High Court · Decided 27 May 2010

Monetary Authority of Singapore v Lew Chee Fai Kevin

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[2010] SGHC 166Case no. Suit No 71 of 2009

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Interpretation Act 1965

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Lai Siu Chiu J:
[1] The present suit arose out of a share transaction that was entered into by the defendant, Kevin Lew Chee Fai (“Lew”), who was a senior employee of WBL Corporation Limited (“WBL”). In Suit No 71 of 2009 (“S 71/2009”), the Central Bank of Singapore viz the Monetary Authority of Singapore (“MAS”) is claiming payment of a civil penalty from Lew under s 232(2), read with s 218, of the Securities and Futures Act (Cap 289, 2006 Rev Ed) (the “SFA”), for insider trading. Lew had brought a claim in a separate suit, Suit 129 of 2008 (“S 129/2008”), for specific performance of the issuance of shares under WBL’s Executive Share Option Scheme. S 71/2009 was originally commenced in the Subordinate Courts (as MAS’ claim was for less than $250,000) but for expediency, it was transferred to the High Court to be tried together with S 129/2008 before the same judge. The evidence in S 71/2009 was to form part of the evidence in S 129/2008, and vice versa. This judgment, however, will only deal with the merits of S 71/2009.
The facts
WBL
[2] WBL is a public company listed on the Singapore Exchange Ltd (“SGX”). In 2007, it had about 90 active subsidiaries. WBL’s principal activities are in Technology Manufacturing, Automotive Distribution, Technology Solutions and Investments. The Technology Manufacturing division consists of, inter alia, a Flexible Printed Circuits business (“FPC”) and a Precision Engineering Unit. At the material time, WBL had a number of subsidiaries under its FPC business, including Multi-Fineline Electronix Inc (“M-Flex”) and MFS Technology Ltd (“MFS”). M-Flex was listed on the SGX while MFS was a company listed on NASDAQ, an American securities exchange. WBL held approximately 75% of the issued shares in MFS and 55% of the issued shares in M-Flex. While WBL did not manage MFS and M-Flex on a daily basis, it had nominee directors sitting on the Board of Directors of both companies. Another subsidiary of WBL was Wearnes Precision (Thailand) Limited (“WPT”), a company belonging to WBL’s Precision Engineering unit with operations in Thailand.
[3] At the material time, WBL’s senior management comprised of Tan Choon Seng (“CS Tan”) its Chief Executive Officer (“CEO”), Wong Hein Jee (“Wong” who is also known as Lester) the Chief Financial Officer (“CFO”), Lew (the Group General Manager for Enteprise Risk Management at the time) and Tan Swee Hong(“Swee Hong”), WBL’s Company Secretary and Group General Manager for Legal and Compliance. Lew, an accountant by training, joined WBL in 1998 as its Group Financial Controller and became the equivalent of the CFO in 2002. He became WBL’s Group General Manager in 2006. Soh Yew Hock (“Soh”) was a Non-Independent and Executive Director of WBL between 1994 and July 2007. CS Tan, Wong and Swee Hong testified for MAS and WBL while Soh was Lew’s witness.
[4] It would be useful, at this juncture, to provide some background on how WBL operated. When CS Tan took over as WBL’s CEO in December 2004, he instituted the Group Management Council (“GMC”) to support WBL’s Board of Directors in strategic, operational and financial matters. The GMC would typically meet every Monday at 8.30am (the “GMC Meeting”). These GMC Meetings were chaired by CS Tan and attended by members of the GMC and WBL’s senior management. At the material time, the GMC Meetings alternated, on a weekly basis, between operational meetings (where operational matters and strategy were discussed) and financial meetings (where financial forecasts of WBL’s performance were provided). On a number of occasions, CS Tan informed the attendees of GMC Meetings that the information presented and discussed at the meetings was confidential.
[5] At the GMC meetings, it was common for financial forecasts to be presented by WBL’s finance department through Microsoft Powerpoint presentation slides. Most of WBL subsidiaries (save for the smaller ones) would submit a forecast to their respective division heads, who would in turn submit their forecasts to WBL. Wong’s evidence was that most of WBL’s subsidiaries had a qualified accountant and that the closer the forecasts were made and submitted towards the end of each quarter, the greater their accuracy in their reflection of the figures for that quarter. These Microsoft Powerpoint presentation slides were not distributed to the attendees of GMC Meetings due to their confidential nature.
