The 40-page report compiled by the independent Takeover and Mergers Panel was a result of a three-year investigation into Shun Ho's share trading since November, 1988, when Mr Cheng took over the company.
The finding unveiled a web of corporate manoeuvres which were devised to enable Mr Cheng to exceed the 35 per cent threshold without triggering a general offer, as required by stock market rules.
The finding also underlined the fact that the alleged culprit could not have been caught if someone who had also conspired in the offence had not informed the Securities and Futures Commission (SFC).
The investigation was triggered by a complaint from Alan Chuang in September 1991. It first focused on events in 1990 and 1991, but was led to the unusual share trading in the 1988 Shun Ho takeover.
The evidence put before the panel included eight volumes of box files comprising over 100 exhibits.
The central issues were whether Mr Cheng clandestinely bought shares in September, 1990, to support a rights issue, and whether he used nominees in 1988 or thereafter to buy more than a 35 per cent stake without launching a general offer.
Shun Ho was incorporated in January, 1973, under the name of Standard-Lloyds to carry out finance and investment. It became listed in February 1973 and changed its name to Shun Ho in December, 1990.
In November 1988, Shun Ho announced that the original largest shareholder had agreed to sell 40 million shares, about 34.5 per cent, for $1.21 per share and 31 million warrants in Shun Ho to Royle.
Royle was a corporate vechicle of William Cheng, the son-in-law of Henderson Land chairman Lee Shau-kee.
In his complaint to the SFC in December 1991, Mr Chuang alleged that Mr Cheng might have been obliged to make a bid of at least $0.6355 per share because of a sale of 5.56 million shares to him by Mr Chuang, which brought Mr Cheng's shareholding to above35 per cent.
The complaint also pointed to the artificiality of the option arrangements between Mr Cheng and Mr Danny Chan Tak-tim in March 1991, in which it was alleged that Mr Cheng had deliberately triggered an obligation to make a bid for Shun Ho shares at a price below market levels.
In early 1990, Mr Chuang held about a 20 per cent stake in Shun Ho. At that time, Shun Ho announced a one-for-one rights issue at 57 cents a share. The rights issue closed on August 3, 1990, and was over-subscribed by 16.4 per cent.
Mr Chuang claimed he had meetings with Mr Cheng in the Mandarin Hotel shortly after Shun Ho announced the rights issue.
He asked Mr Chuang to support the rights issue, and said he would buy a property in Shouson Hill from the Chuang Group so that it would have sufficient funds for the issue.
It was alleged that Mr Cheng also asked him to support the share price throughout the rights issue period by buying shares.
It was found that half of the shares purchased by Mr Chuang were ultimately delivered on September 3, 1990, to Mr Cheng, who settled the payment by a direct cash deposit of $3.53 million into Mr Chuang's bank account.
But the property deal was cancelled by Mr Cheng after the rights issue was completed, causing Mr Chuang to complain to the SFC.
Mr Cheng admitted that he did try to persuade Mr Chuang to support the rights issue and initially went along with Mr Chuang's proposal regarding the Shouson Hill property deal in order not to antagonise him.
But he denied the price-support operation, delivery of 5.56 million shares on September 3, 1990, and cash payment for those shares.
Regarding the option issue, on March 7, 1991, Danny Chan granted Mr Cheng a six-month option over 100,000 shares at 40 cents while selling 500,000 shares at an average 54 cents.
On April 6, Mr Cheng exercised the option, increasing Royle's shareholding to 35.02 per cent and triggering a general offer obligation.
The panel considered that the option arrangement was a device to enable Mr Cheng to exceed the 35 per cent threshold at a low price at a time convenient to him, probably to enable him to regularise his undisclosed shareholding.
In dealing with Mr Chuang's complaint, investigators found unusual share trading in Shun Ho through Miss Geraldine Wong Pui-ching, a dealer's representative employed by K S Kam & Co, in November, 1988.
The investigators's principal goal was to determine whether Mr Cheng, Royle, and Ms Wong were parties acting in concert and had thus incurred an obligation to make a general offer under the former Takeover Code.
Between November 4 and 11, 1988, Ms Wong bought a total of 9.68 million shares, which were booked into the names of Power International Inc and various people with the surname Chan at between 84 and 88 cents.
Power International was later found to have been used by Mr Cheng to buy a property in February, 1989, for $48 million.
Ms Wong claimed that these purchases of $8 million worth of shares were originally made for a ''Mdm Therest Wong'', a mysterious client from Tahiti with HK$10 million to invest.
The panel found the entire story concerning ''Mdm Therest Wong'' incredible.
It concluded that Ms Wong was acting to warehouse shares in Shun Ho for another party from the beginning, and that the other party was Mr Cheng.
