Public Prosecutor v Lee Siew Ngan

• Jurisdiction: Singapore
• Judge: Chia Wee Kiat
• Judgment Date: 26 March 2012
• Neutral Citation: [2012] SGDC 100
• Court: District Court (Singapore)
• Hearing Date: 22 February 2012,13 December 2011
• Docket Number: DAC 3056/2011; Magistrate’s Appeal No 38 of 2012/01
• Plaintiff Counsel: DPPs David Chew & Serene Chew (Attorney-General's Chambers)
• Defendant Counsel: Mr Hamidul Haq, Mr Thong Chee Kun & Ms Istyana Ibrahim (M/s Rajah & Tann LLP)
• Published date: 30 March 2012

District Judge Chia Wee Kiat: INTRODUCTION

The accused, aged 50, pleaded guilty to a charge of engaging in a conspiracy with one Ngo Poon Khiam (“Frank”) and one Ng See Kim Kelvin (“Kelvin”) in a conspiracy to create a false and misleading appearance of the market for the shares in Chuan Soon Huat Industrial Group Ltd (“CSH”) between 16 August 2004 and 30 November 2005 (“the relevant period”). This is an offence punishable under s 197(1)(b) read with s 204(1) of the Securities and Futures Act (Cap 289) (“SFA”) read with s 109 of the Penal Code (Cap 224).

Section 204(1) of the SFA provides as follows:

Any person who contravenes any of the provisions of this Division shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to both.

Section 109 of the Penal Code provides as follows:

Whoever abets any offence shall, if the Act abetted is committed in consequence of the abetment, and no express provision is made by this Code for the punishment of such abetment, be punished with the punishment provided for the offence.

Hence, the accused is liable to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or both.

The accused, a first offender, was the Finance and Administration Manager of CSH at the material time. CSH was a body corporate whose shares were traded on the Mainboard of the Singapore Exchange Ltd (“SGX”). It started out as a family business in the 1940s by the accused’s late father. The company manufactured and distributed furniture-related products. Since the founding of CSH, members of the family held key positions in the company. The accused is the seventh child in the family.

Frank and Kelvin were the accused’s brokers from UOBKH. They had both pleaded guilty on 4 October 2011 to one count under s 197(1)(b) of the SFA read with s 109 of the Penal Code. On 27 October 2011, Frank was sentenced to a fine of $200,000 in default 10 months’ imprisonment and Kelvin to a fine of $180,000 in default 8 months’ imprisonment. The Prosecution, which had pressed for a custodial term, has appealed against the sentences imposed.

In the present case, the Prosecution has similarly sought a custodial sentence. At the time of sentencing, the Grounds of Decision for the brokers had yet to be released. However, having carefully considered the facts of the case and having had the benefit of the detailed submissions by both the Prosecution and the Defence, it was clear to me that this was not an appropriate case for a custodial term. In my view, a maximum fine of $250,000 in default 12 months’ imprisonment would, on the particular facts of this case, be a punishment that more appropriately fits the offence and the offender, whilst reflecting the relative culpability of the accused vis-à-vis her brokers.

Not unexpectedly, the Prosecution filed an appeal against the sentence. I now explain the reasons for my decision.

FACTS OF CASE

CSH was listed on 22 January 1997. It had 207,753,600 issued shares as at 31 December 2004. It was delisted on 31 March 2010. The company suffered net losses of $2.38 million, $0.13 million and $2.20 million for financial years 2002, 2003 and 2004 respectively.

The conspiracy involved four UOBKH accounts (“the UOBKH accounts”) belonging to the accused, her husband Lim Chee Seng (“Chee Seng”), her niece Lee Lay See (“Lay See”) and her nephew Chua Chin Guan (“Chin Guan”). The account holders had allowed the accused to operate their UOBKH share trading accounts on the understanding that the accused would assume responsibility for any losses arising from these trades.

According to the Statement of Facts, the accused had pledged 20 million CSH shares held in her and her family members’ names towards margin facilities from various financial institutions. The margin facilities were backed by a number of different shares, including the CSH shares pledged. These margin loans were arranged by Frank. If the collective collateral value of the different shares fell below the margin call levels, the holders of the margin facilities were liable to top up the margin levels in the various margin accounts. The accused was responsible for topping up the margin levels in the various margin accounts.