[6] Lew’s position was that these GMC Meetings were not taken seriously by WBL’s senior management. He claimed that: (a) GMC Meetings, which he labelled a “Grand Master Circus”, were unstructured and not taken seriously; (b) no substantive decisions were made at these meetings; (c) important discussions were taken offline; and (d) decisions made at GMC Meetings were not implemented.
[7] I cannot accept Lew’s evidence. First, his own witness, Soh, had agreed that during those GMC Meetings: (a) important and/or confidential matters were discussed; (b) substantive decisions were made; (c) updates were given about important matters in the WBL group; (d) it was not true that most matters discussed were trivial; (e) the meetings were not incoherent, a circus or a farce; and (f) the most up-to-date financial information was revealed during the meetings, contradicting Lew’s evidence entirely on this point. In addition, Soh had also agreed that financial forecasts that were provided towards the end of every quarter were more reliable. Second, in cross-examination, Lew had retracted his statement that no substantive decisions were made at GMC Meetings. Third, Lew had also agreed that confidential information such as financial data was given during GMC Meetings, thereby contradicting his statement that such meetings were a circus or a farce. I therefore reject Lew’s evidence on this point. It was clear on the evidence that important discussions and decisions were made at the GMC Meetings.
[8] The claim of MAS against Lew relates to the sale of his WBL shares on 4 July 2007, two days after a GMC Meeting during which (it was alleged) material price-sensitive information was made known to Lew. The price-sensitive information pertained to two matters, namely that:
(a) WBL was going to make a loss; and
(b) it would be taking an impairment charge on WPT.
I will now set out the facts leading to the receipt of what MAS alleged, was material price-sensitive information by Lew and his trade in WBL shares.
Information announced by WBL prior to the 2 July 2007 GMC Meeting
[9] On 14 February 2006, WBL announced a net attributable profit (i.e., the profit after tax and minority interest (“PATMI”)) of $25.8m for the first quarter of FY 2006 (“Q1 FY06”), up from $7.9m in the first quarter of FY 2005. In Q1 FY 06, M-Flex and MFS contributed $41.9m and $17.8m to WBL’s pre-tax profit respectively. As for its prospects for the next quarter, i.e. the second quarter of FY 06 (“Q2 FY06”), WBL opined that:
[10] On 11 May 2006, WBL announced a net attributable profit of $40m for the first half of FY 2006, which meant that it made a net attributable profit of $14.5m for Q2 FY06. Again, M-Flex and MFS were singled out for achieving “good sales”, with the Technology Manufacturing division earning a pre-tax profit of over $92m. As for its prospects for the second half of FY 2006, WBL opined that:
In its financial statement for Q2 FY06, WBL noted that:
[11] On 11 August 2006, WBL announced a net attributable profit of $9m in the third quarter of FY2006 (“Q3 FY06”), down from $32.5m in the third quarter of FY 2005 (“Q3 FY05”). CS Tan observed that the Technology Manufacturing Division had a challenging quarter due to eroded margins, and that while WBL was disappointed in WPT’s “larger than expected losses”, it was confident of recovery “as we have addressed the issues there”. The announcement also stated that:
Looking forward, WBL noted that: (a) the Technology Manufacturing Division and the Technology Solutions Division were likely to face continued pressures on margin; (b) the Automotive Division would only start to deliver new models in Q1 FY07; and (c) WBL would continue to unlock value from its property holdings in the fourth quarter of FY 2006 (“Q4 FY06”). The financial statement for the Q3 FY 06 results indicated that WBL:
[12] On 23 November 2006, WBL announced a net attributable profit of $58.9m for all of FY06, up from $7.7m in FY05. This meant that it made a net attributable profit of approximately $9m in Q4 FY06. In its announcement, WBL noted that:
[13] On 14 February 2007, WBL announced a net attributable profit of $7.4m for the first quarter of FY 2007 (“Q1 FY07”). CS Tan observed that it was a “challenging quarter with continued margin compression in the Technology Manufacturing Division”. The announcement also noted that:
The financial statement for Q1 FY07 observed that:
[14] On 12 May 2007, WBL announced a net attributable profit of $1.7m for the second quarter of FY 2007 (“Q2 FY07”). CS Tan observed that it was a “challenging half year”. The announcement noted that:
CS Tan also observed, in the announcement, that:
In the financial statement for Q2 FY07, it was noted that:
Internal Discussions on WPT
