Tan Chong Koay and another v Monetary Authority of
Singapore
[2011] SGCA 36
Decision
Date:
22 July 2011
Chan Sek Keong CJ (delivering the judgment
of the court):
Introduction
1 This is an appeal by Dr Tan Chong Koay (“Dr Tan”) and Pheim Asset Management Sdn Bhd (“Pheim Malaysia”) (collectively, “the Appellants”) against the judgment of the High Court judge (“the Judge”) in Monetary Authority of Singapore v Tan Chong Koay and another [2011] 1 SLR 348 (“the Judgment”) ordering each of them to pay to the respondent, viz, the Monetary Authority of Singapore (“MAS”), a civil penalty of $250,000 for infringing s 197(1)(b) of the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“the SFA”).
Background facts
2 Dr Tan founded Pheim Malaysia and Pheim Asset Management (Asia) Pte Ltd (“Pheim Singapore”), which are licensed to carry on fund management business in Malaysia and Singapore respectively. We shall refer to these companies collectively as “the Pheim Group”. At all material times, Dr Tan was the largest shareholder, chief executive officer and chairman of the investment committees for Pheim Malaysia and Pheim Singapore. Dr Tan was managing very successfully the business of the Pheim Group, which, during the relevant period, had assets of about US$560m (about S$1bn). As at 2004, the Pheim Group had consistently recorded profits each year since it was established, except for 1998, when Pheim Singapore did not record a profit.
3 At all material times, the Pheim Group had 15 accounts holding United Envirotech Ltd (“UET”) shares – five managed by Pheim Malaysia (viz, Accounts 89, 90, 91, F5 and 98 (collectively, “the Malaysian Accounts”)) and ten managed by Pheim Singapore (“the Singapore Accounts”), which included Accounts 28, 101 and 106. At the close of trading on 27 December 2004, the Malaysian Accounts held 5,135,000 UET shares and the Singapore Accounts held 11,469,000 UET shares.
4 Pheim Malaysia started investing in UET shares in April 2004 when it acquired 2,300,000 UET shares in an initial public offering (“IPO”) by UET at $0.47 each. Trading in UET shares listed on the Singapore Exchange Limited (“SGX”) commenced on 22 April 2004. On 23 April 2004, Pheim Malaysia bought one million UET shares at $0.589 each (900,000 for Account 89 and 100,000 for Account 91). On 5 May 2004, the price had dropped to $0.475 per share when Pheim Malaysia bought another 250,000 UET shares for Account F5. On 7 June 2004, the price had dropped to $0.40 per share when Pheim Malaysia bought another 100,000 UET shares for Account 98. Pheim Malaysia continued to buy UET shares in various quantities for its accounts until 17 September 2004 (at which point the price had dropped to $0.385 per share) when it bought another 35,000 UET shares for Account F5. The lowest price at which Pheim Malaysia bought UET shares during this period was on 13 September 2004, when it bought 20,000 shares for Account F5 at $0.34 each. As can be seen, all the purchases made after May 2004 were at prices below the IPO price.
5 On 15 December 2004, Pheim Malaysia’s investment committee held a meeting (at which Dr Tan was present) and decided to increase Pheim Malaysia’s investment in UET shares for Accounts 89, 90 and 91 “in anticipation of better results going forward”.
[note: 1] One Tan Keng Lin (“Ms Tan”) and one Ng Wai Ling (who were two of Pheim Malaysia’s fund managers) were authorised to implement the decision. However, no purchases of UET shares were made from the time of this meeting until the last three trading days of the year, viz, 29 to 31 December 2004 (“the Relevant Period”), even though UET shares were traded on the SGX (albeit in low volumes) from 17 December 2004 until 27 December 2004. The volume of UET shares traded on the SGX from 15 December 2004 to 28 December 2004 and the prices at which they were traded during this period were as follows:
Date (in 2004)
Last traded price per share
Intra-day high
Intra-day low
Volume
15 December
NIL
16 December
NIL
17 December
$0.375
$0.39
$0.375
2,000
20 December
$0.355
$0.355
$0.355
1,000
21 December
NIL
22 December
$0.37
$0.37
$0.37
30,000
23 December
$0.36
$0.36
$0.36
145,000
24 December
$0.385
$0.385
$0.355
98,000
27 December
$0.38
$0.39
$0.37
50,000
28 December
NIL
Included among these market trades was a sale by Pheim Singapore of 207,000 UET shares on or after 23 December 2004 at an average price of $0.359 per share in order to liquidate an account that was being terminated.
