THE Monetary Authority of Singapore (MAS) has succeeded in its claim against a former employee of WBL Corp, Kevin Lew, for insider trading - in the first civil claim it's brought to court.
Mr Lew, the former chief financial officer and later the chief risk officer at WBL, is looking at a maximum civil penalty of $81,000.
MAS had accused Mr Lew of being in possession of price-sensitive information - namely, the internal forecasts of WBL's upcoming financial results - when he sold 90,000 WBL shares in July 2007. Mr Lew had admitted to being in possession of the information but claimed that he 'genuinely, reasonably and honestly believed that the information would not have a material effect on the price or value of WBL shares'.
The High Court yesterday awarded judgment to MAS, saying that the regulator had brought enough evidence against Mr Lew to prove that he had, on 'a balance of probabilities', flouted the law.
The matter of the penalty and costs will be decided on a later date.
Justice Lai Siu Chiu, in considering the evidence presented before her, said: 'From my observation, I found the key witnesses of MAS to be truthful and honest - there was no reason for me to reject their evidence, especially since they were corroborative on so many points. On the other hand, I was not impressed by Mr Lew's testimony.'
She found that Mr Lew was present at a WBL Group Management Council meeting on July 2, 2007, in which it was clear to all parties attending that WBL was going to incur a loss and take an impairment charge on a WBL subsidiary Wearnes Precision (Thailand) Limited in that quarter, and that the group as a whole was going to suffer a significant loss.
She ruled that Mr Lew was indeed in possession of such material information when he decided to sell a total of 90,000 WBL shares at $4.98 per share on July 4, 2007.
A month later, on Aug 14, WBL announced a third-quarter net loss of $27.3 million, adversely affected by impairment of $26.6 million on assets relating to its precision manufacturing business in Thailand. 'If a company executive is in possession of sensitive information that is not known to the market, he should not be allowed to trade in those securities,' Justice Lai said.
She ruled that Mr Lew had flouted insider trading laws, under Section 218 of the Securities and Futures Act, and is liable to pay a civil penalty of a sum not exceeding three times the amount of loss avoided or $50,000, whichever is the greater. But, as Mr Lew's closing submissions did not address the issue of the civil penalty, Justice Lai said she will hear the parties on this issue - and on the issue of costs - at a later date.
MAS is asking for the highest civil penalty to be imposed, which is three times the loss avoided by Mr Lew because he contravened insider trading laws. MAS deems the loss to be the difference in the price at which Mr Lew sold the shares - ie. $4.98 - and the price at which he could have sold his shares if he adhered to the law - ie. if he had sold his shares after WBL made the profit announcement, when the average price of the shares was $4.68. MAS contends he avoided a loss of $27,000 - which is the difference of $0.30 multiplied by the 90,000 shares Mr Lew sold - and that the highest civil penalty would be three times of that, or $81,000.
MAS's assistant managing director of the Capital Markets group, Leo Mun Wai, said of the judgment: 'Insider trading unfairly tilts the playing field against other market participants and undermines investor confidence in the integrity of our capital markets. As this case demonstrates, MAS will use every effort and resource to enforce our insider trading laws'.
MAS is represented by Senior Counsel Cavinder Bull from Drew & Napier, while Mr Lew is represented by Senior Counsel Thio Shen Yi from TSMP Law Corp, in this case. This was the first civil suit brought by the MAS to court. Since then, it has filed a claim against Tan Chong Koay and Pheim Asset Management Sdn Bhd for false trading and market rigging of United Envirotech shares in late-2004. The latter case is still ongoing.