Public Prosecutor v Ng Chee Kheong and Another

• Jurisdiction: Singapore
• Judge: Yong Pung How CJ
• Judgment Date: 06 August 1999
• Neutral Citation: [1999] SGHC 204
• Date: 06 August 1999
• Subject Matter: Insider trading,Whether offence is one of strict liability,Whether respondents know information to be price sensitive,s 103(1) Securities Industry Act (Cap 289),Whether respondents trading on price-sensitive information,Financial and Securities Markets
• Docket Number: Magistrate's Appeal No 51 of 1998
• Published date: 19 September 2003
• Defendant Counsel: Tan Chee Meng and Melanie Ho (Harry Elias Partnership),Jeffrey Beh and Goh Teck Wee (Lee Bon Leong & Co)
• Court: High Court (Singapore)
• Plaintiff Counsel: Hamidul Haq and Mohammad Nizam (Deputy Public Prosecutor)

: Background

The respondents were tried for the offence of insider trading under s 103(1) of the Securities Industry Act (Cap 289) (`the Act`). Each faced one charge. The prosecution`s appeal was against their acquittal of the charges as amended by the district judge. I dismissed the appeal and now give my reasons.

The amended charge against the first accused was as follows:

You, Ng Chee Kheong (M/41 years), NRIC No 4834879 (FOM) are charged that you, between 9 January 1996 and 23 April 1996, in Singapore, being an officer of Amcol Holdings Limited (`the company`), a listed company incorporated in Singapore, and which shares are traded at the Main Board of the Stock Exchange of Singapore, and thereby being connected with the company, and by reason of your so being connected with the company, were in possession of information that is not generally available but, if it were, would be likely materially to affect the price of securities of the company, the information being:

the deteriorating relationship between the company and Funai Electric Co (Ltd) of Osaka [`Funai (J)`], a company incorporated in Japan, in particular:

Funai (J)`s refusal to co-operate with Amcol Holdings in relation to the audit and other affairs of Funai Electric Pte Ltd [`Funai (S)`], a company incorporated in Singapore;

Funai (J)`s refusal to lower the rates of mark-ups or transfer pricing rates on electrical and electronic goods sold by Funai (J) to Sankei Pte Ltd (`Sankei`), a company incorporated in Singapore, and a subsidiary of the company;

Funai (J)`s refusal to purchase the company`s shareholding in Funai (S) at a price between S$10 to S$15m, as offered by the company, but Funai (J)`s willingness to do so only at a price of S$2.25m;

Funai (J)`s refusal to grant Sankei an exclusive agency agreement to distribute products under the `Funai` brand name for three years, as had been requested by the company;

Funai (J)`s refusal to give a written commitment to supply and sell electrical products under the `Funai` brand name to Sankei for a period of 2-3 years at levels and volumes comparable to that of 1995;

the inevitable loss of distributorship of goods bearing the `Funai` brand name by Sankei in the light of an impending legal suit instituted by the company against Funai (J) and Funai (S), which would consequently materially affect the turnover and profitability of the company.

did deal in securities of the company when you sold 27,000 shares in the company on or about 23 April 1996 in contravention of s 103(1) of the Securities Industry Act (Cap 289) (`the Act`), and you have thereby committed an offence punishable under s 104(a) of the Act.

The charge against the second respondent was identical except that the material period of his being in possession of the price-sensitive information while a director of the company was between 9 January 1996 and 15 May 1996; and that he sold 30,000 shares.

The facts

Pursuant to s 376 of the Criminal Procedure Code (Cap 68), the prosecution and respondents tendered a statement of agreed facts. The material portions were as follows.

At the material time, the directors of Amcol Holdings Ltd (`Amcol` or `Amcol Holdings`) included Henry Pribadi, Robin Kang, Lloyd Lochra, Govinda Gopalan, TT Durai and the two respondents. The first respondent is a 41-year-old Malaysian. Prior to his appointment as a director of Amcol Holdings on 1 September 1995, he was a Vice-President at Citibank. He was brought onto Amcol`s board by Henry Pribadi (an Indonesian who was at that time the Managing Director of Amcol Holdings).

The second respondent, a Singapore citizen, became a director of Amcol Holdings on 1 June 1993. Prior to that, he was a director in the Ministry of Law. He was brought in by Kang Hwi Wah, then Managing Director of Amcol Holdings, to introduce Amcol into the property market and also to inject more professionalism into the management of the company. Prior to Henry Pribadi`s stewardship of Amcol Holdings, the second respondent was the Deputy Managing Director of the company. Upon Henry Pribadi`s appointment as Managing Director, he was redeployed as an Executive Director, tasked specifically with overseeing the Costa Rhu condominium project and some other property projects. On 28 April 1994, the second respondent was also appointed a director of Sankei Pte Ltd (`Sankei`), a subsidiary of Amcol Holdings.