As CSH’s share price had been on an extended downward trend just prior to the relevant period, the accused needed to top up the margin levels in the various margin accounts if a reduction in CSH’s share price caused the collective value of the collateral to fall below the margin call levels. During the relevant period, Kelvin and Frank sent the accused consolidated monthly margin reports to help her track the margin position of these accounts with the various financial institutions.

To avoid having to top up the margin levels in the various margin accounts, the accused chose to support the closing price of CSH shares and instructed Frank and Kelvin to do so by buying CSH shares. The accused made use of the UOBKH accounts held by her and three other family members. The CSH shares purchased in order to support the closing price were financed either by their Central Provident Funds or by the accused.

Whenever the accused wished to set the closing price for CSH shares, her instructions would indicate the target closing price, and which of the UOBKH accounts Frank or Kelvin was to use to purchase CSH shares. Sometimes she would give standing instructions to purchase CSH shares without specifying the quantity; at other times she would limit the quantity of CSH shares which Frank and Kelvin could buy. As the accused was not knowledgeable in share trading, she left matters to the discretion of Frank and Kelvin and was not interested in the exact method used so long as the target closing price was achieved.

During the relevant period, the UOBKH accounts traded only in CSH shares, and all the trades were purchases with the exception of a forced sale in Lay See’s account on 28 March 2005 due to a delay in settling the purchase price of the shares. Other than this forced sale, the accused did not sell any of the CSH shares during the relevant period.

Throughout the relevant period, the accused instructed Frank and Kelvin to fix the closing price of CSH shares by purchasing CSH shares. Specifically, purchases by Frank and Kelvin from the UOBKH accounts: Were made on 183 days, which was 85.9% of the 213 days during the relevant period where trading occurred; Accounted for a total of 4.407 million shares, which was 67.9% of the 6.486 million shares traded during the relevant period; and Represented 100% of the volume of shares traded on a single day for 111 days, or 60.7% of the 183 days where purchases were made from the UOBKH accounts.

The frequency and volume of purchases from the UOBKH accounts gave Frank and Kelvin the ability to control CSH’s share price. They did so by using one or more of the following methods: a) First, Frank and Kelvin would “stack the bids” around the target closing price. “Stacking the bids” occurs when a buyer places bids in the market at incrementally higher or lower levels in a short span of time. The incrementally stacked bids would signal to sellers that there are buyers in the market at the price levels around which the bids were stacked, dissuading sellers from pricing their sales below this price and cushion the share price from falling by absorbing any selling pressure. In the absence of these stacked bids, would-be sellers would have to price their shares more cheaply in order to attract buyers. Frank and Kelvin would stack the bids within 90 minutes of the opening and closing of the trading day. Stacking the bids at the opening of the trading day was aimed at influencing the traded prices for the rest of the trading day. Stacking the bids at the close of the trading day was aimed at influencing the closing price. During the relevant period, the UOBKH accounts stacked the bids on or near the opening of trading on 102 days, and stacked the bids on or near the close of trading for 104 days. b) Secondly, Frank and Kelvin would “prop up the share price”, i.e. they would bid up the share price after the stock had been sold below the target closing price. In the absence of such bids, the shares would have continued to trade and close at prices lower than the target closing price. During the relevant period, the UOBKH accounts propped up the share price of CSH on 151 days. c) Thirdly and finally, Frank and Kelvin would buy shares during the Pre-Close Routine to “mark the close”. The Pre-Close routine starts at 5 pm each day and consists of two phases. The first phase is the five-minute Pre-Close Period, where buy and sell orders can be made, cancelled or amended. Unfilled buy and sell orders made before 5 pm are also carried forward into the Pre-Close Period. The Pre-Close Period is followed by a one-minute Non-Cancel Period where orders cannot be made, cancelled or amended. Buy and sell orders will be matched at a computed closing price, if possible, while unmatched orders are discarded. The computed closing price depends, in essence, on the market for the counter during the Pre-Close Routine, i.e. the range of prices where there are willing sellers and willing buyers, and the volume of shares which can be transacted at those prices. Frank and Kelvin would buy CSH shares at sufficient volumes at the targeted closing price to establish it as the closing price.

Following the conspiracy, the closing prices of CSH shares were maintained at 3 distinct price levels: a at around $0.31 in the period between 30 August 2004 and 1 February 2005, b at around $0.29 in the period between 8 March 2005 and 1 August 2005, and c at around $0.285 in the period between 22 August 2005 and 30 November 2005.

As a result of the trades by Kelvin and Frank executed on the accused’s instructions, the UOBKH...