Is a CPIB probe necessarily material and disclosable info?
Just the fact that a company chief executive is called for questioning by the Corrupt Practices Investigation Bureau (CPIB) doesn’t automatically make it material and disclosable information, lawyers for former directors of Airocean argued in court yesterday.
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By KENNETH LIM
24 February 2012
Just the fact that a company chief executive is called for questioning by the Corrupt Practices Investigation Bureau (CPIB) doesn’t automatically make it material and disclosable information, lawyers for former directors of Airocean argued in court yesterday.
The three are appealing against their convictions related to the events surrounding Airocean’s disclosures about the 2005 CPIB investigation of the company’s CEO Thomas Tay, who was eventually convicted for corruption.
Their lawyers said in a magistrate’s appeal case before Chief Justice Chan Sek Keong that because there was doubt about the materiality of the information, they acted prudently and sensibly by seeking and following external legal advice.
But prosecutors said the evidence taken as a whole showed that the directors knew that they had material information and yet failed to disclose it; and even if materiality was in doubt, the responsible course of action would be to announce it.
A lawyer himself, former independent director Peter Madhavan was sentenced in 2011 to four months’ jail and fined $120,000 for making a false and misleading statement and for not disclosing material information - the harshest sentence ever for an independent director in Singapore.
Fellow former independent director Ong Seow Yong was fined $170,000 while ex-chief operating officer Johnson Chong, who was also convicted of insider trading, was sentenced to four months’ jail and fined $280,000.
Ex-CEO Tay was eventually fined $3,000 for his corruption conviction, and in 2007 was fined $240,000 for disclosure lapses and giving misleading information.
Arguing for Madhavan, Senior Counsel Davinder Singh said the trial judge erred in not considering whether the information that the independent directors possessed actually had to be disclosed. A person could be taken for question for a variety of reasons and levels of culpability, for example. The directors were also under the impression that Tay’s ability to run the company was not impaired after he was released by CPIB.
Mr Singh added recent context, quoting Deputy Prime Minister Teo Chee Hean as saying that an arrest ‘has no bearing on the guilt or innocence of a person’ in the minister’s explanation of the timing of disclosure in the corruption investigations of the former heads of the Central Narcotics Bureau and the Singapore Civil Defence Force.
Rather than make a hasty and uninformed decision, Madhavan exercised ‘eminent sense’, actively tried to find out more about the CPIB probe and sought legal advice from a reputable law firm, said Mr Singh.
In early September, just as the probe occurred, Madhavan was advised by Tan Rajah & Cheah that an announcement was not necessary, the senior counsel said.
He also described a ‘comedy of errors’ in the events leading to a key Airocean announcement on Nov 25, 2005, that said that the CPIB probe involved other companies, when in fact the investigation focused on Airocean subsidiaries.
Madhavan was acting in good faith and to the best of his knowledge at that time based on advice from Tan Rajah & Cheah and from key employees of Airocean, Mr Singh said.
He added that the trial judge failed to consider Madhavan’s lack of motive for wrongdoing and his efforts to make sure Airocean was doing the right thing. ‘You can say he may have looked closer, but he is not a criminal.’
The quality and nature of advice that the directors received - especially from Tan Rajah & Cheah - has emerged as a key point of contention in the trial, with each side arguing that the evidence contradicts the other’s version of events.
The prosecution, represented by deputy solicitor- general and Senior Counsel Jeffrey Chan, accused the appellants of cherry-picking evidence.
‘Many of the issues (raised by the appellants) are not issues at all when you look at the facts,’ he told the court.
The fact that Airocean’s concerned bankers demanded a meeting shortly after news of the CPIB probe came out also suggests that information about an investigation should reasonably be taken to be material from a common investor’s perspective, he said.
Mr Chan said it was flawed to argue that disclosure should wait until the company is actually materially affected. Doing so would offend the idea of a level playing field, he said. ‘When there is a doubt, surely transparency is preferable.’
Senior Counsel Michael Hwang, arguing for Ong, said his client did not know at the time that the Airocean announcement in question was misleading, and that he had in fact been consistent in not consenting to the announcement because he had sought certain changes that had not been made.
Witness testimony suggested that although he still wanted changes to the announcement, he was resigned to the fact that he was outnumbered by the other directors, Mr Hwang said.
In response to the judge’s query about whether active objection was required to demonstrate lack of consent, Mr Chan answered that as long as Ong agreed to go along with the others, he was subject to the same liabilities.
Subramanian Pillai, arguing for Chong, said Chong’s sale of his mother’s shares between the time that he knew of the CPIB probe in September and the disclosure of that news in November was because his mother needed the money.
Chong was also of the opinion at that time that things had gone back to normal and that the CPIB probe was immaterial, Mr Pillai said.
But Mr Chan argued that it did not matter how long Chong waited to trade after obtaining the information. As long as he traded while possessing information that was not generally available, he should be guilty.
The case continues today, with the arguments expected to shift towards the severity of the sentencing.
Lawyers from Drew & Napier representing Madhavan include Wendell Wong, Jaikanth Shankar, Pardeep Singh Khosa, Krishna Elan, Vishal Harnal and Chan Yong Wei.
Lawyers from Colin Ng & Partners representing Chong include Rasanathan Sothynathan and Luo Ling Ling.