继续
MAS’s pleaded claim
10 On the basis of the facts set out at [6]–[7] above, MAS commenced proceedings under s 197(1)(b) of the SFA for a civil penalty to be imposed on the Appellants on the following grounds:
(a) Pheim Malaysia’s purchases of UET shares during the Relevant Period on the instructions of Dr Tan created a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period;
(b) further, and in the alternative, the said purchases were intended to create a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period; and
(c) further, and in the alternative, the said purchases were likely to create a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period.
The Appellants’ defences
11 Dr Tan’s defence at the trial consisted of bare denials that he had given any specific instructions to Tang to buy the UET shares in question at the volumes and prices pleaded by MAS and that such purchases had the effect pleaded by MAS as outlined at [10] above. Pheim Malaysia’s defence was that its fund manager, Ms Tan, had instructed Tang to buy UET shares during the Relevant Period. This followed a decision made on 7 July 2004 by Pheim Malaysia’s investment committee that Pheim Malaysia should consider increasing its investment in UET because of the bright industry outlook and possible rising profit. This view was maintained at meetings of Pheim Malaysia’s investment committee on 2 September 2004 and 15 December 2004. Also, on 2 November 2004, 12 November 2004 and 21 December 2004, UET had made positive announcements about its future business. Hence, Pheim Malaysia argued that its purchases of UET shares during the Relevant Period were for the purpose of legitimate investment and not for the purpose alleged by MAS. Pheim Malaysia also pleaded that after selling its shares in another SGX-listed company, viz, Azeus Systems Holdings Ltd (“Azeus”), for $815,000 on 28 December 2004, it wished to replace its shareholding in Azeus with another non-Malaysian security, and UET was an obvious replacement.
The prohibitions in s 197(1) of the SFA
12 Section 197(1) of the SFA provides as follows:
False trading and market rigging transactions
197.—(1) No person shall create, or do anything that is intended or likely to create a false or misleading appearance —
(a) of active trading in any securities on a securities market; or
(b) with respect to the market for, or the price of, such securities.
Section 197(1) creates two offences – one relating to active trading in any securities, and the other relating to the market for or the price of such securities. The two offences can be committed in three ways: (a) by creating a false or misleading appearance of active trading in, the market for or the price of securities; (b) by doing anything that is intended to create such a false or misleading appearance; or (c) by doing anything that is likely to create such a false or misleading appearance. The second prohibited act expressly requires the presence of an intention to create a false or misleading appearance before liability can be imposed. There is no clear authority as to whether the other two prohibited acts require proof of intention or some other kind of mens rea in order to establish liability under s 197(1).
The decision of the Judge
13 The Judge held, on the facts, that MAS had proved its claim only in so far as the Appellants’ purchases of UET shares during the Relevant Period were done with the intention of creating a false or misleading appearance with respect to the price of UET shares (ie, the Judge based her decision on the second limb of s 197(1)(b) alone). She did not decide whether the said purchases in fact created such an appearance or whether they were likely to create such an appearance (vis-à-vis the first and third limbs respectively of s 197(1)). The Judge declined to consider the Appellants’ liability with respect to those two limbs of s 197(1) because it was not clear whether, as a matter of statutory construction, liability under those limbs required an element of mens rea (see [89]–[93] of the Judgment).
14 The Judge rejected the Appellants’ arguments that their actions were not intended to create a false or misleading appearance as to the market price of UET shares. In this regard, the Appellants had submitted that: (a) the purchases of UET shares during the Relevant Period were effected through their broker, Tang, who had full discretion to buy UET shares at such prices as he thought fit; (b) the purchases were genuine and were based on legitimate investment purposes as UET shares were undervalued at that time; (c) the UET shares in question were bought to average down the cost of Pheim Malaysia’s holdings; and (d) the fact that the relevant accounts of Pheim Singapore (viz, Accounts 28, 101 and 106) outperformed the company’s internal benchmarks was an incidental consequence of the purchases.
15 The Judge also rejected the Appellants’ explanation that Pheim Malaysia did not make purchases of UET shares before the Relevant Period (ie, before the last three trading days of 2004) because Accounts 89, 90 and 91 had reached their foreign equity limits of 10% and their equity limits (for both foreign and Malaysian equities) of 60% (for Accounts 89 and 90) and 20% (for Account 91) respectively, and Pheim Malaysia therefore had to wait until after it sold its Azeus shares on 28 December 2004 before it could purchase UET shares during the Relevant Period. The Judge found on the evidence that Pheim Malaysia could have purchased UET shares before 29 December 2004 for some or all of the relevant accounts without breaching those regulatory limits (see [55]–[56] of the Judgment).
