District Judge Chiah Kok Khun:
Introduction
This is a decision on the quantum of civil penalty. The Plaintiff, MAS seeks civil penalty orders against the Defendants under s 232(3) of the Securities and Futures Act (“SFA”). I had found the Defendants liable under s 201(b) of the SFA for unauthorised trading: see Monetary Authority of Singapore v Wang Boon Heng & Foo Jee Chin [2016] SGDC 345. This decision is to be read together with that judgment.
Section 232(3) of the SFA provides as follows:
“Civil penalty
(3) If the court is satisfied on a balance of probabilities that the person has contravened a provision in this Part which did not result in his gaining a profit or avoiding a loss, the court may make an order against him for the payment of a civil penalty of a sum not less than $50,000 and not more than $2 million.”
A working framework to determine the quantum of civil penalty
The three-step process
There is little guidance by way of reported cases on the appropriate quantum to be imposed under s 232(3) of the SFA. In a paper published in the Law Gazette, November 2004, “A Practical Guide to Quantifying Civil Penalties under the Securities and Futures Act” (“the Guide”), a framework for the appropriate quantum to be imposed under s 232 of the SFA was discussed. In the Guide, the learned authors discussed in detail the approach taken in respect of civil penalties in various jurisdictions including the UK, the US and Australia. Based on the study of the practices and approach in these jurisdictions, a framework for imposing civil penalties under s 232 of the SFA was suggested. The framework involves a three-step process in determining the quantum of civil penalty payable. The process is set out as follows: Compute the starting point. For s 232(3), the starting point is $50.000. This is the statutory minimum under the section. Apply seven factors. Once the starting point has been identified, the following seven factors are applied to the facts and circumstances of the case. Depending on the aggravating and/or mitigating factors, these factors help to determine how the figure should be adjusted accordingly. Adverse effect on markets and the seriousness of that effect. The extent to which the behaviour was deliberate or reckless. Whether the person on whom the penalty is to be imposed is an individual. The amount of the profits accrued or loss avoided. Conduct following the behaviour of concern. Difficulty of detecting or enforcing the activity in question. Prior conduct. Test the adjusted figures. Test the adjusted figure with the following overriding quantification considerations: Is there a deterrent effect in the civil penalty imposed? Is the civil penalty imposed arbitrary or capricious? Does the civil penalty imposed offend the totality and/or parity principles?”
The Guide provides a useful working framework for purposes of determining the quantum of civil penalties to be imposed under the SFA.
The Court of Appeal decision on civil penalty
Reference should also be made to the Court of Appeal decision in Tan Chong Koay and another v Monetary Authority of Singapore [2011] 4 SLR 348 (“Tan Chong Koay”). The Court of Appeal recognised that while civil penalties are distinct from fines, they both “fulfil a similar policy function of punishing and deterring malpractice in the securities market ...” (at [57]). The case concerned proceedings by MAS under s 197(1)(b) of the SFA against the defendants for having acted with the intent to create a false or misleading market appearance with respect to the price of a security. Tan Chong Koay appears to be the only reported authority on civil penalties under the SFA. Whilst MAS proceeded under s 197(1)(b) in Tan Chong Koay, and not s 201(b), it serves as a useful reference point in regard to the question of quantum of civil penalty for the present case. As alluded to above, in Tan Chong Koay, the defendants were found to have acted with the intent to create a false or misleading appearance with respect to the price of security (UET shares) and thereby infringing s 197(1)(b). S 197(1) concerns false trading and market rigging transactions. The first defendant in Tan Chong Koay was the founder and chief executive officer of an asset management company, the Pheim group (which comprised a Singapore entity (“Phiem Singapore”) and a Malaysia entity (“Pheim Malaysia”)). Pheim Malaysia was the other defendant. As a result of the defendants’ action in relation to UET shares, the Pheim group benefitted in various ways. The financial gain made by the defendants however, was negligible and s 232(3) was the provision applied for the imposition of civil penalty. In determining the appropriate quantum of civil penalty, the following findings in respect of the conduct of the defendants were taken into consideration: The defendants’ conduct was a deliberate breach of the SFA. The Pheim group obtained significant reputational benefits to its fund management businesses. There was an overall increase of $1,086,989 in the net asset value of the Pheim group’s funds. Pheim Singapore earned an additional $50,000 in performance fees. Pheim Malaysia continues to be a significant participant in the financial markets. The Pheim group managed over USD1bn on behalf of its clients. During the material period, the Pheim group had a significant level of earnings - $6.1m in combined revenue and $2.5m in combined profits after tax.
The Court of Appeal weighed the above factors against the civil penalty of $250,000 imposed by the High Court on each of the defendant and found that the quantum ordered was appropriate.
Tan Chong Koay is useful in setting the parameters of the quantum of civil penalty to be imposed under s 232(3) in the present case. In Tan Chong Koay, the misconduct in question was acting with the intent to create a false or misleading market appearance with respect to the price of a security. In the present case, it is unauthorised trading in that the 1st Defendant had transacted on the trading accounts of Tay, his driver and the 2nd Defendant, his ex-wife without the consent on the part of the securities firm. His trading is deemed unauthorised in law under s 201(b) of the SFA. The 2nd Defendant is also liable under s 201(b) of the SFA in knowingly allowing or acquiescing to the 1st Defendant so transacting the trades. It is immediately apparent juxtaposing the two cases that the culpability of the defendants in Tan Chong Koay is significantly higher than the Defendants in present case. Tan Chong Koay involved creating a false or misleading market appearance with respect to the price of a security. The present case involved trading without the consent of the two securities firms. The findings listed above in respect of the transactions in Tan Chong Koay showed that the defendants and their associated entity benefited in various ways. In the present case, the Defendants obtained no tangible benefits from the unauthorised trades. The contextual scale of the two cases is also vastly different. Tan Chong Koay involved an asset management entity with $1bn of assets under management. In our present case, it is two individuals trading in stocks. Following from the above analysis, it is plain that the quantum of penalty to be imposed in the present case is to be lower than that ordered in Tan Chong Koay. In my view, the quantum affirmed in Tan Chong Koay provides an anchor for the upper limit of the quantum in the present case.
Application of the framework
With the anchoring in quantum provided by Tan Chong Koay, I return to the working framework under the Guide to arrive at the appropriate quantum in the present case.
There is little difficulty with the starting point for the civil penalty in the present case. The applicable provision is s 232(3) of the SFA and the starting point is therefore...
