The District Court has jailed two men for up to 55 months for their roles in a $260 million letters of credit fraud based on non-existent commercial transactions.

Chen Xun, 75, was found guilty of five counts of conspiracy to defraud and was jailed for 55 months while Lau Ka-ping, 54, who earlier pleaded guilty to two similar conspiracy offences, was jailed for 32 months.

Chen and Lau were shareholders of Senox Investment and Go On Yue Fung Industry. Chen was also a shareholder of Group Yield Enterprises.

Between August 1994 and March 1996 Chen and Lau conspired with other people to defraud the then Kincheng Banking Corporation (Hong Kong).

Chen and Lau dishonestly caused Senox and Go On to apply to Kincheng for the issue of 24 letters of credit payable to Max Rise Industrial.

To support the applications Chen and Lau submitted false documents to Kincheng purporting to be evidence of genuine underlying commercial transactions of goods between the two companies and Max Rise. However, there were no such transactions.

As a result, then Kwangtung Provincial Bank (HK), the advising bank of Max Rise, was deceived into releasing $128 million to Max Rise under the letters of credit.

Chen also caused Group Yield to apply to Kincheng, Kwangtung and the Bank of China (HK) between September 1994 and June 1997 for the issue of 26 letters of credit payable to Max Rise.

Chen falsely represented to Kincheng, Kwangtung and the Bank of China there were genuine commercial transactions between Group Yield and Max Rise, deceiving Kwangtung into releasing a total of more than $137 million to Max Rise under the letters of credit.

The letters of credit proceeds were subsequently reverted to the bank accounts of Senox, Go On and Group Yield.