6 On 29 December 2004, Dr Tan and Pheim Malaysia initiated a series of telephone conversations with one Tang Boon Siah (“Tang”). Tang was a remisier working for UOB Kay Hian Pte Ltd who was known as Dr Tan’s favourite broker. These telephone conversations resulted in Tang buying a total of 360,000 UET shares for Pheim Malaysia during the Relevant Period costing a total of $152,470.95 at a weighted average price of $0.424 per share. It may be noted that Tang did not post any “buy” bids on the SGX’s board. All his purchases were acceptances of “sell” bids made by independent sellers. The full particulars of these trades are tabulated at [20]–[26] of the Judgment. As found by the Judge, all (except one) of the purchases made by Tang during the Relevant Period were made between three seconds and 35 minutes from the close of each trading day even though many of the telephone calls by Dr Tan or Pheim Malaysia to Tang were made early in the morning of the trading day. For example:
(a) On 29 December 2004, Dr Tan telephoned Tang at 8.04am. This was followed by a call from Pheim Malaysia to Tang at 9.14am and then by three more calls between 9.37am and 12.28pm. All these were short calls lasting between 24 seconds and 2 min 20 sec. As at 12.28pm, Tang had not purchased any UET shares for Pheim Malaysia. But, at 4.44.49pm, Tang, after talking to Dr Tan, bought 14,000 UET shares at $0.38 each. Between 4.50pm and 4.59pm, he made three more purchases of 25,000, 20,000 and 5,000 UET shares respectively, all at the price of $0.385 per share, and made a final purchase of 1,000 UET shares at $0.41 each at 4.59.32pm.
(b) On 30 December 2004, Tang telephoned Pheim Malaysia at 9.00am. This was followed by a series of telephone calls between Tang and Pheim Malaysia and between Tang and Dr Tan from 9.45am to 2.23pm. Tang made a single purchase of 30,000 UET shares at $0.40 each at 2.23pm. During the day, there were a few more telephone calls between the three parties. At 4.23pm, Dr Tan telephoned Tang in a call lasting 1 min 33 sec. About 30 seconds after the end of this call, at 4.25pm, Tang made the first of six purchases of UET shares, starting with 12,000 UET shares at $0.405 each and then at successively higher prices, ending with the purchase of 25,000 UET shares at $0.43 each. Tang then called Dr Tan at 4.50pm, and during this call (which lasted 1 min 1 sec), Tang bought a further 20,000 UET shares at $0.435 each. This was followed by four more purchases, the last three of which were at the price of $0.44 per share. Tang then called Dr Tan again at 4.57pm, and during this 43-second conversation, Tang bought another 40,000 UET shares at $0.45 each. Tang then made his final purchase of the day of 8,000 UET shares at $0.455 each at 4.59.56pm, four seconds before trading closed for the day.
(c) On 31 December 2004, Dr Tan telephoned Tang at 8.59am, who in turn telephoned Pheim Malaysia at 9.05am. This was followed by three telephone calls from Tang to Dr Tan between 9.22am and 11.33am. At 12.18pm, 12 minutes before the close of trading for that day, Tang telephoned Dr Tan. At 12.20pm, Tang bought 10,000 UET shares at $0.435 each (by resorting to the “force key” function as the price of $0.435 was more than six bids away from the last traded price of UET shares that day, which was $0.39 per share). Following this, Tang made four more purchases of UET shares, starting with 10,000 UET shares at $0.435 each, then 40,000 UET shares and 20,000 UET shares, both at $0.44 per share, ending with a final purchase of the day of 5,000 UET shares at $0.445 each at 12.29.57pm, just three seconds before trading closed for the day.
