By Mr Subramanian Pillai and Ms See Tow Soo Ling
In PP v Chong Keng Ban @ Johnson Chong & Ors [2011] SGDC 4, the Executive Director / Chief Operating Officer and 2 Independent Directors (collectively as "Directors") of the listed company Airocean Group Limited ("Airocean") were charged with various offences under the Securities and Futures Act (SFA).
Charges
Executive Director and Chief Operating Officer (COO) Johnson Chong ("JC") and Independent Directors Peter Madhavan ("PM") were charged and convicted with having consented to Airocean's reckless failure to disclose to the SGX information which was likely to materially affect the company's share prices of Airocean ("Reckless Non-disclosure"). The charge was in respect of the breach of Section 331(1) read with Section 203(2) of the SFA and Rule 703(1) (b) of the SGX Listing Rules.
JC, PM and Ong Seow Yong ("OSY") were all charged and convicted with the offence of having consented to Airocean making a statement, namely, the announcement entitled "Clarification of Strait Times article on 25 November 2005" released on SGXNET that was misleading in a material particular and was likely to have the effect of stabilising the market price of said securities ("Misleading Announcement"). The charge was in respect of the breach of Section 331(1) read with Section 199 (c)(ii) of the SFA.
JC further faced 3 charges and was convicted for committing insider trading, and for selling Airocean shares while in possession of the same information that was not generally available to the investing public ("Insider Trading"). The charge was in respect of the breach of Section 218(2)(a) of the SFA.
The Court stated that the relevant information as set out in the charge would be as follows:
- Airocean's CEO Thomas Tay was questioned by the CPIB in relation to 2 transactions involving 2 of Airocean's subsidiaries;
- Thomas Tay was released by CPIB on bail; and
- Thomas Tay's passport was impounded ("the Relevant Information").
Conviction and Sentencing
After trial, the District Court found that the Directors' guilt were proven beyond reasonable doubt. All the Directors were convicted of the offence of Misleading Announcement: PM was sentenced to an imprisonment of 4 months while JC and OSY were fined. PM and JC were also convicted and fined of the offence of Reckless Non-disclosure.
JC was likewise found guilty of the offence of Insider Trading and was sentenced to 4 months imprisonment. According to the Court, JC, as a connected person was "aware and knew or ought to have known the 'relevant information' which was available to him was price sensitive and not generally available."
JC and PM were disqualified from acting as directors for 5 years and OSY was disqualified from acting as director for 2 years.
All the Directors are appealing their convictions and sentences to the High Court.
Brief facts
Airocean was an international integrated cargo logistics group dealing in international freight forwarding, providing general sales agency and air terminal ground cargo handling services. As a holding company, all of Airocean's operations are conducted via its subsidiaries such as Airlines GSA Holdings Pte Ltd ("Airlines GSA") and WICE Logistics Pte Ltd ("Wice"). At the material time, the members of the Board of Directors of Airocean were: Thomas Tay, the CEO; JC, COO and Executive Director; Ong Chow Hong, the Chairman of the Board of Airocean; PM, Independent Director; OSY, Independent Director; and, Dunn Shio Chau Paul, Executive Director ("the Board").
On 6 September 2005, Thomas Tay and two other officers, namely, Ray Teo of Airlines GSA and Bob Lee of Wice were picked up by officers from the Corrupt Practices Investigation Bureau ("CPIB") to assist in investigations relating to two transactions involving Airocean's subsidiaries Airlines GSA and Wice. Another officer, Simon Ang of Airlines GSA was requested to return to Singapore and attend to the CPIB offices for questioning. Further, upon instructions of Thomas Tay, certain documents relating to transactions with JetStar Asia and Lufthansa Technik were prepared to be picked up by CPIB officers from Airocean's office.
Having been informed that Thomas Tay was at the CPIB office, JC relayed the same information to PM.
At an informal board meeting on 7 September 2005 and, upon PM's recommendation, an external legal counsel was engaged to advise Airocean on its disclosure obligations on account of the CPIB inquiries. At the request of the external legal counsel, Airocean arranged for said counsel to interview the individuals involved in the CPIB inquiry. Thomas Tay was released on the same day. The Court found that Thomas Tay had informed PM and JC about what had happened at the CPIB.
On 8 September 2005, the Board convened a meeting where the Directors were informed of the CPIB matter involving Thomas Tay. The Directors agreed to wait for the advice from the external legal counsel on Airocean's next course of action.
