Public Prosecutor v Ng Sae Kiat and other appeals

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 30 July 2015
• Neutral Citation: [2015] SGHC 191
• Date: 30 July 2015
• Docket Number: Magistrate’s Appeals Nos 131—134 of 2014/01
• Published date: 17 September 2015
• Plaintiff Counsel: Gillian Koh Tan, Lynn Tan and Loh Hui-min (Attorney-General's Chambers)
• Hearing Date: 23 April 2015
• Defendant Counsel: Hamidul Haq, Thong Chee Kun, Istyana Ibrahim and Josephine Chee (Rajah & Tann Singapore LLP),Wee Pan Lee, Suresh Damodara and Tham Lijing (Criminal Practice Committee of the Law Society of Singapore) as Non-party.,Kek Meng Soon Kelvin (Allen & Gledhill LLP) as Young Amicus Curiae
• Court: High Court (Singapore)
• Subject Matter: Sentencing,Criminal Procedure and Sentencing

Chao Hick Tin JA (delivering the judgment of the court): Introduction

These are four related appeals brought by the Public Prosecutor (“the Prosecution”) against the sentences which the District Judge (“the DJ”) imposed on Ng Sae Kiat (“Ng”), Tan Kian Ming Joseph (“Tan”), Oh Chao Qun (“Oh”) and Wong Siaw Seng (“Wong”) (collectively “the Respondents”) who pleaded guilty to charges under s 201(b) read with s 204(1) of the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“SFA”) on 17 April 2014. At the time of commission of the offences, the Respondents were employed as Contracts for Differences (“CFD”) Hedgers by Phillip Securities Pte Ltd (“PSPL”). In that position they were accorded certain discretionary powers in relation to transactions involving CFDs, in particular, the power to act on behalf of PSPL in accepting or rejecting CFD trades. The offences were committed when each of them defrauded PSPL by accepting “out of market” CFD trades on behalf of PSPL. These trades were initiated using nominee CFD accounts belonging to their friends and relatives.

The charges brought against the Respondents and the sentences imposed on them by the DJ are set out in the table below:

Offender’s name	No of charges preferred	No of charges taken into consideration for purpose of sentencing	Sentence
Ng	2	2	DAC 29124/2013 – $50,000 fine DAC 29126/2013 – $10,000 fine
Tan	5	5	DAC 29138/2013 – $10,000 fine DAC 29140/2013 – $50,000 fine DAC 29142/2013 – $10,000 fine DAC 29144/2013 – $20,000 fine DAC 29146/2013 – $50,000 fine
Wong	5	5	DAC 29148/2013 – $10,000 fine DAC 29150/2013 – $50,000 fine DAC 29152/2013 – $10,000 fine DAC 29154/2013 – $20,000 fine DAC 29156/2013 – $50,000 fine
Oh	5	5	DAC 29158/2013 – $10,000 fine DAC 29160/2013 – $20,000 fine DAC 29162/2013 – $20,000 fine DAC 29164/2013 – $50,000 fine DAC 29166/2013 – $10,000 fine

The Respondents committed the offences after Vincent Tan Wei Ren (“Vincent Tan”), a fellow CFD Hedger employed by PSPL, alerted them to the existence of a “loophole” in PSPL’s CFD system. Vincent Tan was also prosecuted for perpetrating a similar fraud on PSPL. He pleaded guilty to three charges under s 201(b) of the SFA (“s 201(b)”). In that case (“Vincent Tan’s case”), the Prosecution took the position that a fine would suffice. Vincent Tan was fined $1,000, $10,000 and $15,000 for the three charges by the District Court hearing the matter. No appeal was filed by the Prosecution against this sentence.

The Prosecution takes a different position for the Respondents in the present appeals. It submits that the Respondents should be given custodial sentences of varying lengths. In our judgment, the criminality of the Respondents’ offending conduct is sufficiently serious to ordinarily warrant custodial sentences. However, given that the main perpetuator of the fraud, Vincent Tan, was punished with only a fine, what confronts us is the parity principle. Is there really anything which differentiates the criminality of the Respondents from that of Vincent Tan? Are the Respondents and Vincent Tan truly equally placed in terms of culpability? And if the parity principle is applicable, do the circumstances permit a custodial benchmark to give way to a fine in the interests of parity?

Appointment of amicus curiae and participation of the The Law Society of Singapore

We appointed Mr Kek Meng Soon Kelvin (“Mr Kek”) as amicus curiae under the Young Amicus Curiae Scheme to assist the court. We also invited The Law Society of Singapore (“the Law Society”) to participate as a non-party to provide inputs from the perspective of the criminal bar on the general considerations that the court should bear in mind when passing a sentence for a s 201(b) offence. We invited the Law Society to participate as a non-party so as to enable members of the criminal bar to provide practical inputs on the matter having regard to their wider collective experience as criminal practitioners. Both the Appellant and the Respondents had no objections to the Law Society participating in these appeal proceedings.

