Monetary Authority of Singapore v Lew Chee Fai Kevin

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 27 May 2010
• Neutral Citation: [2010] SGHC 166
• Plaintiff Counsel: Cavinder Bull SC, Yarni Loi and Gerui Lim (Drew & Napier LLC)
• Docket Number: Suit No 71 of 2009
• Date: 27 May 2010
• Hearing Date: 09 October 2009,02 October 2009,01 October 2009,29 May 2009,06 October 2009,25 May 2009,26 May 2009,05 October 2009,12 October 2009,08 October 2009,27 May 2009,07 October 2009,22 May 2009,28 May 2009,13 October 2009,21 May 2009,14 October 2009,15 October 2009
• Subject Matter: Financial and Securities Markets,Insider Trading
• Year: 2010
• Citation: [2010] SGHC 166
• Defendant Counsel: Thio Shen Yi SC, Leow Yuan An Clara Vivien and Charmaine Kong (TSMP Law Corporation)
• Court: High Court (Singapore)
• Published date: 09 April 2013

Lai Siu Chiu J:

The present suit arose out of a share transaction that was entered into by the defendant, Kevin Lew Chee Fai (“Lew”), who was a senior employee of WBL Corporation Limited (“WBL”). In Suit No 71 of 2009 (“S 71/2009”), the Central Bank of Singapore viz the Monetary Authority of Singapore (“MAS”) is claiming payment of a civil penalty from Lew under s 232(2), read with s 218, of the Securities and Futures Act (Cap 289, 2006 Rev Ed) (the “SFA”), for insider trading. Lew had brought a claim in a separate suit, Suit 129 of 2008 (“S 129/2008”), for specific performance of the issuance of shares under WBL’s Executive Share Option Scheme. S 71/2009 was originally commenced in the Subordinate Courts (as MAS’ claim was for less than $250,000) but for expediency, it was transferred to the High Court to be tried together with S 129/2008 before the same judge. The evidence in S 71/2009 was to form part of the evidence in S 129/2008, and vice versa. This judgment, however, will only deal with the merits of S 71/2009.

The facts WBL

WBL is a public company listed on the Singapore Exchange Ltd (“SGX”). In 2007, it had about 90 active subsidiaries. WBL’s principal activities are in Technology Manufacturing, Automotive Distribution, Technology Solutions and Investments. The Technology Manufacturing division consists of, inter alia, a Flexible Printed Circuits business (“FPC”) and a Precision Engineering Unit. At the material time, WBL had a number of subsidiaries under its FPC business, including Multi-Fineline Electronix Inc (“M-Flex”) and MFS Technology Ltd (“MFS”). M-Flex was listed on the SGX while MFS was a company listed on NASDAQ, an American securities exchange. WBL held approximately 75% of the issued shares in MFS and 55% of the issued shares in M-Flex. While WBL did not manage MFS and M-Flex on a daily basis, it had nominee directors sitting on the Board of Directors of both companies. Another subsidiary of WBL was Wearnes Precision (Thailand) Limited (“WPT”), a company belonging to WBL’s Precision Engineering unit with operations in Thailand.

At the material time, WBL’s senior management comprised of Tan Choon Seng (“CS Tan”) its Chief Executive Officer (“CEO”), Wong Hein Jee (“Wong” who is also known as Lester) the Chief Financial Officer (“CFO”), Lew (the Group General Manager for Enteprise Risk Management at the time) and Tan Swee Hong(“Swee Hong”), WBL’s Company Secretary and Group General Manager for Legal and Compliance. Lew, an accountant by training, joined WBL in 1998 as its Group Financial Controller and became the equivalent of the CFO in 2002. He became WBL’s Group General Manager in 2006. Soh Yew Hock (“Soh”) was a Non-Independent and Executive Director of WBL between 1994 and July 2007. CS Tan, Wong and Swee Hong testified for MAS and WBL while Soh was Lew’s witness.

It would be useful, at this juncture, to provide some background on how WBL operated. When CS Tan took over as WBL’s CEO in December 2004, he instituted the Group Management Council (“GMC”) to support WBL’s Board of Directors in strategic, operational and financial matters. The GMC would typically meet every Monday at 8.30am (the “GMC Meeting”). These GMC Meetings were chaired by CS Tan and attended by members of the GMC and WBL’s senior management. At the material time, the GMC Meetings alternated, on a weekly basis, between operational meetings (where operational matters and strategy were discussed) and financial meetings (where financial forecasts of WBL’s performance were provided). On a number of occasions, CS Tan informed the attendees of GMC Meetings that the information presented and discussed at the meetings was confidential.

At the GMC meetings, it was common for financial forecasts to be presented by WBL’s finance department through Microsoft Powerpoint presentation slides. Most of WBL subsidiaries (save for the smaller ones) would submit a forecast to their respective division heads, who would in turn submit their forecasts to WBL. Wong’s evidence was that most of WBL’s subsidiaries had a qualified accountant and that the closer the forecasts were made and submitted towards the end of each quarter, the greater their accuracy in their reflection of the figures for that quarter. These Microsoft Powerpoint presentation slides were not distributed to the attendees of GMC Meetings due to their confidential nature.

