United States Securities and Exchange Commission Litigation Release No. 15631 / January 29, 1998 SECURITIES AND EXCHANGE COMMISSION V. MIKO LEUNG (a/k/a LEUNG MING KANG) AND SIT WA LEUNG, U.S. District Court for the District of Columbia, Civil Action No. 98-00233 (TFH)(D.D.C.) The Securities and Exchange Commission today filed a Complaint in the United States District Court for the District of Columbia against Miko Leung ("Miko"), 54, the former chairman and president of MTC Electronic Technologies, Inc. ("MTC"), a British Columbia importer of consumer electronics (now known as Grandetel Technologies, Inc.) which traded on NASDAQ, and his brother Sit Wa Leung ("Sit Wa"), 62, MTC's former corporate secretary and a member of its board of directors. The Complaint alleges that between 1990 and 1993, the defendants engaged in a false disclosure and accounting fraud scheme that culminated in a "pump and dump" stock manipulation, and that they unjustly enriched themselves by more than $16 million by selling MTC stock, including approximately 1.5 million shares they had stolen. The Commission is seeking permanent injunctions against both defendants; disgorgement of their ill-gotten gains; civil penalties and officer and director bars against them. In a related matter the Commission issued a Cease-And-Desist Order ("Order") against Ronald W. Driol. Without admitting or denying the Commission's findings, Driol consented to the issuance of the Order which finds, among other things, that while he was employed at the Hongkong Bank of Canada in Vancouver and managing MTC's accounts, he assisted the defendants' scheme by placing Hongkong Bank of Canada's signature guarantee on stolen stock certificates, and thereafter approving transactions in which proceeds were transferred through nominee bank accounts at that bank. Specifically, the Complaint against Miko and Sit Wa alleges the following: Between 1990 and 1993, MTC claimed that it had developed a new telecommunications business in the People's Republic of China ("PRC") including agreements that made it the exclusive supplier of fax machines to the PRC, and joint venture projects to provide telecommunications services in various cities in the PRC. For each of its fiscal years 1991 through 1993, MTC falsely claimed that it had received millions of dollars in revenues from the fax machine sales, accounting for from 31 to 46 percent of its total revenues. In fact, MTC sold no fax machines in the PRC, and Miko deceived MTC's independent accountants by providing them with false documentation to support the fictitious sales. In 1991, at Miko's direction, MTC similarly began misrepresenting that it had concluded joint venture agreements that would make it the "exclusive" supplier of cellular telephone service to Shanghai and other major cities in the PRC. After disseminating this false information Miko and Sit Wa started selling MTC stock through nominee accounts they controlled. Between February and August 1992, Miko induced MTC's board to issue below market options on 1.52 million shares of MTC ostensibly to be used as incentives for existing and prospective MTC employees. In fact, none of the intended recipients received the options. Instead, the defendants stole them; fraudulently exercised them; fraudulently endorsed the certificates; and deposited the shares in nominee brokerage accounts they controlled. Between September and December 1992, Miko flooded the market with additional false information, including the misrepresentation that as a result of several new joint venture agreements MTC had "the exclusive right to provide cellular phone and/or paging services to approximately 300 million people, or 25% of the population of China." As a result, MTC's stock price increased from $5 1/8 to $30. The defendants simultaneously sold the shares they had stolen at these artifically inflated prices, realizing illegal profits of $12.1 million on those shares. Their sales of other MTC shares between May 1991 and September 1992 had unjustly enriched them by in excess of another $4 million. The defendants laundered the proceeds of their illegal securities transactions through a series of bank accounts world-wide, most of which were nominee accounts they controlled. The Commission is seeking the entry of a final judgment (1) permanently enjoining both defendants from violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and also permanently enjoining Miko from violations of Section 13(b)(5) of the Exchange Act, and Rules 13b2-1 and 13b2-2 thereunder; (2) ordering the defendants to disgorge their illegal trading profits and losses illegally avoided, plus prejudgment interest; (3) ordering them to pay civil penalties; and (4) permanently prohibiting them from acting as officers or directors of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, or that is required to file reports pursuant to Section 15(d) of the Exchange Act. In the Cease-And-Desist Order, the Commission found that Driol played an indispensable role in facilitating the sale of the options stock stolen by Miko and Sit Wa by placing Hongkong Bank of Canada's signature guarantee on the stolen MTC share certificates issued in the names of existing and prospective MTC employees. He did so in spite of the facts that none of the nominal owners of the certificates were present when Driol guaranteed their signatures, that he had not met or even heard of them before being presented with the certificates, and that most, if not all, of the certificates had not been signed when he placed the guarantees on them. Because the certificates ultimately bore a signature authorizing their transfer that purported to be that of the named owner and bore Hongkong Bank of Canada's signature guarantee, Miko and Sit Wa were able to sell the shares through nominee brokerage accounts. Thereafter Driol played a central role in the transfer of the proceeds of the sale of that stolen stock from the nominee brokerage accounts to other nominee bank accounts at the Hongkong Bank of Canada, and the retransmission to still other nominee bank accounts in Hong Kong. Specifically, he wrote or approved the transfer instructions for every wire transfer from these bank accounts during the period September through December 1992, and approved several of ======END OF PAGE 2====== the deposits to these accounts from the nominee brokerage accounts. Driol knew, or was reckless in not knowing, that Miko controlled the nominee bank accounts. The Commission found that as a result of that conduct Driol caused violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder and ordered Driol to cease and desist from further violations of these antifraud provisions. In the Matter of Ronald W. Driol, Administrative Proceeding File Number 3-9536. ======END OF PAGE 3======