We asked Mr Kek and counsel for the Law Society to address us on the question as to the circumstances when the custodial threshold would be triggered for a s 201(b) offence. We also requested Mr Kek to address us on whether custodial sentences are warranted on the facts of the present case. We were ably assisted by all the counsel. We will refer to their submissions where appropriate.

Mechanics of the fraud

At the hearing below, the Respondents admitted to the Prosecution’s Statement of Facts (“SOF”) without qualification. Extracts of the SOF are set out at [4] of the DJ’s grounds of decision. Part of the SOF provides basic information on how CFDs work. This information is necessary for an understanding as to how the Respondents perpetrated their fraud against PSPL. We now set out what a CFD is, how it works and how the Respondents perpetrated their fraudulent scheme.

CFDs are over-the-counter trading instruments offered by PSPL which allow an investor to make profits on price movements of securities listed on selected stock exchanges without having to own the underlying securities. Therefore, the instrument allows investors to invest with less capital than buying and owning the stock itself would have cost the investor (as PSPL still requires some capital upfront).

In CFD trades, the investor transacts with PSPL directly which is the counterparty to the trade. The investor does not make or receive payment at the point of purchase or sale. The obligation between the investor and PSPL is determined after the CFD is purchased and sold. The question of who owes whom will depend on the fluctuation of the price of the underlying security.

PSPL determines the price at which to purchase and sell CFDs. It buys CFDs from investors at the best prevailing “bid price” of the underlying security (ie, the highest price which purchasers offer to buy the security). It sells CFDs at the best prevailing “ask price” of the underlying security (ie, the lowest price at which sellers offer to sell the security). At any one time, the former would be lower than the latter but the prices fluctuate over time. In practice, the two prices never coincide because the bid (or ask) orders are taken out of the system once the transaction is completed.

Optimally, PSPL would earn two sets of fees in a CFD transaction: (1) a commission fee for each concluded CFD trade and; (2) a “market making profit” from buying at the lower “bid price” and selling at the higher “ask price”. However, the market may fluctuate causing PSPL to incur losses. PSPL protects itself against market fluctuations by purchasing the underlying security as and when it considers appropriate. The decision whether to hedge in this manner is made by CFD Hedgers.

CFD Hedgers are responsible for making the following decisions: (1) whether to accept certain CFD trades (ie, those which are not automatically processed by the PSPL system because the order size exceeds a pre-set limit); (2) whether to hedge a CFD trade once it has been accepted; and (3) if hedging is appropriate, when such hedging should take place. It should also be noted that each CFD Hedger is assigned to manage a portfolio of securities so that he can closely monitor the securities he is in charge of.

PSPL prohibits all PSPL employees from opening personal CFD trading accounts with PSPL. This is to prevent a CFD Hedger from processing his own CFD trades as he may subordinate PSPL’s interests to those of his own in doing so.

The Respondents abused their discretion to accept or reject CFD trades on behalf of PSPL by accepting “out of market” trades (ie, by buying CFDs above the best prevailing “bid price” (overpriced CFDs) and selling CFDs below the best prevailing “ask price” (discounted CFDs)) thereby causing loss to PSPL. The Respondents initiated these selected trades using nominee accounts opened in the names of their friends and relatives. It is not clear if their friends and relatives knew that the accounts were being used for fraudulent purposes, but the friends and relatives were aware that the Respondents were carrying out trades using their accounts. The Respondents collaborated with each other to clear these “out of market” trades. They knew which securities to trade in because each of them managed a pre-assigned portfolio of securities.

Each concluded overpriced or discounted CFD trade results in two types of loss to PSPL: (1) definite loss; and (2) loss of “market making profit”. This is best illustrated with an example which the Prosecution gave although we do not think that the margins would be so stark in the real market. Assuming that the best prevailing “bid price” and “ask price” is $1.00 and the $1.10 respectively and that a discounted CFD trade is transacted on behalf of PSPL at $0.80 (ie, PSPL sells the CFD to the investor at $0.80), PSPL would incur a definite loss of $0.20. This is because it will not be able to purchase the CFD at a price lower than $1.00 (the highest price which purchasers offer to buy the security). The difference between $1.10 and the price at which PSPL buys the CFD (this would be between $1.00 and $1.10) would represent the loss of market making profit which PSPL incurs.

PSPL did not have a system for monitoring the manual acceptance of CFD trades. Therefore, the Respondents’ fraud only came to light because of a whistle-blower. Upon uncovering the scheme, PSPL froze funds contained in the relevant CFD accounts as well as funds contained in related trading accounts known as Cash Management Accounts (“CMAs”) because the funds in CFD accounts could be transferred to CMAs.

Details of the offences

The SOF which the Respondents admitted to without qualification also discloses the following:

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