Dacheng Attorneys Defend Innocence for Client Accused of Embezzling Over a Hundred Million Yuan of Fund

The People’s Court of Fengrun District, Tangshan, Hebei province issued its No. 88 criminal judgment that found Gao Zecheng and Ma Lianchun, whom the prosecutor accused of embezzlement not guilty. Attorneys Dong Fangwei and Du Yonghao successfully represented the two in this case. 

In 2002, a land use right conveyance deed was signed by Tangshan Hongcheng Property Development Co., Ltd. (hereinafter referred to as “Hongcheng”) and the Yanjiao sub-branch of Agricultural Bank of China, in which the bank agreed to transfer the use right of 89.5 mu of land to Hongcheng. After an initial payment of RMB5mln was made to the bank, the contract was suspended from performance due to a government restriction on land use right conveyance. In 2008, Hongcheng entered into another contract of conveyance with Tianjin Huazeyuan Property Development Co., Ltd. (hereinafter referred to as “Huazeyuan”), transferring its interest in the 89.5 mu of land to Huazeyuan. The contract also laid down manners of delivery of land and payment of fees. To avoid the risk of possible unenforceability of the contract after Huazeyuan paid RMB20mln in first instalment to Hongcheng, the two sides agreed that Huazeyuan would keep under control all shareholders’ (including Gao Zecheng) equity in Hongcheng until the contract was fully executed. Huazeyuan thus designated two natural persons to hold the equity, whom were registered as sole shareholders of Hongcheng. 

Huazeyuan failed to make further payments and the conveyance registration was left stranded. In 2010, Gao Zecheng, in the name of Hongcheng, signed a contractual rights assignment contract with Sanhe Sipulan (Group) Co., Ltd. (hereinafter referred to as “Sipulan”) whereby Sipulan agreed to pay RMB124mln in consideration of Hongcheng’s rights and interests stemming from the contract with Huazeyuan. Gao received RMB104mln from Sipulan and gave half the amount to Ma Lianchun who had brought about the transaction. 

Upon learning about Gao’s transaction, Huazeyuan and the two acting equity holders reported Gao and Ma to the police of Tangshan. The police, alleging that the two’s behavior constituted contract fraud, detained Gao and Ma with an arrest warrant from the People’s Procuratorate of Tangshan. 

Dacheng attorneys Dong Fangwei and Du Yonghao were retained by Gao’s family to act for Gao. When the People’s Procuratorate of Tangshan was probing into Gao’s case, the attorneys submitted an attorneys’ opinion letter to the prosecutor insisting that whether or not Gao had the right to dispose of the land, what he had done did not constitute criminal offense, nor was Ma guilty of any crime. The People’s Procuratorate of Tangshan decided not to prosecute them on charges of contract fraud and directed the case to the People’s Procuratorate of Fengrun District, which instead accused the two of embezzlement. 

In a 30 plus-page plea presented to the court of trial, the two attorneys illustrated facts and legal basis that defended Gao and Ma in a thorough, systemic and detailed manner. On the day of trial, they grasped a loophole resulting from self-contradictory rhetoric between the representative of Huazeyuan and its witness and steered the cross-examination and the judge to fall in Gao and Ma’s favor. The court of first instance finally judged the two not guilty. 

The case is characteristic in the following aspects: first, a huge amount of money, i.e. over a hundred million yuan, was involved; second, the charges, measurement of penalty and the final judgment are diametrically different; third, the seemingly simple case are rather complex in terms of legal relations, involving such issues as land use right transaction, creditor’s rights assignment, investment and M&A, equity transfer and guarantee, labor contract relations, dormant and nominal shareholders, and defense strategies, etc.