BOC Hong Kong Staff Plead Not Guilty on Lehman Notes (Update1)

(Adds November trial dates in second paragraph.)

By Kelvin Wong and Debra Mao

June 1 (Bloomberg) -- Two BOC Hong Kong (Holdings) Ltd. managers pleaded not guilty in the city’s District Court today to fraudulently selling structured products linked to Lehman Brothers Holdings Inc.

Judge Stanley Chan set Nov. 8 as the date for the trial of Tai Ching, 38, and Nov. 25 for the trial of Cheung Kwai-kwai, 47.

Cheung was charged with ten counts of fraudulently or recklessly inducing others to invest money in the securities between 2005 and 2008. She told investors they carried “no economic risk of loss” and they would only suffer partial loss of their principal in the unlikely case of a credit event, according to court documents. Tai was charged with one count of the same crime.

The minibonds, or custom-made securities linked to the credit worthiness of companies, were backed by collateralized- debt obligations and often sold to elderly, mentally ill and poorly educated people, according to an Hong Kong Monetary Authority investigation made public by lawmakers a year ago.

BOC Hong Kong was the biggest seller of so-called Lehman minibonds, $1.8 billion of which were bought by retail investors in Hong Kong since 2003, according to the HKMA.

The local unit of China’s third-largest bank by market value was among a group of 16 banks that agreed to a settlement arrangement with the HKMA and the city’s Securities and Futures Commission to buy back the products for at least 60 cents on the dollar.

A third BOC Hong Kong employee was arrested on March 26, and is due to appear in court in August, according to Hong Kong police spokeswoman Michelle Mak. The three are free on bail and were placed on compulsory leave, BOC Hong Kong said April 11, citing company policy.

The cases are Hong Kong SAR v. Cheung Kwai Kwai, case no. DCCC526/2010 and HKSAR v. Tai Ching, case no. DCCC527/2010, Hong King District Court.

For Related News & Information: Top legal stories today: {TLAW } Bloomberg legal resources: {BLAW } Structured notes and OTC Derivatives: {STNT } Asia Structured Notes: {TNI STN ASIA BN }

--Editors: Douglas Wong, Joost Akkermans

To contact the reporters on this story: Kelvin Wong at kwong40@bloomberg.net; Debra Mao in Hong Kong dmao5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong in Hong Kong at dwong19@bloomberg.net