The parties’ arguments on appeal
16 Before us, the Appellants argued that the Judge’s decision was wrong on the following grounds (which were substantially a reiteration of the grounds that the Judge had rejected):
(a) the purchases of UET shares during the Relevant Period were made for legitimate commercial reasons as part of Pheim Malaysia’s strategy of investing in undervalued shares generally and of increasing its investment in UET shares specifically;
(b) the purchases were genuine as they were made by Tang at his discretion at the lowest available prices;
(c) the sellers of the UET shares in question were genuine sellers who independently offered to sell their UET shares in the market’s “sell” queue at the prices which they posted; and
(d) the Appellants had no motive to trade with the intention of creating a false or misleading appearance with respect to the price of UET shares and their primary purpose was not to set the market price of those shares.
In short, the Appellants contended that the evidence was insufficient to justify the Judge inferring that the primary purpose of the Appellants in effecting the said purchases of UET shares was to create a false or misleading appearance in relation to the price of UET shares.
17 MAS’s response to the Appellants’ arguments was likewise a reiteration of the grounds which the Judge had accepted. However, MAS further contended that the Appellants were also liable under its alternative claims based on the first and third limbs of s 197(1)(b) of the SFA, ie, it contended that the Appellants had created a false or misleading appearance with respect to the price of UET shares (vis-à-vis the first limb of s 197(1)(b)) and that their actions had also been likely to create such an appearance (vis-à-vis the third limb of s 197(1)(b)).
Our decision
The Judge’s findings of fact
18 We are unable to agree with the Appellants’ argument that the Judge’s inferential findings of fact were wrong. We accept her finding that the pattern of the Appellants’ trades in UET shares during the Relevant Period showed that the purpose of those trades was to set the price of UET shares for the end of the trading year in 2004. The Appellants’ pattern of trading was not consistent with either the actions of an investor who genuinely believed that UET shares were undervalued or those of a “contrarian” investor (as contended by the Appellants). Pheim Malaysia stopped buying UET shares in September 2004 after acquiring a total of 5,135,000 UET shares for its funds (the last purchase being the purchase on 17 September 2004 of 35,000 UET shares at the price of $0.385 each), and did not resume buying UET shares again until 29 December 2004. From 17 to 28 December 2004, UET shares were traded (thinly) at prices of between $0.355 and $0.39 per share. Notably, during this period, Pheim Singapore sold a total of 207,000 UET shares in the market at an average price of $0.359 per share on or after 23 December 2004 in order to liquidate one of its accounts. Pheim Malaysia could have purchased those UET shares from Pheim Singapore, but did not do so. The Judge rejected Dr Tan’s explanation that Pheim Malaysia did not buy the 207,000 UET shares sold by Pheim Singapore because the Pheim Group had an internal practice of not allowing one company to buy from the other. We agree with the Judge that this explanation was not credible. Pheim Malaysia’s omission to acquire the 207,000 UET shares sold by Pheim Singapore is also inconsistent with its argument that it bought UET shares a week later at higher prices to average down the cost of the UET shares in its books.
19 The evidence supports the Judge’s finding that the primary purpose of the Appellants’ purchases of UET shares during the Relevant Period was to increase the year-end valuation of the investments held in the various funds managed by the Pheim Group. The modus operandi was to increase the last traded price of UET shares for each day over a period of three days. This is borne out by the pattern of Pheim Malaysia’s purchases of UET shares. It bought 1,000 UET shares at $0.41 each at 4.59.32pm (ie, 28 seconds before the close of trading) on 29 December 2004 after it had earlier bought on the same day 64,000 UET shares at the lower average price of approximately $0.333 per share between 4.44pm and 4.59pm. Dr Tan explained that Tang had exercised his discretion to round off the purchases for the day to 65,000 UET shares. We do not find this explanation credible as no commercial purpose was served by the final purchase of 1,000 UET shares at 4.59.32pm – by then, Pheim Singapore and Pheim Malaysia were already holding, respectively, 11,469,000 and 5,135,000 UET shares (not counting the UET shares Tang purchased for Pheim Malaysia earlier that day). In our view, the purchase of 1,000 UET shares at $0.41 each at 4.59.32pm was wholly consistent with the purpose of increasing the closing price of UET shares for that trading day as a precursor to the next day’s trading. On the next day (30 December 2004), two trades of UET shares were done by other parties at $0.37 per share, but, at 2.23pm, Tang purchased 30,000 UET shares at the price of $0.40 per share. At 4.59.56pm, just before the close of trading, Tang’s trades had set the closing price for the day at $0.455 per share, up by about 11% from the previous day’s close. The same thing happened on 31 December 2004: at 12.29.57pm that day, just 3 seconds before the close of trading, Tang made the last purchase of 5,000 UET shares at $0.445 each. Equally telling is the fact that Pheim Malaysia did not buy any UET shares in the new trading year until 19 January 2005, when it bought 205,000 UET shares at a weighted average price of $0.416 per share. There was no reason for Pheim Malaysia to suspend buying UET shares between 3 January 2005 (the first trading day in 2005) and 18 January 2005 if it really believed that UET shares had investment value at the price of $0.445 each.
