They claim that a guilty verdict could have implications for average investor
By CHEW XIANG 03 November 2009
(SINGAPORE) A guilty verdict in a landmark market rigging case brought by the Monetary Authority of Singapore (MAS) against a Malaysian fund manager would have ‘major implications’ for investors, defence lawyers said in their closing arguments.
The case was heard before Justice Lai Siu Chiu in the High Court in early September. In written submissions filed on Oct 19, defence lawyers Foo Maw Shen of Rodyk & Davidson and Senior Counsel Michael Hwang argued that the natural consequence of finding against the defendants would be to chill trading in illiquid stocks, hurting small-cap companies and the practice of value investing.
Tan Chong Koay and Pheim Asset Management Sdn Bhd, a US$1.26 billion boutique fund he founded in 1994, were sued for alleged false trading in 360,000 Singapore-listed United Envirotech (UET) shares in late 2004.
Pheim Malaysia bought the shares from Dec 29 to Dec 31, 2004, making up almost 90 per cent of the volume traded and increasing UET’s share price by 17 per cent over the period. That created a false market in UET shares, MAS said, contravening section 197 (1) (b) of the Securities and Futures Act.
The trades also increased the net asset value of certain Pheim client accounts by some $1 million over the period, triggering performance bonuses totalling $50,790, and benefiting Pheim’s reputation and marketability of its products, MAS said.
In their submissions, Mr. Foo and Mr. Hwang said it did not make sense for Pheim to risk its reputation for such small rewards and said finding that Pheim and Dr Tan were liable for false trading would put investors in a quandary.
They would not have ‘clear criteria to guide them as to what constitutes market manipulation or creating a false and misleading appearance when all they were doing was going about their genuine investment trades’, the lawyers said, noting that MAS’s own expert witness had accepted that Dr Tan had valid commercial reasons for the trades - that UET was then undervalued and represented a good commercial opportunity.
The lawyers said MAS was attempting to impose new rules to enforce the Securities and Futures Act; for instance, that being a large percentage of the market on a trading day constituted suspicious activity; that an investor cannot create a spike in prices even if he was buying what he thought were cheaply valued stocks; and that he could not trade near the close of the trading day and on days his fund was being valued.
‘Demand for legitimate commercial reasons, and without any ulterior motives, and executed according to a valid trading strategy by a broker should always be considered a genuine trade and not false or misleading,’ the lawyers argued. ‘Investors, especially inexperienced investors, who would not know what it takes to move the market, may accidentally fall foul of the law without knowing it.’
The defence lawyers also questioned the credibility of Tan Keng Lin, a former Pheim employee. Ms. Tan, now working in Hong Kong, apparently refused to fly to Singapore to testify but in a dramatic turnaround, appeared in court a few days into the hearing.
She was persuaded by MAS, which brought her to Singapore to testify. Called as a defence witness the next day, Ms. Tan said that she was given the ‘wrong impression’ by Dr Tan when she told the Malaysian authorities that she was responsible for the allegedly infringing trades. Her statement then was not true, she said in court, and added that she had been made a scapegoat.
Defence lawyers noted that her statements to the Malaysian authorities were fluent and coherent and ‘betrayed no nervousness at having to lie’ and that her recall was selective on a number of points.
MAS, represented by Senior Counsel Cavinder Bull of Drew & Napier, brought the suit under its civil penalty regime, introduced in 2004 as an alternative to criminal prosecution. MAS has until Nov 16 to file its closing submissions.
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Pheim lawyers warn of investors’ quandary
They claim that a guilty verdict could have implications for average investor
By CHEW XIANG
03 November 2009
(SINGAPORE) A guilty verdict in a landmark market rigging case brought by the Monetary Authority of Singapore (MAS) against a Malaysian fund manager would have ‘major implications’ for investors, defence lawyers said in their closing arguments.
The case was heard before Justice Lai Siu Chiu in the High Court in early September. In written submissions filed on Oct 19, defence lawyers Foo Maw Shen of Rodyk & Davidson and Senior Counsel Michael Hwang argued that the natural consequence of finding against the defendants would be to chill trading in illiquid stocks, hurting small-cap companies and the practice of value investing.
Tan Chong Koay and Pheim Asset Management Sdn Bhd, a US$1.26 billion boutique fund he founded in 1994, were sued for alleged false trading in 360,000 Singapore-listed United Envirotech (UET) shares in late 2004.
Pheim Malaysia bought the shares from Dec 29 to Dec 31, 2004, making up almost 90 per cent of the volume traded and increasing UET’s share price by 17 per cent over the period. That created a false market in UET shares, MAS said, contravening section 197 (1) (b) of the Securities and Futures Act.
The trades also increased the net asset value of certain Pheim client accounts by some $1 million over the period, triggering performance bonuses totalling $50,790, and benefiting Pheim’s reputation and marketability of its products, MAS said.
In their submissions, Mr. Foo and Mr. Hwang said it did not make sense for Pheim to risk its reputation for such small rewards and said finding that Pheim and Dr Tan were liable for false trading would put investors in a quandary.
They would not have ‘clear criteria to guide them as to what constitutes market manipulation or creating a false and misleading appearance when all they were doing was going about their genuine investment trades’, the lawyers said, noting that MAS’s own expert witness had accepted that Dr Tan had valid commercial reasons for the trades - that UET was then undervalued and represented a good commercial opportunity.
The lawyers said MAS was attempting to impose new rules to enforce the Securities and Futures Act; for instance, that being a large percentage of the market on a trading day constituted suspicious activity; that an investor cannot create a spike in prices even if he was buying what he thought were cheaply valued stocks; and that he could not trade near the close of the trading day and on days his fund was being valued.
‘Demand for legitimate commercial reasons, and without any ulterior motives, and executed according to a valid trading strategy by a broker should always be considered a genuine trade and not false or misleading,’ the lawyers argued. ‘Investors, especially inexperienced investors, who would not know what it takes to move the market, may accidentally fall foul of the law without knowing it.’
The defence lawyers also questioned the credibility of Tan Keng Lin, a former Pheim employee. Ms. Tan, now working in Hong Kong, apparently refused to fly to Singapore to testify but in a dramatic turnaround, appeared in court a few days into the hearing.
She was persuaded by MAS, which brought her to Singapore to testify. Called as a defence witness the next day, Ms. Tan said that she was given the ‘wrong impression’ by Dr Tan when she told the Malaysian authorities that she was responsible for the allegedly infringing trades. Her statement then was not true, she said in court, and added that she had been made a scapegoat.
Defence lawyers noted that her statements to the Malaysian authorities were fluent and coherent and ‘betrayed no nervousness at having to lie’ and that her recall was selective on a number of points.
MAS, represented by Senior Counsel Cavinder Bull of Drew & Napier, brought the suit under its civil penalty regime, introduced in 2004 as an alternative to criminal prosecution. MAS has until Nov 16 to file its closing submissions.
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