[15] While WPT was not a major component of WBL’s revenue, it was regarded as a problematic entity, having consistently recorded losses over a number of quarters, as follows:
The 20 November 2006 Audit Committee Meeting
The 9 February 2007 Audit Committee Meeting
[17] On 9 February 2007, another AC meeting was held (the “9 February 2007 AC Meeting”). CS Tan, Wong and Lew attended the meeting. By then, WPT had already recorded losses in Q1 FY07 that were greater than projected. There were discussions as to whether it was necessary to take an impairment on 31 December 2007. WBL’s management took the view that it was unnecessary to do so. Tan Bee Nah, WBL’s external auditor, briefed the AC on the impairment issue, noting that:
[18] Both CS Tan and Dr Lim explained to the AC that:
[19] Lew gave evidence that the AC had, at this meeting, decided that WPT would without further discussion take an impairment in Q2 FY07 if it incurred more than $3.1m in losses. During cross-examination, Lew accepted that his position was not reflected in the minutes. When asked why he did not amend the minutes, he gave a number of different excuses claiming that: (a) the minutes were not received for verification; (b) it was not for him to amend the minutes since it was only for the AC members; (c) he had talked to Dr Lim and the minute-taker about this discrepancy; and, (d) it was not for the attendees of the AC meetings to challenge the minutes, and that he had never been asked whether he agreed with the minutes in all the years he had attended meetings. However, WBL produced three emails (dated 23 January 2007, 5 April 2007 (in relation to the 9 February 2007 AC Meeting) and 9 July 2007 (in relation to the 8 May 2007 AC Meeting)), where Lew responded to requests to review the minutes of the AC meetings. In two of those instances, Lew proposed changes to the minutes. Questioned, Lew claimed he was “mistaken”, conceded that there was a practice of sending minutes internally for verification, but insisted that he did not have authority to make any substantive amendments to the minutes. I reject Lew’s evidence on this point as his testimony was not corroborated by any other witness. It beggars belief that such a high-ranking employee of the company could not make any substantive changes to the minutes if necessary or, that the “mistake” had not been spotted by any of the other seven addressees of the e-mails seeking verification of the same. In my view, it was more likely than not that no firm decision to take an impairment in Q2 FY07 was taken at the 9 February 2007 AC Meeting, if the results were unfavourable.
The 8 May 2007 Audit Committee Meeting
[20] At the next AC meeting held on 8 May 2007 attended by CS Tan, Wong and Lew (the “8 May 2007 AC Meeting”), it was reported that WPT’s losses for Q2 FY07 were higher than expected. The minutes indicated that a number of explanations were given for those losses. There were also discussions on whether WPT had to take an impairment charge. The minutes stated:
[21] Further, in Microsoft Powerpoint presentation slides that were prepared for this meeting, it was observed that WBL could adopt either of the following options in respect of WPT:
The 2 July 2007 GMC Meeting
[22] On 2 July 2007, a financial GMC Meeting was chaired by CS Tan (“2 July 2007 GMC Meeting”). This meeting was held 2 days after the end of the Q3 FY07 on 30 June 2007. Wong, Swee Hong and Lew were also attendees. The evidence suggested that the meeting was not pleasant with voices being (at the least) raised thereat. A Microsoft Powerpoint presentation of WBL’s financial forecasts for Q3 FY07 and Q4 FY07 was provided at the meeting, as follows:
[23] The forecasts were based on actual results in April and May 2007 and best estimates for June 2007, but did not take into account any impairment charge to be taken on WPT. The minutes of this meeting stated as follow:
[24] CS Tan testified that he had told the attendees that a full impairment had to be taken on WPT’s assets in Q3 FY07, unless the deal to sell WPT as a going concern was concluded within a week. CS Tan and Wong also stated that Wong had indicated that the chances of a sale were “very slim”. However, even if a sale materialised, WBL would still have to recognise an impairment charge because WPT would have been sold at distressed prices below its carrying value on WBL’s accounts.
[25] Interestingly, an email was sent by one Debra Soon (who was WBL’s Group General Manager for Corporate Communications and Investor Relations) (“Debra”) to Swee Hong, stating that “like that we will need a profit warning”. This email was sent at 8.48am, i.e., during the 2 July 2007 GMC Meeting. Swee Hong asked Debra what was stated in WBL’s last announcement. Debra replied by stating “That not good la, but we never said going into loss”.
