Monetary Authority of Singapore v Tan Chong Koay and another

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 17 September 2010
• Neutral Citation: [2010] SGHC 277
• Plaintiff Counsel: Cavinder Bull SC, Yarni Loi, Gerui Lim and Wong Liang Wei (Drew & Napier LLC)
• Docket Number: Suit No 658 of 2008
• Date: 17 September 2010
• Hearing Date: 11 September 2009,02 September 2009,09 September 2009,28 August 2009,10 September 2009,16 November 2009,27 August 2009,31 August 2009,19 October 2009,03 September 2009,01 September 2009,08 September 2009,07 September 2009,04 September 2009
• Subject Matter: Financial and Securities Markets
• Published date: 23 September 2010
• Citation: [2010] SGHC 277
• Defendant Counsel: Foo Maw Shen, Melvin See and Mar Seow Hwei (Rodyk & Davidson LLP),Michael Hwang SC and Fong Lee Cheng (Chambers of Michael Hwang)
• Court: High Court (Singapore)
• Year: 2010

Lai Siu Chiu J: Introduction

The Monetary Authority of Singapore (“MAS”), who is the plaintiff, is the Central Bank of Singapore. MAS is claiming the payment of a civil penalty from two parties, viz, Tan Chong Koay (“Dr Tan”) who is the first defendant, and Pheim Asset Management Sdn Bhd (“Pheim Malaysia”) which is the second defendant, for infringing s 232(3) read with s 197(1)(b), of the Securities and Futures Act (Cap 289, 2006 Rev Ed) (the “SFA”). Hereinafter, both defendants will be referred to collectively as the “defendants”. MAS alleged that the defendants created a false or misleading appearance with respect to the price of United EnviroTech (“UET”) shares between 29 and 31 December 2004. For convenience, the period between 29 and 31 December 2004 will hereinafter be referred to as the “material time”. I will first set out the salient facts.

Facts giving rise to the dispute Dramatis Personae

Dr Tan is, by all accounts, a successful fund manager. He founded Pheim Malaysia and Pheim Asset Management (Asia) Pte Ltd (“Pheim Singapore”) in the mid-1990s. Both companies are in the fund-management business. Pheim Malaysia is licensed by the Securities Commission of Malaysia (“SCM”) while Pheim Singapore is licensed by MAS. The two companies (Pheim Malaysia and Pheim Singapore) will be referred to collectively as the “Pheim Group”. According to Dr Tan, the Pheim Group currently manages about US$1 billion in assets and has consistently recorded profits each year since its inception, save for 1998 (when Pheim Singapore did not record a profit). At the material time, Dr Tan was the biggest shareholder, a member of the board of directors, the chief executive officer and the chairman of the investment committee for both companies in the Pheim Group.

At the material time, the fund managers for Pheim Malaysia were Peter Chong (who was also the associate director and head of investment) (“Chong”), Tan Keng Lin (“Ms Tan”), Ng Wai Leng (“Ng”) and Akmal Hassan (“Hassan”). Tew Sow Hume (“Tew”) was the senior manager and head of compliance for Pheim Malaysia. Tew and Ms Tan gave evidence on behalf of the Defendants although Ms Tan came to become the Defendants’ witness in controversial circumstances (to be elaborated later). Dr Tan and Ms Tan were (inter alios) authorised to trade for Pheim Malaysia at the material time. However, there is no evidence that Chong, who joined Pheim Malaysia in mid-2004 and obtained a licence in August 2004, was authorised to trade for Pheim Malaysia through the securities firm UOB Kay Hian Pte Ltd (“UOB Kay Hian”). Regular Investment Committee meetings were held on a weekly basis and chaired by Dr Tan. Ms Tan (amongst others) attended these meetings on a regular basis. It is not disputed that Dr Tan, given his experience, was a hands-on leader with a strong influence in the decision-making process at such meetings. As a result, his views must have carried much weight.

Mr Tang Boon Siah (“Tang”) was, at the material time, a remisier working for UOB Kay Hian. He had known Dr Tan for more than a decade from his previous job. Dr Tan trusted Tang as a long-time friend. The Pheim Group had trading accounts managed by Tang. Tang had also received orders from Dr Tan personally to trade on Pheim Malaysia’s accounts since its inception. In 2004, Dr Tan remained close to Tang, speaking to him on a near-daily basis to receive market updates. In this regard, it comes as little surprise that Tang was, according to Ms Tan, known internally within Pheim Malaysia as Dr Tan’s “favourite broker”. Tang was the broker who executed the trades for Pheim Malaysia at the material time and gave evidence on behalf of MAS.

The Accounts managed by Pheim Malaysia

Pheim Malaysia managed various accounts for its customers, including accounts named as Accounts 89, 90 and 91. The trading parameters for each account were set out in the prospectus for the accounts (the “Master Prospectus”) and are as follows.

Account 89 was suitable for “conservative equity investors”. Up to 60% of the assets had to be invested in equities and equity-linked securities. At least 40% of the assets were to be invested in fixed income instruments and liquid assets. The same limits applied for Account 90, except that the investments for Account 90 had to be in securities and instruments that complied with Syariah principles.

