sell such products to its clients.

Liu then used the money deposited by this client to settle the losses he incurred in his related accounts. In the process, he had:

• asked the client to fax the bank-in slips for the money to a fax number under his control;
• falsified written instructions on these slips in order to mislead Piper Jaffray's settlement department into diverting the funds into the related accounts he controlled; and
• sent fake confirmation notes to the affected client.

The misappropriated client assets were estimated to be at least $20m. On 29 Feb 2008, Liu was arrested by the HK Police and charged with one count of theft.

In this case, the fraudster had successfully cheated both the client and the employer. I wonder whether:

• the client had reviewed the statement of account (which should be independently delivered by Piper Jaffray's settlement department) to detect the "missing transaction"; and
• Piper Jaffray's settlement department had indepentently called the client to confirm the fund transfer (as it didn't directly receive the bank-in slips from the client).