20 On these facts, we are of the view that the Appellants intended to, and did, set the price of UET shares at the end of the trading year of 2004 at $0.445 each. The question that arises from this conclusion is whether the Appellants thereby violated any of the limbs of s 197(1)(b) of the SFA.
21 With reference to this question, we accept the Appellants’ argument that the sellers of UET shares during the Relevant Period were genuine sellers. They were independent investors in UET shares who merely wanted to realise their investments by posting their “sell” offers on the SGX’s queue system. However, it does not necessarily follow that because those “sell” offers were genuine offers, the Appellants’ acceptances of those offers were also genuine “buys” in the sense of reflecting a genuine demand by the Appellants for the shares in question. A finding of a genuine demand on the Appellants’ part would require a finding that the Appellants’ purchases of UET shares during the Relevant Period were made as a genuine investment and not for some other extraneous or illegitimate purpose, as will be seen below. We shall address the issue of whether the Appellants’ demand for UET shares during the Relevant Period was genuine, ie, whether the Appellants’ purchases of these shares were or were not made for an extraneous purpose. However, because this issue is intrinsically linked with the interpretation of the second limb of s 197(1) of the SFA, the scope of liability under that limb will be examined first as a preliminary point.
http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/court-of-appeal-judgments/14632-tan-chong-koay-and-another-v-monetary-authority-of-singapore-2011-sgca-36
MAS’s pleaded claim
10 On the basis of the facts set out at [6]–[7] above, MAS commenced proceedings under s 197(1)(b) of the SFA for a civil penalty to be imposed on the Appellants on the following grounds:
(a) Pheim Malaysia’s purchases of UET shares during the Relevant Period on the instructions of Dr Tan created a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period;
(b) further, and in the alternative, the said purchases were intended to create a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period; and
(c) further, and in the alternative, the said purchases were likely to create a false and/or misleading appearance with respect to the market for and/or the price of UET shares during the Relevant Period.
The Appellants’ defences
11 Dr Tan’s defence at the trial consisted of bare denials that he had given any specific instructions to Tang to buy the UET shares in question at the volumes and prices pleaded by MAS and that such purchases had the effect pleaded by MAS as outlined at [10] above. Pheim Malaysia’s defence was that its fund manager, Ms Tan, had instructed Tang to buy UET shares during the Relevant Period. This followed a decision made on 7 July 2004 by Pheim Malaysia’s investment committee that Pheim Malaysia should consider increasing its investment in UET because of the bright industry outlook and possible rising profit. This view was maintained at meetings of Pheim Malaysia’s investment committee on 2 September 2004 and 15 December 2004. Also, on 2 November 2004, 12 November 2004 and 21 December 2004, UET had made positive announcements about its future business. Hence, Pheim Malaysia argued that its purchases of UET shares during the Relevant Period were for the purpose of legitimate investment and not for the purpose alleged by MAS. Pheim Malaysia also pleaded that after selling its shares in another SGX-listed company, viz, Azeus Systems Holdings Ltd (“Azeus”), for $815,000 on 28 December 2004, it wished to replace its shareholding in Azeus with another non-Malaysian security, and UET was an obvious replacement.
The prohibitions in s 197(1) of the SFA
12 Section 197(1) of the SFA provides as follows:
False trading and market rigging transactions
197.—(1) No person shall create, or do anything that is intended or likely to create a false or misleading appearance —
(a) of active trading in any securities on a securities market; or
(b) with respect to the market for, or the price of, such securities.