7 Following these purchases, the closing price of UET shares rose from $0.38 per share on 27 December 2004 to $0.445 per share on 31 December 2004, a rise of about 17%. This increase in price resulted in: (a) the net asset value (“NAV”) of the Malaysian Accounts and the Singapore Accounts increasing by a total of $1,086,989; (b) three of Pheim Singapore’s accounts (namely, Accounts 28, 101 and 106) outperforming their benchmark returns for 2004 (which would not otherwise have occurred); and (c) Pheim Singapore earning an additional $50,000 in fees arising from the outperformance.
8 Pheim Malaysia stopped buying UET shares immediately after the Relevant Period. On 3 January 2005, the first trading day of the new year, the closing price of UET shares was $0.415 each. The closing price dropped to $0.38 per share on 13 January 2005 and rose to $0.405 per share on 18 January 2005, with the trading volume per day during this period ranging from 10,000 to 130,000 UET shares. A total volume of 473,000 UET shares were traded between 3 and 18 January 2005. The next time Pheim Malaysia bought UET shares was on 19 January 2005, when it bought 205,000 UET shares at a weighted average price of $0.416 per share for Account F5. Dr Tan gave evidence that this purchase was done to average down the book value of the UET shares in that account.
9 Pheim Malaysia began selling its UET shares on 18 March 2005, when it sold 87,000 UET shares from Account 91 at a weighted price of $0.379 per share to fund redemptions for that account. Subsequently, between October 2005 and February 2006, Pheim Malaysia sold a total of 2,835,000 UET shares at a weighted average price of $0.53 per share. By 2007, Pheim Malaysia had sold all its UET shares as it took the view that UET’s prospects had dimmed.
庞思
继续
MAS’s pleaded claim
10 On the basis of the facts set out at [6]–[7] above, MAS commenced proceedings under s 197(1)(b) of the SFA for a civil penalty to be imposed on the Appellants on the following grounds:
(a) Pheim Malaysia’s purchases of UET shares during the Relevant Period on the instructions of Dr Tan created a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period;
(b) further, and in the alternative, the said purchases were intended to create a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period; and
(c) further, and in the alternative, the said purchases were likely to create a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period.
The Appellants’ defences
11 Dr Tan’s defence at the trial consisted of bare denials that he had given any specific instructions to Tang to buy the UET shares in question at the volumes and prices pleaded by MAS and that such purchases had the effect pleaded by MAS as outlined at [10] above. Pheim Malaysia’s defence was that its fund manager, Ms Tan, had instructed Tang to buy UET shares during the Relevant Period. This followed a decision made on 7 July 2004 by Pheim Malaysia’s investment committee that Pheim Malaysia should consider increasing its investment in UET because of the bright industry outlook and possible rising profit. This view was maintained at meetings of Pheim Malaysia’s investment committee on 2 September 2004 and 15 December 2004. Also, on 2 November 2004, 12 November 2004 and 21 December 2004, UET had made positive announcements about its future business. Hence, Pheim Malaysia argued that its purchases of UET shares during the Relevant Period were for the purpose of legitimate investment and not for the purpose alleged by MAS. Pheim Malaysia also pleaded that after selling its shares in another SGX-listed company, viz, Azeus Systems Holdings Ltd (“Azeus”), for $815,000 on 28 December 2004, it wished to replace its shareholding in Azeus with another non-Malaysian security, and UET was an obvious replacement.
The prohibitions in s 197(1) of the SFA
12 Section 197(1) of the SFA provides as follows:
False trading and market rigging transactions
197.—(1) No person shall create, or do anything that is intended or likely to create a false or misleading appearance —
(a) of active trading in any securities on a securities market; or
(b) with respect to the market for, or the price of, such securities.
Section 197(1) creates two offences – one relating to active trading in any securities, and the other relating to the market for or the price of such securities. The two offences can be committed in three ways: (a) by creating a false or misleading appearance of active trading in, the market for or the price of securities; (b) by doing anything that is intended to create such a false or misleading appearance; or (c) by doing anything that is likely to create such a false or misleading appearance. The second prohibited act expressly requires the presence of an intention to create a false or misleading appearance before liability can be imposed. There is no clear authority as to whether the other two prohibited acts require proof of intention or some other kind of mens rea in order to establish liability under s 197(1).
