In the first of a three-part series, lawyer Edmund Lam gave an introduction to white-collar crime and shared examples of money laundering and signing of false certificates. He also shared about the criminal breach of trust, corporate and securities fraud in the second article.
In the last part of this series, Edmund provides illustrations on insider trading, corruption and bribery, multi-jurisdictional jeopardy & resolution and deferred prosecution agreements.
Illustrations of white-collar crimes
Insider trading
In 2008, a voluntary general offer (“VGO”) for the shares in Jade Technologies Holdings Ltd (“Jade”) was launched by Soh’s investment vehicle, APLL. At the material time, Soh was a director and the sole shareholder of APLL as well as a director and Group President of Jade. Overseas-Chinese Banking Corporation (“OCBC”) was appointed APLL’s financial adviser for the purpose of the VGO.
During the VGO period, Soh traded in a substantial number of Jade shares without informing Jade and the Singapore Exchange Ltd (“the SGX”). By secretly offloading a large chunk of his shares and offering to buy up shares belonging to other shareholders at the same time, he profited handsomely at the expense of public investors due to an anticipated inflation in the share price after the VGO was announced.
Concurrently, Soh caused OCBC to be provided with fictitious banking documents which purported to confirm that funds were available to satisfy APLL’s obligations under the VGO. Subsequently, Soh authorised the furnishing of a letter to the Securities Industry Council (“the SIC”) stating that he had given instructions for a bank to send two banker’s guarantees for a total of US$200 million to OCBC. The VGO was eventually withdrawn with the consent of the SIC after APLL failed to provide sufficient proof that it had the financial resources to complete the VGO.
Separately, on an occasion prior to the launch of the VGO, Soh falsely informed Jade’s company secretary that he had purchased 5,500,000 shares and the latter proceeded to file a requisite notification to the SGX.
For this entire fiasco, Soh was charged and convicted of 39 offences under the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“SFA”) and the Companies Act (Cap 50, 2006 Rev Ed) (“CA”) for insider trading (section 218(2)(b) SFA), authorising the furnishing of a false report to the SGX (section 330(1)(a) SFA), failing to notify Jade about share purchases or sales (section 165(1)(b) CA), failing to notify the SGX about share purchases or sales (section 166(1) CA), making a take-over offer without having reasonable grounds to believe that he or APLL had sufficient financial resources to implement that take-over (section 140(2) SFA), creating a false or misleading appearance as to Jade’s share price (section 197(1)(b) SFA), and authorising the furnishing of a false report to the SIC (section 330(2) SFA). On appeal, he was ordered to be imprisoned for an aggregate of 11 years (from 8 years and 9 months) and fined a total of $50,000.
Lessons – This is a professionals’ nightmare appropriate for repeated chants of two words before sleeping, “professionals beware!” Soh had made use of the services of professional advisers (i.e. his bankers, lawyers and company secretary) to facilitate his criminal activity and engineer the sham VGO by supplying them with false banking documents. When he found himself in a tight spot, he blamed his professional advisers for breaching their duty by failing to properly advise him. The appellate court dismissed this argument, to the effect that his professional advisers should have prevented him from committing his wrongs, as “disingenuous”. The fact that the professional advisers could possibly have discovered his fraudulent scheme did not absolve him from legal responsibility for the outcome that he had intended to cause.”
Securities fraud
Wang, a full-time private equities trader who had 700,000 Datacraft shares, sold all of these shares at a loss of US$105,980 when there was a sharp fall in Datacraft’s share price, purportedly prompted by information from an institutional sales dealer with OCBC Securities Pte Ltd (“OCBC Securities”). Sometime after 5.00pm that day, the accused received a report from OCBC Securities via e-mail, which read,
“More rumours of CAD [Commercial Affairs Department] follow up action. Speculative.”
Over the weekend the respondent sought unsuccessfully to verify the rumour. Subsequently, the accused received another report by OCBC Securities containing entirely identical information relating to Datacraft. As soon as the market opened, the respondent sold 111,000 Datacraft shares as “naked shorts” (sales made without the seller actually owning any of the shares in question) and, within minutes, the respondent made the following posting as a member of the shareinvestor.com forum, –
“Heard CAD raided Datacraft office last Friday again.”.
When prompted by another forum user who warned Wang to take care in making postings that might contain false and misleading information, Wang posted,
“I know what I am talking.”.
Less than an hour later, Wang bought 111,000 Datacraft shares to cover his earlier naked shorts, making a gross profit of US$2,830. Datacraft publicly announced that the rumours relating to the alleged raid were totally unfounded at about 12.36pm. Over the course of that afternoon, Wang bought and subsequently sold 400,000 Datacraft shares, resulting in a gross loss of US$12,000.
He was initially acquitted at trial but, on appeal, he was convicted of a charge under section 199(b)(i) of the Securities and Futures Act (Cap 289, 2006 Rev Ed) for disseminating, on an online forum, information that was false in material particulars and likely to induce the sale of shares in Datacraft, without caring whether this information was true or false.
Lessons – Watch what you say in both the physical and virtual realms, and in this case, particularly for assertions that may affect the prices of securities. Some things can be unclear. This can be seen from his acquittal at his trial but conviction on appeal when the appellate judge took a different view. In essence, his undoing was the embellishment of a speculative rumour by (re)asserting factually that a raid by a commercial crimes law enforcement agency had taken place. He had the opportunity to qualify or clarify on his first assertion when prompted by another member of the forum but wrongly chose to reaffirm his earlier assertions. Propagating fake news can be bad news for the perpetrator especially when they are self-serving in the stock market.
Moral of the Story
The most obvious and clearest answer, of course, is to stay clear from white-collar crime. Criminal law is best learnt from the lessons of others and not from one’s own mistake. However, more than lip service will be needed by companies and individuals in “at risk” industries and roles respectively to stay away from the dangerous cliff edge.
For organisations, staying within the out-of-bounds markers requires the sustained use of resources to implement and maintain effective proactive risk management (prevention, detection and mitigation) programmes (e.g. audits, compliance training, review of reward and control systems and whistleblower hotlines). These can help to reduce the likelihood of your organisation becoming a victim of white-collar too.
For individuals, it seems all too easy to get sucked into the web and become complicit in the illegal acts of others. It gets even more complicated when it is the senior management that is encouraging or even just tacitly allowing unlawful conduct to spread pervasively within the organisation to keep the top and bottom lines up or to achieve certain objectives. Do you hold ranks with them or squeal on them? Is there any benefit in becoming a whistleblower if you are already tainted? Making these decisions are tall orders especially when the law is clear that hiding behind senior management to avoid criminal responsibility is as (in)effective as an ostrich heading its head in the sand to avoid predators.
Another equally obvious but more complicated question would be how not to fall foul of the law. Many a time, things that smell really bad to the moral conscience are also most likely, wrongful under the law. However, this smell test will be more challenging for complex transactions, overseas markets and new (and, hopefully, disruptive) business models where many things are neither certain nor intuitive.
When all of these get over your head, it is time to get good counsel who knows the law or a great counsel who can help you and your organisation with practical measures to observe the law and, when things, unfortunately, head south, in navigating towards achieving the best possible outcome.
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This article is written by Edmund Lam from LHM Law Corporation and edited by Leanne Cheng from Asia Law Network.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.