On or about 16 September 2005, PM stated during the trial that he received verbal advice from the external legal counsel that disclosure was not required ("Oral Advice"). JC likewise stated that he was also informed of the Oral Advice from the external legal counsel.
On 26, 27 and 28 September 2005, JC sold his mother's shareholdings in various listed companies, including that of Airocean. In early November 2005, JC purchased 3.3 million shares of Airocean from Thomas Tay.
On 25 November 2005, the Strait Times published the article entitled "Airocean's chief executive Thomas Tay under CPIB probe." SGX requested Airocean for a clarification of the news report through an announcement and imposed a trading halt on the trading of Airocean shares on the same day.
Announcements
Upon request from Airocean personnel, PM drafted an announcement and emailed the same to the external legal counsel for comments. The pertinent portion of the draft announcement reads:
Having been requested to review the 1st Draft Announcement, the external legal counsel amended the pertinent portion of the said Draft Announcement to read:
PM made further amendments to the 2nd Draft Announcement which amendment read as follows:
The Court stated that "CPIB were investigating Thomas Tay for corruption" and "investigating into the transactions involving Airocean's subsidiaries GSA Airlines and Wice Logistics with Jetstar and Luf thansa respectively." Accordingly, such was the "background of the facts leading to the SGX's request to Airocean to clarify the newspaper article."
The Court found that the 1st Draft Announcement suggested that the CPIB investigation was into the aircargo industry in general and not necessarily focused on Airocean in particular. The Court also found that the amendments proposed by PM in the 3rd Draft Announcement, distanced Airocean and its officers from the allegations in the Strait Times article.
On 25 November 2005, Airocean released an announcement, which, save for some minor amendments, was essentially the 3rd Draft Announcement. The pertinent portion of the announcement reads:
This 1st Announcement is the subject of the of the Misleading Announcement charge.
The external legal counsel sent their written advice on 28 November 2005 that disclosure was not necessary.
As SGX sought further clarification of the 1st Announcement, a board meeting was convened on 30 November 2005. In attendance were Thomas Tay, JC, PM and the external legal counsel. On the same day, Airocean emailed to SGX a response to the request for clarification.
Subsequently, there were two meetings between the Directors and the SGX on 1 December 2005. On the same day, Airocean released another announcement without consultations with the external legal counsel ("2nd Announcement").
SGX found the 2nd Announcement as inadequate.
On 2 December 2005, Airocean issued yet another announcement ("3rd Announcement") where it stated that –
Following the 3rd Announcement, SGX lifted the trading halt on Airocean's shares.
Salient rulings of the Court
(1) The Court found that the Directors were aware that Thomas Tay was under CPIB investigation. Also, the Court did not accept that the Oral Advice had been given by the external legal counsel that no disclosure was necessary.
Misleading Announcement
(2) For the Misleading Announcement charge, Court held that "if an announcement by Airocean states that the CPIB were investigating into some other companies in the Aircargo industry and omitting to state that it involve its CEO Thomas Tay and its subsidiaries, it is likely to stabilize the market price of Airocean shares." At the concluding part of the Court's ruling, it is stated that the information contained in the 1st Announcement was "at variance" with the 2nd Draft Announcement from the external legal counsel.
The Court found that Misleading Announcement withheld the Relevant Information which only surfaced in the 3rd Announcement, where it was stated that the "investigations by the CPIB were into the affairs of the company Airocean, its officers including Thomas Tay and its subsidiaries," and that such information was "material information which would certainly impact on the decision of investors trading in Airocean shares as to whether they would sell or buy shares."
The Court held that an investigation by an agency such as CPIB involving a listed company and its officers and/or subsidiaries is information that must be disclosed.
Reckless Non-disclosure
(3) For the Reckless Non-disclosure charge, the Court ruled that "it was no defence for Airocean to rely on the legal advice as a justification for its breach of the law," and that "Airocean was taking a deliberate risk that the legal advice could be wrong as Airocean, its officers and directors did not bother about the reasons for the Oral Advice and that this was reckless." The Court further held that Airocean, "knowing the consequences of material information not being disclosed to the investing public, the company engaged in reckless conduct by not disclosing the information, and not taking any action to determine whether or not it should make disclosure from the time the information came about until the time when the Strait Times article was published."
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