The decision of the Judge
13 The Judge held, on the facts, that MAS had proved its claim only in so far as the Appellants’ purchases of UET shares during the Relevant Period were done with the intention of creating a false or misleading appearance with respect to the price of UET shares (ie, the Judge based her decision on the second limb of s 197(1)(b) alone). She did not decide whether the said purchases in fact created such an appearance or whether they were likely to create such an appearance (vis-à-vis the first and third limbs respectively of s 197(1)). The Judge declined to consider the Appellants’ liability with respect to those two limbs of s 197(1) because it was not clear whether, as a matter of statutory construction, liability under those limbs required an element of mens rea (see [89]–[93] of the Judgment).
14 The Judge rejected the Appellants’ arguments that their actions were not intended to create a false or misleading appearance as to the market price of UET shares. In this regard, the Appellants had submitted that: (a) the purchases of UET shares during the Relevant Period were effected through their broker, Tang, who had full discretion to buy UET shares at such prices as he thought fit; (b) the purchases were genuine and were based on legitimate investment purposes as UET shares were undervalued at that time; (c) the UET shares in question were bought to average down the cost of Pheim Malaysia’s holdings; and (d) the fact that the relevant accounts of Pheim Singapore (viz, Accounts 28, 101 and 106) outperformed the company’s internal benchmarks was an incidental consequence of the purchases.
15 The Judge also rejected the Appellants’ explanation that Pheim Malaysia did not make purchases of UET shares before the Relevant Period (ie, before the last three trading days of 2004) because Accounts 89, 90 and 91 had reached their foreign equity limits of 10% and their equity limits (for both foreign and Malaysian equities) of 60% (for Accounts 89 and 90) and 20% (for Account 91) respectively, and Pheim Malaysia therefore had to wait until after it sold its Azeus shares on 28 December 2004 before it could purchase UET shares during the Relevant Period. The Judge found on the evidence that Pheim Malaysia could have purchased UET shares before 29 December 2004 for some or all of the relevant accounts without breaching those regulatory limits (see [55]–[56] of the Judgment).
The parties’ arguments on appeal
16 Before us, the Appellants argued that the Judge’s decision was wrong on the following grounds (which were substantially a reiteration of the grounds that the Judge had rejected):
(a) the purchases of UET shares during the Relevant Period were made for legitimate commercial reasons as part of Pheim Malaysia’s strategy of investing in undervalued shares generally and of increasing its investment in UET shares specifically;
(b) the purchases were genuine as they were made by Tang at his discretion at the lowest available prices;
(c) the sellers of the UET shares in question were genuine sellers who independently offered to sell their UET shares in the market’s “sell” queue at the prices which they posted; and
(d) the Appellants had no motive to trade with the intention of creating a false or misleading appearance with respect to the price of UET shares and their primary purpose was not to set the market price of those shares.
In short, the Appellants contended that the evidence was insufficient to justify the Judge inferring that the primary purpose of the Appellants in effecting the said purchases of UET shares was to create a false or misleading appearance in relation to the price of UET shares.
17 MAS’s response to the Appellants’ arguments was likewise a reiteration of the grounds which the Judge had accepted. However, MAS further contended that the Appellants were also liable under its alternative claims based on the first and third limbs of s 197(1)(b) of the SFA, ie, it contended that the Appellants had created a false or misleading appearance with respect to the price of UET shares (vis-à-vis the first limb of s 197(1)(b)) and that their actions had also been likely to create such an appearance (vis-à-vis the third limb of s 197(1)(b)).
Our decision
The Judge’s findings of fact
18 We are unable to agree with the Appellants’ argument that the Judge’s inferential findings of fact were wrong. We accept her finding that the pattern of the Appellants’ trades in UET shares during the Relevant Period showed that the purpose of those trades was to set the price of UET shares for the end of the trading year in 2004. The Appellants’ pattern of trading was not consistent with either the actions of an investor who genuinely believed that UET shares were undervalued or those of a “contrarian” investor (as contended by the Appellants). Pheim Malaysia stopped buying UET shares in September 2004 after acquiring a total of 5,135,000 UET shares for its funds (the last purchase being the purchase on 17 September 2004 of 35,000 UET shares at the price of $0.385 each), and did not resume buying UET shares again until 29 December 2004. From 17 to 28 December 2004, UET shares were traded (thinly) at prices of between $0.355 and $0.39 per share. Notably, during this period, Pheim Singapore sold a total of 207,000 UET shares in the market at an average price of $0.359 per share on or after 23 December 2004 in order to liquidate one of its accounts. Pheim Malaysia could have purchased those UET shares from Pheim Singapore, but did not do so. The Judge rejected Dr Tan’s explanation that Pheim Malaysia did not buy the 207,000 UET shares sold by Pheim Singapore because the Pheim Group had an internal practice of not allowing one company to buy from the other. We agree with the Judge that this explanation was not credible. Pheim Malaysia’s omission to acquire the 207,000 UET shares sold by Pheim Singapore is also inconsistent with its argument that it bought UET shares a week later at higher prices to average down the cost of the UET shares in its books.
