Court on why it rejected appeal against insider trading ruling
The Court of Appeal issued a landmark grounds of decision yesterday detailing why it dismissed a bid by Kevin Lew to overturn a High Court ruling that found him liable in Singapore’s first civil penalty action for insider trading.
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Lew, former chief financial officer of WBL Corp, was fined $67,500 in July 2010 after the High Court found he had flouted insider trading laws under Section 218 of the Securities and Futures Act, when he sold WBL shares based on inside information available to him as a senior executive.
The Monetary Authority of Singapore (MAS), represented by Drew & Napier Senior Counsel Cavinder Bull, succeeded in its claim against Lew for insider trading in May 2010.
In upholding the High Court’s ruling, the Court of Appeal, in a 99-page grounds of decision, said it was ‘satisfied that all the elements of insider trading pursuant to Section 218 of the SFA had been established and that Lew was in contravention of the said provision’.
‘Although there is much truth in the Judge’s view that the efficacy of the insider trading regime would be best maintained by imposing a narrow view of what is ‘generally available information’, it must nevertheless be borne in mind that a balance needs to be struck, lest the SFA result in regulating the use of information in an over-expansive fashion contrary to Parliament’s intent,’ according to Judge of Appeal Justices Andrew Phang Boon Leong and VK Rajah and Chief Justice Chan Sek Keong.
Lawyers say this is a significant appellate ruling because it seeks to achieve this balance while giving detailed judicial guidance on each element of the insider trading charges.
In appealing the ruling, Lew had argued that the alleged insider information could be deduced from information that was generally available.
But the Court of Appeal disagreed.
‘We agreed with the Judge that the generally available information on WBL that Lew relied on was too weak for the common investor to have drawn the deductions, conclusions or inferences that would have enabled him or her to arrive at the same content as that contained in the information,’ the Court of Appeal said.
High Court Justice Lai Siu Chiu had found that 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) Ltd, in that quarter, and that the group as a whole was going to suffer a significant loss.
She ruled that 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.
Lew had said he needed to raise cash to exercise his WBL options.
In upholding Justice Lai’s ruling, the Court of Appeal found: ‘There was no basis in the generally available information on WBL for the common investor to deduce that WBL was going to take an impairment charge on WPT in 3QFY07 and even if such an impairment could be deduced, the common investor could not from the generally available information on WBL deduce the quantum of the impairment charge.’
But in a separate matter, the Court of Appeal ruled that WBL was in breach of contract for refusing to issue 167,500 WBL shares to Lew, and that he was entitled to claim damages for the breach.
Those damages will be assessed at a later hearing, said Thio Shen Yi, SC, joint managing director of TSMP Law Corp and Lew’s lawyer.
Lew had sued WBL for breach of contract after it refused to issue the shares to him because he had paid for them using funds from the share transactions that constituted insider trading.
WBL argued that they could not issue the shares because it would be illegal to do so and in contravention of Section 44(1) of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act.
But the Court of Appeal disagreed. ‘The fact that it had a potential defence of illegality does not postpone the time of performance,’ it said.