Madhavan Peter v PP

• Jurisdiction: Singapore
• Judgment Date: 27 July 2012
• Date: 27 July 2012
• Docket Number: Magistrate's Appeals Nos 1, 10 and 13 of 2011
• Court: High Court (Singapore)

Madhavan Peter

Plaintiff

and

Public Prosecutor and other appeals

Defendant

[2012] SGHC 153

Chan Sek Keong CJ

Magistrate's Appeals Nos 1, 10 and 13 of 2011

High Court

Criminal Procedure and Sentencing—Sentencing—Disqualification of directors—Executive director disqualified for five years for insider trading—Information acquired due to position as director—Whether disqualification period manifestly excessive—Section 154 (2) Companies Act (Cap 50, 1994 Rev Ed)

Criminal Procedure and Sentencing—Sentencing—Insider trading—Executive director trading while in possession of trade-sensitive information—Circumstances surrounding trade not egregious—District judge imposing custodial sentence—Whether sentence was manifestly excessive

Financial and Securities Markets—Dissemination of false or misleading information—Company announcing that CEO investigated by CPIB without announcing that investigations concerned transactions with subsidiaries of company—Whether announcement likely to have effect of stabilising market price of shares of company—Section 199 Securities and Futures Act (Cap 289, 2002 Rev Ed)

Financial and Securities Markets—Dissemination of false or misleading information—Misleading in a material particular—Company announcing that CEO investigated by CPIB without announcing that investigations concerned transactions with subsidiaries of company—Whether announcement misleading in a material particular—Section 199 Securities and Futures Act (Cap 289, 2002 Rev Ed)

Financial and Securities Markets—Insider trading—Materiality of information—CEO questioned by CPIB on transactions involving subsidiaries of company—CEO released on bail with passport impounded—Whether reasonable person would expect information to have material effect on price or value of shares—Whether information likely to influence common investors in deciding whether to subscribe for, buy or sell shares—Sections 216 and 218 Securities and Futures Act (Cap 289, 2002 Rev Ed)

Financial and Securities Markets—Regulatory requirements—Continuous disclosure—Materiality of information—CEO questioned by CPIB on transactions involving subsidiaries of company—CEO released on bail with passport impounded—Whether information likely to have material effect on price or value of shares under r 703 (1) (b) Singapore Exchange Trading Limited Listing Manual—Rule 703 (1) (b) Singapore Exchange Trading Limited Listing Manual

Financial and Securities Markets—Regulatory requirements—Continuous disclosure—Recklessness—Company legally advised that disclosure of information not necessary—Company not disclosing information—Whether company was reckless in not disclosing information—Section 203 Securities and Futures Act (Cap 289, 2002 Rev Ed)

The appellants (‘the Appellants’), Madhavan Peter (‘Madhavan’), Chong Keng Ban @ Johnson Chong (‘Chong’) and Ong Seow Yong (‘Ong’), were directors of Airocean Group Limited (‘Airocean’), a company listed on the main board of the Singapore Exchange (‘SGX’) at the material time. Chong was an executive director and the Chief Operating Officer of Airocean. Madhavan and Ong were independent directors.

On 6 September 2005, the Corrupt Practices Investigation Bureau (‘CPIB’) questioned Airocean's Chief Executive Officer (‘CEO’), Thomas Tay Nguen Cheong (‘Tay’), and three officers of two of Airocean's subsidiaries (‘the Subsidiaries’), in connection with suspected corruption in the air cargo handling industry. Tay was subsequently placed under arrest pursuant to s 6 (b) of the Prevention of Corruption Act (Cap 241, 1993 Rev Ed) and released on bail. His passport was impounded.

Airocean sought legal advice on whether it had to disclose to SGX that its officers were involved in CPIB investigations. Airocean's lawyers gave oral advice sometime in September 2005 that no disclosure had to be made at that stage (‘the Oral Advice’). After the Oral Advice was given, Chong sold various amounts of Airocean shares on 26, 27 and 28 September 2005.

