Landmark case in Singapore on rigging the market

SINGAPORE, Aug 28 — A landmark legal action by the authorities against a prominent Singapore fund manager who handles more than US$1 billion (RM3.5 billion) of assets got under way in the High Court yesterday.

The Government of Singapore Investment Corporation (GIC) is among the manager's major clients.

Dr Tan Chong Koay, one of Singapore's pioneering boutique fund managers, is founder and chief executive of the Singapore unit, Pheim Asset Management (Asia), and Pheim Asset Management (Malaysia). The market-rigging lawsuit against Tan and the Malaysian unit has been brought by the Monetary Authority of Singapore (MAS).

It is being closely watched in the investment community, as Tan is well-known in fund management circles. Also, the case touches on the practice of “window-dressing” where big investors may try to ramp up or push down share prices — a key concern at the year-end when the value of a fund is determined.

MAS has accused Tan and Pheim Malaysia of market rigging and market manipulation and is asking for civil penalties such as monetary payments. Under the Securities and Futures Act, Section 197 (1) (b), a person should not create or do anything intended or likely to create a false or misleading appearance over the market or price of securities.

In Pheim Malaysia's case, MAS says it created a false market in the shares of China water player United Envirotech, a company which listed on the Singapore Exchange in April 2004. The case centres on the three days from Dec 29 to Dec 31 in 2004 when Tan and Pheim Malaysia allegedly instructed Tang Boon Siah, then a broker at UOB Kay Hian, to buy United Envirotech shares.

On Dec 29, Pheim Malaysia bought 65,000 shares at 38.4 cents. The next day, 210,000 shares were bought at 42.9 cents. On Dec 31, 85,000 shares were bought at 43.9 cents. Over the three days, the share price had jumped about 17 per cent.

MAS said: “This was not the conduct of a genuine buyer seeking to buy shares at the lowest possible price. They 'saturated the market for United Envirotech shares with 88 per cent of the purchases in the last three trading days of 2004.”

The trades occurred towards the end of each trading day, except for the trade on Dec 30, which allowed Pheim to “fix the closing prices at significantly higher prices than the previous day”.

MAS added that Tan and Pheim “are not naive individual investors. They are experienced professionals who knew full well... the effect that such targeted trading would have on the market”.

The regulator said that with the rise in the share price at the year-end, Pheim Singapore was able to exceed certain benchmarks for its fund.

Pheim Malaysia's case is it had already invested in the company when it was floated on the stock exchange earlier in the year. Its investment committee was keen to buy more United Envirotech shares, on the back of its success in investing in Hyflux.

There were three funds in question — but under Malaysian rules, each fund could not hold more than 10 per cent of foreign (non-Malaysian) stocks.

So it was only after these three funds had sold off some Singapore stocks on Dec 28, that the firm was able to buy into United Envirotech. Pheim Malaysia argues that it was a genuine investor, believing the shares were undervalued in 2004.

Tan says it was not he who told the broker to buy the shares, but another staff member.

This point was raised at the hearing yesterday, before Justice Lai Siu Chiu. MAS is arguing that there were phone calls from Tan to Tang at the time the trades were supposed to have been done. MAS' lawyer, Senior Counsel Cavinder Bull from Drew & Napier, called a StarHub representative to give evidence of this.

Tan is represented by Senior Counsel Michael Hwang, and Pheim by Foo Maw Shen of Rodyk & Davidson. Foo cross-examined a witness from SingTel who said numbers dialled from a landline such as the broker's could not be retrieved unless the subscriber had signed up for itemised billing.

Tan has not yet taken the stand while the broker, Tang, is expected to take the stand today.

This is only the second time that MAS has taken civil action in the courts against players in the financial industry, and the first under this section.

Earlier this year, for the first time, MAS took a civil suit, on insider trading against former WBL Corp executive Kevin Lew. That case is ongoing. — Straits Times