Tan Chong Koay and another v Monetary Authority of Singapore

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 22 July 2011
• Neutral Citation: [2011] SGCA 36
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 186 of 2010
• Published date: 27 July 2011
• Year: 2011
• Hearing Date: 14 March 2011
• Plaintiff Counsel: Vinodh Coomaraswamy SC, Edmund Eng, Stephanie Wee and Victoria Ho (Shook Lin & Bok LLP)
• Defendant Counsel: Cavinder Bull SC, Yarni Loi, Gerui Lim and Wong Liang Wei (Drew & Napier LLC)
• Subject Matter: Financial and Securities Markets,Fund management,Regulatory requirements,Market conduct
• Citation: [2011] SGCA 36

Chan Sek Keong CJ (delivering the judgment of the court): Introduction

This is an appeal by Dr Tan Chong Koay (“Dr Tan”) and Pheim Asset Management Sdn Bhd (“Pheim Malaysia”) (collectively, “the Appellants”) against the judgment of the High Court judge (“the Judge”) in Monetary Authority of Singapore v Tan Chong Koay and another [2011] 1 SLR 348 (“the Judgment”) ordering each of them to pay to the respondent, viz, the Monetary Authority of Singapore (“MAS”), a civil penalty of $250,000 for infringing s 197(1)(b) of the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“the SFA”).

Background facts

Dr Tan founded Pheim Malaysia and Pheim Asset Management (Asia) Pte Ltd (“Pheim Singapore”), which are licensed to carry on fund management business in Malaysia and Singapore respectively. We shall refer to these companies collectively as “the Pheim Group”. At all material times, Dr Tan was the largest shareholder, chief executive officer and chairman of the investment committees for Pheim Malaysia and Pheim Singapore. Dr Tan was managing very successfully the business of the Pheim Group, which, during the relevant period, had assets of about US$560m (about S$1bn). As at 2004, the Pheim Group had consistently recorded profits each year since it was established, except for 1998, when Pheim Singapore did not record a profit.

At all material times, the Pheim Group had 15 accounts holding United Envirotech Ltd (“UET”) shares – five managed by Pheim Malaysia (viz, Accounts 89, 90, 91, F5 and 98 (collectively, “the Malaysian Accounts”)) and ten managed by Pheim Singapore (“the Singapore Accounts”), which included Accounts 28, 101 and 106. At the close of trading on 27 December 2004, the Malaysian Accounts held 5,135,000 UET shares and the Singapore Accounts held 11,469,000 UET shares.

Pheim Malaysia started investing in UET shares in April 2004 when it acquired 2,300,000 UET shares in an initial public offering (“IPO”) by UET at $0.47 each. Trading in UET shares listed on the Singapore Exchange Limited (“SGX”) commenced on 22 April 2004. On 23 April 2004, Pheim Malaysia bought one million UET shares at $0.589 each (900,000 for Account 89 and 100,000 for Account 91). On 5 May 2004, the price had dropped to $0.475 per share when Pheim Malaysia bought another 250,000 UET shares for Account F5. On 7 June 2004, the price had dropped to $0.40 per share when Pheim Malaysia bought another 100,000 UET shares for Account 98. Pheim Malaysia continued to buy UET shares in various quantities for its accounts until 17 September 2004 (at which point the price had dropped to $0.385 per share) when it bought another 35,000 UET shares for Account F5. The lowest price at which Pheim Malaysia bought UET shares during this period was on 13 September 2004, when it bought 20,000 shares for Account F5 at $0.34 each. As can be seen, all the purchases made after May 2004 were at prices below the IPO price.

On 15 December 2004, Pheim Malaysia’s investment committee held a meeting (at which Dr Tan was present) and decided to increase Pheim Malaysia’s investment in UET shares for Accounts 89, 90 and 91 “in anticipation of better results going forward”.¹ One Tan Keng Lin (“Ms Tan”) and one Ng Wai Ling (who were two of Pheim Malaysia’s fund managers) were authorised to implement the decision. However, no purchases of UET shares were made from the time of this meeting until the last three trading days of the year, viz, 29 to 31 December 2004 (“the Relevant Period”), even though UET shares were traded on the SGX (albeit in low volumes) from 17 December 2004 until 27 December 2004. The volume of UET shares traded on the SGX from 15 December 2004 to 28 December 2004 and the prices at which they were traded during this period were as follows:

Date (in 2004)	Last traded price per share	Intra-day high	Intra-day low	Volume
15 December	NIL
16 December	NIL
17 December	$0.375	$0.39	$0.375	2,000
20 December	$0.355	$0.355	$0.355	1,000
21 December	NIL
22 December	$0.37	$0.37	$0.37	30,000
23 December	$0.36	$0.36	$0.36	145,000
24 December	$0.385	$0.385	$0.355	98,000
27 December	$0.38	$0.39	$0.37	50,000
28 December	NIL

Included among these market trades was a sale by Pheim Singapore of 207,000 UET shares on or after 23 December 2004 at an average price of $0.359 per share in order to liquidate an account that was being terminated.

