Singapore’s central bank said its victory in the country’s first civil lawsuit for stock rigging against fund manager Tan Chong Koay and Pheim Asset Management Sdn. shows its determination to enforce market rules.
Tan and his Malaysian fund management company were fined S$250,000 ($187,000) each for manipulating United Envirotech Ltd.’s share price in December 2004 to maintain their performance benchmarks and boost their reputation, according to a Sept. 17 ruling by Justice Lai Siu Chiu.
The Monetary Authority of Singapore’s lawyer, Cavinder Bull, had sought a fine of S$1 million each from Tan and Pheim after they bought almost 90 percent of the traded shares of United Envirotech from Dec. 29 to Dec. 31, 2004. The share purchases had raised the net asset value of Pheim’s accounts, triggering outperformance bonuses of S$50,790 and a management fee of S$115. Lai said the gain sought wasn’t monetary.
“As this case illustrates, MAS will not hesitate to pursue and take stern action against anyone who attempts to rig our capital markets, regardless of whether the perpetrator is in Singapore or overseas,” said Leo Mun Wai, assistant managing director of the capital markets group at the central bank.
Tan, 60, and Pheim declined to comment, saying they are studying the judgment and working out their options before making a decision on an appeal, according to an e-mailed statement on Sept. 18. from Wong Soohow, Tan’s spokesman.
‘Bona Fide’ Deals
The share price movement of United Envirotech was due to a “proper interplay of supply and demand” and the purchases were “bona fide” transactions, lawyers for Tan and Pheim had argued.
A ruling against their clients would send a signal that investors can “no longer exercise value investing, buying shares when others are not,” the lawyers Michael Hwang and Foo Maw Shen said in a submission. That could chill trading in illiquid stocks and push them to other markets where they are “less exposed to unintentional incurrence of regulatory sanctions,” the lawyers said.
“There are relatively few prosecutions and even fewer convictions in the Commonwealth for market manipulation,” as they may be difficult to detect, said Alvin Yeo, senior partner at Singapore-based Wong Partnership LLP. “The lesson that fund managers might take away is that industry practices such as window-dressing, which are assumed to be widely acceptable, may not be.”
Singapore, which expanded its fund management industry to a record S$1.2 trillion at the end of 2009, joins other financial centers in cracking down on market misconduct. The central bank also won its first civil lawsuit for insider trading against former WBL Corp. chief financial officer Kevin Lew this year.
“Singapore’s regulatory regime is sufficiently regulated to give investors comfort that they will be protected,” said Dean Collins, a Singapore-based partner at O’Melveny & Myers LLP. Yet “it’s not too onerous that regulation makes business too difficult to carry on. Here’s a forward thinking regulator keen to attract fund managers.”
Tan, who founded Pheim Group, was in 2002 named one of five successful Singapore-based boutique fund managers by the Government of Singapore Investment Corp., which is one of Pheim’s clients.
Tan, who has offices in Singapore and Malaysia, jokingly said in August 2006 that Pheim, which manages about $1 billion, was a made-up word which means Please Help Everyone Invest Money.
The case is Monetary Authority of Singapore and Tan Chong Koay, Pheim Asset Management Sdn Bhd., S658/2008/P in the Singapore High Court.