Amcol Holdings was a public company incorporated in Singapore. It was in the business of property and trading, and its shares were listed on the Main Board of the Stock Exchange of Singapore (`SES`). Although property development was the largest contributor to profits in the financial year 1995, its electronics arm (excluding Funai (S)) accounted for 69.07% of the company`s revenue.

Sankei was a subsidiary of Amcol Holdings. Its primary business was the sale of consumer electronics products under the brand name of `Funai`. Its supplier was Funai Electric Co (Ltd) of Osaka (`Funai (J)`). The Chairman of Funai (J) was one Tetsuro Funai (`T Funai`). On 10 June 1987, Funai Electric Pte Ltd was incorporated in Singapore and subsequently renamed as Funai Electric (Singapore) Pte Ltd (`Funai (S)`). On 20 July 1988, pursuant to a joint venture agreement between Amcol and Funai (J) dated 15 January 1988, 2.75 million Funai (S) shares were allotted to Funai (J) (giving it 55% share of Funai (S)) and 2.25 million shares were allotted to Amcol (giving it 45% share of Funai (S)).

From about 1987, Sankei purchased electronic and electrical products under the Funai brand name from Funai (J) and eventually, from Funai (S). The sale transaction between Sankei and Funai (S) took place through Funai (J). Funai (S) sold 100% of its products to Funai (J) which in turn sold 96% of these products to Sankei, after adding a significant mark-up on its price. Funai (J) set the prices of goods sold by Funai (S) to Sankei. Moneys were paid to Funai (J) directly. Funai goods represented 67.65% of Sankei`s total gross sales for the year ended 31 December 1994, and 67.58% for the year ended 31 December 1995. Although Funai (S) was an associate company of Amcol Holdings, the management of Funai (S) was left entirely to the Japanese parties. Hence, the directors of Amcol Holdings took no part in the setting of prices of Funai goods sold to Sankei.

An audit commissioned by Amcol Holdings and carried out by the accounting firm of M/s KPMG Peat Marwick (`KPMG`) subsequently revealed that Funai (J) had marked up the prices of Funai goods sold to Sankei by about 12%. KPMG referred to this mark-up as `transfer-pricing` and estimated the mark-ups to represent an amount of approximately S$24m for the period 1 June 1994 to 31 March 1995.

I shall now set out a chronological account of events material to the charges. The KPMG report was the result of a resolution made by the Board of Directors of Amcol Holdings at a meeting held on 5 September 1995. The new management, led by Henry Pribadi, sought a review of the business of the Amcol group of companies. Several results were discussed at this meeting. It was reported that Sankei had suffered a first ever loss of S$72,000 compared to a profit of S$10m for the corresponding period in 1994. This setback was attributed to the US dollar crisis since the goods were sold in US dollars. Most of the products had been exported by Sankei to Europe, notably to Russia where recent policy and regulatory difficulties forced goods to remain in store.

On 13 November 1995, KPMG presented a first draft of the report to Amcol Holdings. The key liaison person in all dealings between Amcol Holdings and KPMG was Lloyd Lochra (`Lochra`). The report stated that they had not been able to obtain full co-operation of the Funai (S) management to have access to all documents and records related to its accounts. This prompted several representations from representatives of the Amcol board urging the Japanese management at Funai (S) to give KPMG full access to the records of Funai (S).

The draft KPMG report was discussed at a board meeting on 9 January 1996. Several specific issues in relation to Funai (S) were raised and minuted. On transfer-pricing on sales by Funai (J) to Sankei, the board was informed that a comparison of ten invoices issued by Funai (J) and the corresponding invoices issued by Funai (S) revealed a mark-up of approximately 12.95% imposed by Funai (J). In real terms, this was estimated to represent approximately S$24m. In view of Sankei`s dependence on Funai (J) for 60-70% of its turnover, the board agreed that all steps should be taken to reach an amicable solution with Funai (J) and unless necessary, legal action against Funai (S) and Funai (J) would not be recommended. It was also agreed that the first respondent, together with Robin Kang, would prepare a business plan for Sankei to reduce its reliance on Funai (J) to 30%.

At a meeting on 31 January 1996, Lochra informed the board, among other things, that Funai (S) officers had been uncooperative to the extent of `cancelling and not showing up at scheduled meetings` and had not provided any data or information requested by KPMG. In the circumstances, the unresolved issue of overstatement of stocks (estimated at S$9m) would qualify the accounts of Amcol Holdings for 1995. A provisional reserve for Amcol Holdings in its accounts with respect to Funai (S) could run in the range of S$5m to S$6m, and might be reflected as a loss in the company`s accounts. The board resolved to send a draft letter to Funai (S) and copied to Funai (J), threatening legal action unless they responded by 7 February 1996.

At the next board meeting, held on 16 February 1996, Gopalan, head of Amcol`s internal audit committee, told the board that no discussions had commenced on the unreasonably high mark-ups and royalty percentage of about 18% payable by Funai (S). It was recommended that such discussions be held by 22 March...