Section 197(1) creates two offences – one relating to active trading in any securities, and the other relating to the market for or the price of such securities. The two offences can be committed in three ways: (a) by creating a false or misleading appearance of active trading in, the market for or the price of securities; (b) by doing anything that is intended to create such a false or misleading appearance; or (c) by doing anything that is likely to create such a false or misleading appearance. The second prohibited act expressly requires the presence of an intention to create a false or misleading appearance before liability can be imposed. There is no clear authority as to whether the other two prohibited acts require proof of intention or some other kind of mens rea in order to establish liability under s 197(1).
The decision of the Judge
13 The Judge held, on the facts, that MAS had proved its claim only in so far as the Appellants’ purchases of UET shares during the Relevant Period were done with the intention of creating a false or misleading appearance with respect to the price of UET shares (ie, the Judge based her decision on the second limb of s 197(1)(b) alone). She did not decide whether the said purchases in fact created such an appearance or whether they were likely to create such an appearance (vis-à-vis the first and third limbs respectively of s 197(1)). The Judge declined to consider the Appellants’ liability with respect to those two limbs of s 197(1) because it was not clear whether, as a matter of statutory construction, liability under those limbs required an element of mens rea (see [89]–[93] of the Judgment).
14 The Judge rejected the Appellants’ arguments that their actions were not intended to create a false or misleading appearance as to the market price of UET shares. In this regard, the Appellants had submitted that: (a) the purchases of UET shares during the Relevant Period were effected through their broker, Tang, who had full discretion to buy UET shares at such prices as he thought fit; (b) the purchases were genuine and were based on legitimate investment purposes as UET shares were undervalued at that time; (c) the UET shares in question were bought to average down the cost of Pheim Malaysia’s holdings; and (d) the fact that the relevant accounts of Pheim Singapore (viz, Accounts 28, 101 and 106) outperformed the company’s internal benchmarks was an incidental consequence of the purchases.
15 The Judge also rejected the Appellants’ explanation that Pheim Malaysia did not make purchases of UET shares before the Relevant Period (ie, before the last three trading days of 2004) because Accounts 89, 90 and 91 had reached their foreign equity limits of 10% and their equity limits (for both foreign and Malaysian equities) of 60% (for Accounts 89 and 90) and 20% (for Account 91) respectively, and Pheim Malaysia therefore had to wait until after it sold its Azeus shares on 28 December 2004 before it could purchase UET shares during the Relevant Period. The Judge found on the evidence that Pheim Malaysia could have purchased UET shares before 29 December 2004 for some or all of the relevant accounts without breaching those regulatory limits (see [55]–[56] of the Judgment).
The parties’ arguments on appeal
16 Before us, the Appellants argued that the Judge’s decision was wrong on the following grounds (which were substantially a reiteration of the grounds that the Judge had rejected):
(a) the purchases of UET shares during the Relevant Period were made for legitimate commercial reasons as part of Pheim Malaysia’s strategy of investing in undervalued shares generally and of increasing its investment in UET shares specifically;
(b) the purchases were genuine as they were made by Tang at his discretion at the lowest available prices;
(c) the sellers of the UET shares in question were genuine sellers who independently offered to sell their UET shares in the market’s “sell” queue at the prices which they posted; and
(d) the Appellants had no motive to trade with the intention of creating a false or misleading appearance with respect to the price of UET shares and their primary purpose was not to set the market price of those shares.
In short, the Appellants contended that the evidence was insufficient to justify the Judge inferring that the primary purpose of the Appellants in effecting the said purchases of UET shares was to create a false or misleading appearance in relation to the price of UET shares.
17 MAS’s response to the Appellants’ arguments was likewise a reiteration of the grounds which the Judge had accepted. However, MAS further contended that the Appellants were also liable under its alternative claims based on the first and third limbs of s 197(1)(b) of the SFA, ie, it contended that the Appellants had created a false or misleading appearance with respect to the price of UET shares (vis-à-vis the first limb of s 197(1)(b)) and that their actions had also been likely to create such an appearance (vis-à-vis the third limb of s 197(1)(b)).