19 The evidence supports the Judge’s finding that the primary purpose of the Appellants’ purchases of UET shares during the Relevant Period was to increase the year-end valuation of the investments held in the various funds managed by the Pheim Group. The modus operandi was to increase the last traded price of UET shares for each day over a period of three days. This is borne out by the pattern of Pheim Malaysia’s purchases of UET shares. It bought 1,000 UET shares at $0.41 each at 4.59.32pm (ie, 28 seconds before the close of trading) on 29 December 2004 after it had earlier bought on the same day 64,000 UET shares at the lower average price of approximately $0.333 per share between 4.44pm and 4.59pm. Dr Tan explained that Tang had exercised his discretion to round off the purchases for the day to 65,000 UET shares. We do not find this explanation credible as no commercial purpose was served by the final purchase of 1,000 UET shares at 4.59.32pm – by then, Pheim Singapore and Pheim Malaysia were already holding, respectively, 11,469,000 and 5,135,000 UET shares (not counting the UET shares Tang purchased for Pheim Malaysia earlier that day). In our view, the purchase of 1,000 UET shares at $0.41 each at 4.59.32pm was wholly consistent with the purpose of increasing the closing price of UET shares for that trading day as a precursor to the next day’s trading. On the next day (30 December 2004), two trades of UET shares were done by other parties at $0.37 per share, but, at 2.23pm, Tang purchased 30,000 UET shares at the price of $0.40 per share. At 4.59.56pm, just before the close of trading, Tang’s trades had set the closing price for the day at $0.455 per share, up by about 11% from the previous day’s close. The same thing happened on 31 December 2004: at 12.29.57pm that day, just 3 seconds before the close of trading, Tang made the last purchase of 5,000 UET shares at $0.445 each. Equally telling is the fact that Pheim Malaysia did not buy any UET shares in the new trading year until 19 January 2005, when it bought 205,000 UET shares at a weighted average price of $0.416 per share. There was no reason for Pheim Malaysia to suspend buying UET shares between 3 January 2005 (the first trading day in 2005) and 18 January 2005 if it really believed that UET shares had investment value at the price of $0.445 each.
20 On these facts, we are of the view that the Appellants intended to, and did, set the price of UET shares at the end of the trading year of 2004 at $0.445 each. The question that arises from this conclusion is whether the Appellants thereby violated any of the limbs of s 197(1)(b) of the SFA.
21 With reference to this question, we accept the Appellants’ argument that the sellers of UET shares during the Relevant Period were genuine sellers. They were independent investors in UET shares who merely wanted to realise their investments by posting their “sell” offers on the SGX’s queue system. However, it does not necessarily follow that because those “sell” offers were genuine offers, the Appellants’ acceptances of those offers were also genuine “buys” in the sense of reflecting a genuine demand by the Appellants for the shares in question. A finding of a genuine demand on the Appellants’ part would require a finding that the Appellants’ purchases of UET shares during the Relevant Period were made as a genuine investment and not for some other extraneous or illegitimate purpose, as will be seen below. We shall address the issue of whether the Appellants’ demand for UET shares during the Relevant Period was genuine, ie, whether the Appellants’ purchases of these shares were or were not made for an extraneous purpose. However, because this issue is intrinsically linked with the interpretation of the second limb of s 197(1) of the SFA, the scope of liability under that limb will be examined first as a preliminary point.
http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/court-of-appeal-judgments/14632-tan-chong-koay-and-another-v-monetary-authority-of-singapore-2011-sgca-36