Lew’s position was that these GMC Meetings were not taken seriously by WBL’s senior management. He claimed that: (a) GMC Meetings, which he labelled a “Grand Master Circus”, were unstructured and not taken seriously; (b) no substantive decisions were made at these meetings; (c) important discussions were taken offline; and (d) decisions made at GMC Meetings were not implemented.

I cannot accept Lew’s evidence. First, his own witness, Soh, had agreed that during those GMC Meetings: (a) important and/or confidential matters were discussed; (b) substantive decisions were made; (c) updates were given about important matters in the WBL group; (d) it was not true that most matters discussed were trivial; (e) the meetings were not incoherent, a circus or a farce; and (f) the most up-to-date financial information was revealed during the meetings, contradicting Lew’s evidence entirely on this point. In addition, Soh had also agreed that financial forecasts that were provided towards the end of every quarter were more reliable. Second, in cross-examination, Lew had retracted his statement that no substantive decisions were made at GMC Meetings. Third, Lew had also agreed that confidential information such as financial data was given during GMC Meetings, thereby contradicting his statement that such meetings were a circus or a farce. I therefore reject Lew’s evidence on this point. It was clear on the evidence that important discussions and decisions were made at the GMC Meetings.

The claim of MAS against Lew relates to the sale of his WBL shares on 4 July 2007, two days after a GMC Meeting during which (it was alleged) material price-sensitive information was made known to Lew. The price-sensitive information pertained to two matters, namely that: WBL was going to make a loss; and it would be taking an impairment charge on WPT. I will now set out the facts leading to the receipt of what MAS alleged, was material price-sensitive information by Lew and his trade in WBL shares.

Information announced by WBL prior to the 2 July 2007 GMC Meeting

On 14 February 2006, WBL announced a net attributable profit (i.e., the profit after tax and minority interest (“PATMI”)) of $25.8m for the first quarter of FY 2006 (“Q1 FY06”), up from $7.9m in the first quarter of FY 2005. In Q1 FY 06, M-Flex and MFS contributed $41.9m and $17.8m to WBL’s pre-tax profit respectively. As for its prospects for the next quarter, i.e. the second quarter of FY 06 (“Q2 FY06”), WBL opined that:

[WBL] expects its second quarter results barring unforeseen circumstances, to continue to be positive year-on-year. However, due to the shorter reporting period and the seasonality of sales of electronic products in the second quarter, the Technology Manufacturing Division is likely to report slower sales compared to the first quarter. The Automotive and Technology Solutions Divisions are also likely to see keen competition and increasing pressure on margins. Hence, the company is cautiously optimistic about its overall performance for Q2 FY2006.

[emphasis added]

On 11 May 2006, WBL announced a net attributable profit of $40m for the first half of FY 2006, which meant that it made a net attributable profit of $14.5m for Q2 FY06. Again, M-Flex and MFS were singled out for achieving “good sales”, with the Technology Manufacturing division earning a pre-tax profit of over $92m. As for its prospects for the second half of FY 2006, WBL opined that:

[WBL] expects its performance for the rest of the year, barring unforeseen circumstances, to improve over last year. The Technology Manufacturing Division is likely to report continued strong sales from existing customers and M-Flex is also expected to roll out several new patented products. The Automotive Division will launch several new models in the later part of the year which should have a positive impact on revenue. However, the Technology Solutions Division is likely to face keen competition and increasing pressure on margins. The company expects to continue to unlock value from its property holdings in the investments portfolio in the second half of FY2006.

In its financial statement for Q2 FY06, WBL noted that:

The performance of the Group’s other technology manufacturing operations were affected by continued streamlining… the performance of the precision operations in Thailand was affected by further provisions made for inventory write offs. Hence the operations recorded a pre-tax loss of $3.1 m for the quarter.

…

Developments in Q3 FY 2006

The Group is cautiously optimistic on the performance of its core businesses in Q3 2006.

[emphasis in italics added]

On 11 August 2006, WBL announced a net attributable profit of $9m in the third quarter of FY2006 (“Q3 FY06”), down from $32.5m in the third quarter of FY 2005 (“Q3 FY05”). CS Tan observed that the Technology Manufacturing Division had a challenging quarter due to eroded margins, and that while WBL was disappointed in WPT’s “larger than expected losses”, it was confident of recovery “as we have addressed the issues there”. The announcement also stated that:

The Precision operations recorded losses of $6.6 million; this was mostly from the Thailand operations, which had cost over-runs because it made good contractual and customer obligations for the delayed delivery of several products. The management team has put in place an action plan to reduce costs, improve operational quality and delivery issues and change its product mix to higher margin products.

Looking forward, WBL noted that:...