On 25 November 2005, The Straits Times published an article with the caption ‘Airocean's chief executive [Tay] under CPIB probe’ (‘the ST Article’). Airocean issued a clarificatory announcement on the same day (‘the 25/11/05 Announcement’). Two further announcements were released on 1 December 2005 and 2 December 2005 (‘the 2/12/05 Announcement’). On 2 December 2005, the Commercial Affairs Department started investigations into alleged contraventions of the disclosure provisions in the Securities and Futures Act (Cap 289, 2002 Rev Ed) (‘the SFA’) by Airocean. The Appellants were subsequently charged as follows:

1. (a) Chong and Madhavan were each charged with having consented to Airocean's reckless failure to notify SGX of the information (‘the Information’) that Tay, had been questioned by the CPIB in relation to two transactions involving the Subsidiaries, had been released on bail and had had his passport impounded, which information was likely to materially affect the price or value of Airocean shares and was required to be disclosed under r 703 (1) (b) (‘rule 703 (1) (b)’) of the Singapore Exchange Trading Limited Listing Manual (‘the Listing Rules’) (‘the Non-disclosure Charges’). This was an offence under s 331 (1) read with s 203 (2) and punishable under s 204 (1) of the SFA.

2. (b) All the Appellants were each charged with having consented to Airocean making the 25/11/05 Announcement which was allegedly misleading in a material particular and likely to have the effect of stabilising the market price of Airocean shares when, at the time Airocean made the announcement, it ought reasonably to have known that the announcement was misleading in a material particular (‘the Misleading Disclosure Charges’). This was an offence under s 331 (1) read with s 199 (c) (ii) and punishable under s 204 (1) of the SFA.

3. (c) Chong was charged with three charges of trading in Airocean shares on three occasions while in possession of the Information (‘the Insider Trading Charges’). These were offences under s 218 (2) (a) and punishable under s 221 (1) of the SFA.

The district judge (‘the District Judge’) convicted the Appellants of all the charges and sentenced them as follows:

1. (a) For the Non-disclosure Charges, Chong was fined $100,000 (in default, ten months' imprisonment) and Madhavan was fined $120,000 (in default, 12 months' imprisonment).

2. (b) For the Misleading Disclosure Charges, Chong was fined $180,000 (in default, 18 months' imprisonment), Ong was fined $170,000 (in default, 17 months' imprisonment) and Madhavan was sentenced to four months' imprisonment.

3. (c) For the Insider Trading Charges, Chong was sentenced to two months' imprisonment for each of the three charges, with the sentences for two of the charges to run consecutively.

In addition, the District Judge disqualified Madhavan and Chong under s 154 (2) of the Companies Act (Cap 50, 1994 Rev Ed) from holding office as a director or being involved in the management of any company for a period of five years. Ong was similarly disqualified for a period of two years.

Held, setting aside the convictions of Madhavan and Chong on the Non-disclosure Charges, setting aside the convictions of all the Appellants on the Misleading Disclosure Charges, setting aside the related sentences imposed for the Non-Disclosure Charges and the Misleading Disclosures, setting aside the disqualification orders imposed on Madhavan and Ong, affirming the conviction of Chong on the Insider Trading Charges, allowing Chong's appeal against his sentence for the Insider Trading Charges and sentencing him to a fine of $200,000 in aggregate and upholding the disqualification order imposed on Chong:

The element of materiality

(1) In the context of rule 703 (1) (b) of the Listing Rules, which imposed an obligation on an issuer to disclose information that would be likely to have a material effect on the price or value of its securities, the word ‘material’ had to necessarily refer to information that was likely to effect a significant change in the price or value of an issuer's securities. Information falling under rule 703 (1) (b) of the Listing Rules might be referred to as ‘materially price-sensitive information’: at [43] and [44].

(2) The words ‘material particular’ in s 199 of the SFA applied to a false or misleading particular that was likely to have the effect of, inter alia, ‘raising, lowering, maintaining or stabilising the market price of securities’, and not simply any kind of false or misleading particular. The focus of this provision was on the price impact of false or misleading statements. It followed from the nature of the offence under s 199 that the false or misleading particular in question had to, just as in the case of the offence under s 203 (read with rule 703 (1) (b)), be of sufficient importance to significantly affect the price or value of securities. As such, information falling under s 199 of the SFA might also be referred to as ‘materially price-sensitive information’: at [45].

(3) The concept of materiality in s 218 of the SFA, when read without s 216, was the same as the concept of materiality in rule 703 (1) (b) and s 199 because s 218 read on its own was likewise concerned with the likely effect of information on the price or value of securities. Hence, information which fell under s 218 read on its own was likewise materially price-sensitive information. However, for the purposes of the offence under s 218, s 216 of the SFA made it unnecessary for the Prosecution to show that the information in question might have a material effect on the price or value of securities in order to satisfy the requirement of materiality set out in s 218. The effect of s 216 was to equate the concept of ‘material effect on the price or value of securities’ in s 218 with the likelihood of influencing persons who commonly invested in securities in deciding whether to subscribe for, buy or sell the securities...