Account 91 was suitable for “risk adverse investors”, with at least 80% of the assets to be invested in fixed income instruments and liquid assets, and up to 20% to be invested in equities and other high yielding instruments.

For all three accounts, the value of securities that were listed on a foreign stock exchange (such as Singapore Exchange Limited (“SGX”)) could not exceed 10% of that account’s net asset value (“NAV”), due to investment restrictions imposed by the SCM.

Apart from these three accounts, Pheim Malaysia managed at least two other accounts which held on UET shares, viz, Accounts F5 and 98. In addition, a number of other accounts managed by Pheim Singapore also held UET shares. One such account was Account 28, also known as the “Vittoria Fund”. UET shares formed the second largest component of shares in the Vittoria Fund at the material time. Vittoria Fund was also mentioned in Pheim Group’s marketing material as it consistently outperformed its benchmarks.

The funds managed by Pheim Group generally recorded stellar results over the years. It hired a consulting firm to verify its results, and the report stated that Pheim Malaysia’s funds outperformed its benchmarks for ten consecutive years since its inception and Pheim Singapore’s funds outperformed its benchmarks for nine consecutive years since its inception. Mention of the Pheim Group’s outstanding record was placed in its marketing material together with that for the Vittoria Fund. However, Dr Tan admitted that he was aware that 2004 was a challenging year and was concerned about the performance, especially given that 2003 was a “fantastic” year.

Pheim Malaysia’s investments in UET and other companies

Before investing in UET, Pheim Malaysia invested in Hyflux Limited (“Hyflux”), a water treatment specialist company listed on the SGX. Pheim Malaysia recorded significant profits on its investment in Hyflux. Pheim Malaysia sold its last Hyflux shares by 4 March 2002. According to Dr Tan, after selling all its Hyflux shares, Pheim Malaysia was on the lookout for similar companies to invest in. UET fit the bill as it was involved in waste water treatment and was a reclamation solutions provider.

In March 2004, UET announced its intention to conduct an initial public offering of its shares (the “IPO”) on the SGX. Pheim Malaysia was interested in investing in UET, given its favourable price to earnings ratio of 11.8 (compared to 19.48 for Hyflux). Pheim Malaysia subscribed to 2.3m UET shares at $0.47 each. Of these, 1.54m UET shares were purchased for Accounts 89, 90 and 91.

UET commenced trading on the SGX on 22 April 2004. Between the date of the IPO and the material time, Pheim Malaysia purchased UET shares on a number of occasions, as follows:

Date (2004)	Account	Purchase Price	Volume
23 April	89	$0.58940	900,000
23 April	91	$0.58940	100,000
29 April	F5	$0.47500	160,000
5 May	F5	$0.47500	250,000
7 June	98	$0.39975	100,000
5 July	F5	$0.43225	60,000
6 July	90	$0.44500	70,000
6 July	91	$0.44500	30,000
9 July	F5	$0.43000	125,000
13 July	89	$0.43000	100,000
26 July	F5	$0.38690	63,000
23 August	F5	$0.34161	93,000
13 September	90	$0.35635	48,000
13 September	F5	$0.34000	20,000
14 September	F5	$0.37730	159,000
14 September	F5	$0.37000	68,000
15 September	89	$0.37923	100,000
15 September	90	$0.37923	100,000
15 September	91	$0.37923	60,000
15 September	F5	$0.37500	114,000
16 September	F5	$0.38500	80,000
17 September	F5	$0.38457	35,000

According to Dr Tan, Pheim Malaysia purchased UET shares between April and May 2004 because it thought that UET had good prospects and potential. The purchases in July 2004 were the result of its Investment Committee’s decision (on 7 July 2004) to increase exposure to UET shares in Accounts 89, 90, 91 and F5, “in view of [the] bright industry outlook [and] possible rising profit]”. Similarly, purchases were made in September 2004 after the Investment Committee decided to increase its exposure to UET for Accounts 89, 90, 91 and F5 as it expected UET to see improving profits. All the purchases made after May 2004 were at prices below the IPO price.

On 28 October 2004, UET announced that it had secured a “long-term Transfer, Operate and Transfer contract to treat wastewater” in China (“the TOT contract”). The company clarified that the TOT contract was not expected to have any material impact on UET’s performance for the financial year ending 31 December 2004. On 2 November 2004, the company also clarified that the TOT contract would be able to generate a steady stream of income for a period of 30 years. On 12 November 2004, UET announced that it had recorded a 125% increase in net profit for the third quarter of financial year 2004, as compared to the same period for financial year 2003. According to Dr Tan, these announcements only served to confirm Pheim Malaysia’s positive outlook on UET’s prospects.

On 15 December 2004, Pheim Malaysia’s Investment Committee met and decided to increase its exposure to UET shares for Accounts 89, 90 and 91 “in anticipation of better results going forward”. Dr Tan and Ms Tan were present at this meeting. In the minutes of...