While the charge of insider trading against two executives was seen as a personal action and, therefore, less serious, the other three defendants--Chairperson Lee Kun-yao, President Sheaffer Lee and Chief Financial Officer Eric Yu--were indicted on the more serious charges of violating the Securities Transaction Act, money laundering and forging instruments. Yu was detained in March and released on bail of around US$300,000.
The three were accused of earning illegal profits of up to US$25 million by trading company shares between 2002 and 2006 via an overseas paper company, the Malaysia-based Creo Venture Corp., the Taoyuan District Prosecutors Office concluded after an intensive investigation that began in March. These crimes carry maximum penalties of 10 years and six months imprisonment and fines of up to US$15 million, the Chinese-language Liberty Times quoted TDPO as saying May 9, although the prosecutors' indictment did not suggest penalties to the court.
The prosecutors' report indicated the three executives had appointed company employees to set up Creo in 2002. The paper company then created bank accounts in Taiwan and Malaysia and qualified as an overseas investor in the Taiwan bourse. BenQ executives were suspected of forging instruments during the process.
The three defendants were also accused of selling company stock that should have been given to employees as bonuses based on company profits. The executives sold these shares between 2002 and 2006 when the company's stock commanded good prices in the bourse, putting illegal profits into Creo's bank account. The money was later remitted back to Taiwan and used to purchase BenQ shares when the share prices were low. This stock trading made Creo the ninth-largest BenQ shareholder, TDPO said.
The illegal profits included those made in early 2006, when BenQ suffered severe losses due to its earlier acquisition of Germany-based Siemens AG's handset division. BenQ created a joint brand with Siemens in September 2005, which resulted in BenQ losses of around US$810 million at the end of June 2006.
To offset this loss, BenQ executives instructed Yu to sell more than 6.7 million company shares in January and February 2006 and then take profits of around US$7 million via Creo's bank accounts again, TDPO stated. The executives purchased BenQ stock in the name of the overseas investor in March 2006, after the company share price declined sharply following announcement of the loss, the Liberty Times reported.
The company expressed shock and confusion regarding the indictments, according to a May 9 report in the Chinese-language Economic Daily News. BenQ claimed that Creo was established to allocate dividends to overseas employees, which Creo had done on a number of occasions and in line with common practice in the information-technology sector. The company was confused that the prosecutors should have brought an indictment despite its provision of concrete evidence, BenQ Vice President Jerry Wang said, adding that the company expected fair court judgments.
Write to Annie Huang at shihyin@mail.gio.gov.tw