On 29 December 2004, Dr Tan and Pheim Malaysia initiated a series of telephone conversations with one Tang Boon Siah (“Tang”). Tang was a remisier working for UOB Kay Hian Pte Ltd who was known as Dr Tan’s favourite broker. These telephone conversations resulted in Tang buying a total of 360,000 UET shares for Pheim Malaysia during the Relevant Period costing a total of $152,470.95 at a weighted average price of $0.424 per share. It may be noted that Tang did not post any “buy” bids on the SGX’s board. All his purchases were acceptances of “sell” bids made by independent sellers. The full particulars of these trades are tabulated at [20]–[26] of the Judgment. As found by the Judge, all (except one) of the purchases made by Tang during the Relevant Period were made between three seconds and 35 minutes from the close of each trading day even though many of the telephone calls by Dr Tan or Pheim Malaysia to Tang were made early in the morning of the trading day. For example: On 29 December 2004, Dr Tan telephoned Tang at 8.04am. This was followed by a call from Pheim Malaysia to Tang at 9.14am and then by three more calls between 9.37am and 12.28pm. All these were short calls lasting between 24 seconds and 2 min 20 sec. As at 12.28pm, Tang had not purchased any UET shares for Pheim Malaysia. But, at 4.44.49pm, Tang, after talking to Dr Tan, bought 14,000 UET shares at $0.38 each. Between 4.50pm and 4.59pm, he made three more purchases of 25,000, 20,000 and 5,000 UET shares respectively, all at the price of $0.385 per share, and made a final purchase of 1,000 UET shares at $0.41 each at 4.59.32pm. On 30 December 2004, Tang telephoned Pheim Malaysia at 9.00am. This was followed by a series of telephone calls between Tang and Pheim Malaysia and between Tang and Dr Tan from 9.45am to 2.23pm. Tang made a single purchase of 30,000 UET shares at $0.40 each at 2.23pm. During the day, there were a few more telephone calls between the three parties. At 4.23pm, Dr Tan telephoned Tang in a call lasting 1 min 33 sec. About 30 seconds after the end of this call, at 4.25pm, Tang made the first of six purchases of UET shares, starting with 12,000 UET shares at $0.405 each and then at successively higher prices, ending with the purchase of 25,000 UET shares at $0.43 each. Tang then called Dr Tan at 4.50pm, and during this call (which lasted 1 min 1 sec), Tang bought a further 20,000 UET shares at $0.435 each. This was followed by four more purchases, the last three of which were at the price of $0.44 per share. Tang then called Dr Tan again at 4.57pm, and during this 43-second conversation, Tang bought another 40,000 UET shares at $0.45 each. Tang then made his final purchase of the day of 8,000 UET shares at $0.455 each at 4.59.56pm, four seconds before trading closed for the day. On 31 December 2004, Dr Tan telephoned Tang at 8.59am, who in turn telephoned Pheim Malaysia at 9.05am. This was followed by three telephone calls from Tang to Dr Tan between 9.22am and 11.33am. At 12.18pm, 12 minutes before the close of trading for that day, Tang telephoned Dr Tan. At 12.20pm, Tang bought 10,000 UET shares at $0.435 each (by resorting to the “force key” function as the price of $0.435 was more than six bids away from the last traded price of UET shares that day, which was $0.39 per share). Following this, Tang made four more purchases of UET shares, starting with 10,000 UET shares at $0.435 each, then 40,000 UET shares and 20,000 UET shares, both at $0.44 per share, ending with a final purchase of the day of 5,000 UET shares at $0.445 each at 12.29.57pm, just three seconds before trading closed for the day.

Following these purchases, the closing price of UET shares rose from $0.38 per share on 27 December 2004 to $0.445 per share on 31 December 2004, a rise of about 17%. This increase in price resulted in: (a) the net asset value (“NAV”) of the Malaysian Accounts and the Singapore Accounts increasing by a total of $1,086,989; (b) three of Pheim Singapore’s accounts (namely, Accounts 28, 101 and 106) outperforming their benchmark returns for 2004 (which would not otherwise have occurred); and (c) Pheim Singapore earning an additional $50,000 in fees arising from the outperformance.

Pheim Malaysia stopped buying UET shares immediately after the Relevant Period. On 3 January 2005, the first trading day of the new year, the closing price of UET shares was $0.415 each. The closing price dropped to $0.38 per share on 13 January 2005 and rose to $0.405 per share on 18 January 2005, with the trading volume per day during this period ranging from 10,000 to 130,000 UET shares. A total volume of 473,000 UET shares were traded between 3 and 18 January 2005. The next time Pheim Malaysia bought UET shares was on 19 January 2005, when it bought 205,000 UET shares at a weighted average price of $0.416 per share for Account F5. Dr Tan gave evidence that this purchase was done to average down the book value of the UET shares in that account.

Pheim Malaysia began selling its UET shares on 18 March 2005, when it sold 87,000 UET shares from Account 91 at a weighted price of $0.379 per share to fund redemptions for that account. Subsequently, between October 2005 and February 2006, Pheim Malaysia sold a total of 2,835,000 UET shares at a weighted average price of $0.53 per share. By 2007, Pheim Malaysia had sold all its UET shares as it took the...