Our decision
The Judge’s findings of fact
18 We are unable to agree with the Appellants’ argument that the Judge’s inferential findings of fact were wrong. We accept her finding that the pattern of the Appellants’ trades in UET shares during the Relevant Period showed that the purpose of those trades was to set the price of UET shares for the end of the trading year in 2004. The Appellants’ pattern of trading was not consistent with either the actions of an investor who genuinely believed that UET shares were undervalued or those of a “contrarian” investor (as contended by the Appellants). Pheim Malaysia stopped buying UET shares in September 2004 after acquiring a total of 5,135,000 UET shares for its funds (the last purchase being the purchase on 17 September 2004 of 35,000 UET shares at the price of $0.385 each), and did not resume buying UET shares again until 29 December 2004. From 17 to 28 December 2004, UET shares were traded (thinly) at prices of between $0.355 and $0.39 per share. Notably, during this period, Pheim Singapore sold a total of 207,000 UET shares in the market at an average price of $0.359 per share on or after 23 December 2004 in order to liquidate one of its accounts. Pheim Malaysia could have purchased those UET shares from Pheim Singapore, but did not do so. The Judge rejected Dr Tan’s explanation that Pheim Malaysia did not buy the 207,000 UET shares sold by Pheim Singapore because the Pheim Group had an internal practice of not allowing one company to buy from the other. We agree with the Judge that this explanation was not credible. Pheim Malaysia’s omission to acquire the 207,000 UET shares sold by Pheim Singapore is also inconsistent with its argument that it bought UET shares a week later at higher prices to average down the cost of the UET shares in its books.
19 The evidence supports the Judge’s finding that the primary purpose of the Appellants’ purchases of UET shares during the Relevant Period was to increase the year-end valuation of the investments held in the various funds managed by the Pheim Group. The modus operandi was to increase the last traded price of UET shares for each day over a period of three days. This is borne out by the pattern of Pheim Malaysia’s purchases of UET shares. It bought 1,000 UET shares at $0.41 each at 4.59.32pm (ie, 28 seconds before the close of trading) on 29 December 2004 after it had earlier bought on the same day 64,000 UET shares at the lower average price of approximately $0.333 per share between 4.44pm and 4.59pm. Dr Tan explained that Tang had exercised his discretion to round off the purchases for the day to 65,000 UET shares. We do not find this explanation credible as no commercial purpose was served by the final purchase of 1,000 UET shares at 4.59.32pm – by then, Pheim Singapore and Pheim Malaysia were already holding, respectively, 11,469,000 and 5,135,000 UET shares (not counting the UET shares Tang purchased for Pheim Malaysia earlier that day). In our view, the purchase of 1,000 UET shares at $0.41 each at 4.59.32pm was wholly consistent with the purpose of increasing the closing price of UET shares for that trading day as a precursor to the next day’s trading. On the next day (30 December 2004), two trades of UET shares were done by other parties at $0.37 per share, but, at 2.23pm, Tang purchased 30,000 UET shares at the price of $0.40 per share. At 4.59.56pm, just before the close of trading, Tang’s trades had set the closing price for the day at $0.455 per share, up by about 11% from the previous day’s close. The same thing happened on 31 December 2004: at 12.29.57pm that day, just 3 seconds before the close of trading, Tang made the last purchase of 5,000 UET shares at $0.445 each. Equally telling is the fact that Pheim Malaysia did not buy any UET shares in the new trading year until 19 January 2005, when it bought 205,000 UET shares at a weighted average price of $0.416 per share. There was no reason for Pheim Malaysia to suspend buying UET shares between 3 January 2005 (the first trading day in 2005) and 18 January 2005 if it really believed that UET shares had investment value at the price of $0.445 each.
20 On these facts, we are of the view that the Appellants intended to, and did, set the price of UET shares at the end of the trading year of 2004 at $0.445 each. The question that arises from this conclusion is whether the Appellants thereby violated any of the limbs of s 197(1)(b) of the SFA.
21 With reference to this question, we accept the Appellants’ argument that the sellers of UET shares during the Relevant Period were genuine sellers. They were independent investors in UET shares who merely wanted to realise their investments by posting their “sell” offers on the SGX’s queue system. However, it does not necessarily follow that because those “sell” offers were genuine offers, the Appellants’ acceptances of those offers were also genuine “buys” in the sense of reflecting a genuine demand by the Appellants for the shares in question. A finding of a genuine demand on the Appellants’ part would require a finding that the Appellants’ purchases of UET shares during the Relevant Period were made as a genuine investment and not for some other extraneous or illegitimate purpose, as will be seen below. We shall address the issue of whether the Appellants’ demand for UET shares during the Relevant Period was genuine, ie, whether the Appellants’ purchases of these shares were or were not made for an extraneous purpose. However, because this issue is intrinsically linked with the interpretation of the second limb of s 197(1) of the SFA, the scope of liability under that limb will be examined first as a preliminary point.
http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/court-of-appeal-judgments/14632-tan-chong-koay-and-another-v-monetary-authority-of-singapore-2011-sgca-36