Events subsequent to the 2 July 2007 GMC Meeting
[26] On 11 July 2007, M-Flex announced that it had suffered an unanticipated decline in revenue for Q3 FY07 and was expected to record a net loss in that quarter. This announcement was made available by WBL on the SGX website. On 17 July 2007, MFS also issued an announcement on the SGX website to warn that it was expecting a net loss of between $2.5m and $3m in Q3 FY07. After trading hours on 17 July 2007, WBL issued a profit warning. It referred to the announcements released by MFS and M-Flex and stated that “further to the said announcements and the continual loss suffered by [WPT]”, the Group would be reporting a loss for Q3 FY07.
The sale of WBL shares by Lew
[28] The records from SGX showed that Lew had, on 2 July 2007 at 2.24 pm, made a bid to sell 17,000 WBL shares at $5.05 per share. However, his bid was not matched. Subsequently, at about 8.34am on 4 July 2007, Lew submitted three bids to sell a total of 27,000 WBL shares at $5.05 to $5.10 per share. The records suggested that the three bids were made at 8.34am within a span of two seconds, but none were matched with buyers. Lau Kin Hin Leslie, the Assistant Information Technology Manager for AmFraser, gave evidence that Lew had placed those bids through his Internet trading account with AmFraser and testified that the users’ brokers did not know the password and username for trading on the AmFraser’s Internet trading platform on their clients’ behalf. Lew did not dispute the veracity of AmFraser’s records. However, he claimed that he had given the order to sell those 27,000 shares only after lunchtime on 4 July 2007, and that the order was made through his broker. During cross-examination, Lew said that he could not recall making those three bids and suggested that it was not possible for him to trade at 8.34am on 4 July 2007 as he was then on the move in China. I do not accept Lew’s evidence. MAS provided documentary evidence (which Lew accepted) to show that Lew had put in bids to sell personally on the morning of 4 July 2007. His excuse, that he was on the move in China, was uncorroborated. In my view, the fact that the three bids (from the SGX’s records) appeared to be made within a span of two or three seconds was inconclusive as to the veracity of Lew’s account. Given that the information was downloaded from SGX, the time captured on SGX’s record would reflect the time that the bids were received by SGX and not the time that the bids were sent by Lew from China. In my view, on the totality of the evidence, it was more likely than not that Lew had made those bids through his internet trading account on the morning of 4 July 2007.
[29] At 2.36pm, Lew put in a bid to sell 30,000 WBL shares at $4.98 (which was the last transacted price) and his bids were matched. At 3.52 pm, he put in another bid to sell 30,000 shares at $4.98 (also the last transacted price) and his bids were matched within three minutes. At 3.56pm, Lew put in a third bid to sell 30,000 shares at $4.98 (the last transacted price), and his bid was matched almost instantly. All the bids were made through Lew’s broker with AmFraser. In total, Lew sold 90,000 shares at $4.98, raising $448,200.
Lew’s resignation from WBL
[30] On 5 July 2007, Lew wrote to, inter alios, Swee Hong to inform her about the sale of his WBL shares on the previous day. Swee Hong responded on 9 July 2007 stating that, in her view, he possessed price-sensitive information made known at the 2 July 2007 GMC Meeting and that his actions might be construed as insider trading. Lew’s response was:
[31] Swee Hong’s response the following day (on 10 July 2007) was that Lew had sought her advice on the afternoon of 2 July 2007 (i.e., after the 2 July 2007 GMC Meeting), and that her advice was that:
[32] In Lew’s response, he acknowledged having “a casual conversation after the [GMC Meeting] on whether the matters discussed at the meeting [were] price-sensitive information”. However, Lew denied that he had sought Swee Hong’s advice on whether he could sell the WBL shares. He claimed that at that point of time, it did not occur to him that he would be doing so. He ended by observing that they had a different view on whether the information was price-sensitive. Swee Hong subsequently reiterated that she had advised Lew on 2 July 2007 that it would not be “prudent” to deal with his WBL shares in the light of the information shared at the GMC Meeting that morning.
[33] CS Tan’s evidence was that on 10 July 2007, Swee Hong told him about Lew’s trade in WBL shares, and, that she (Swee Hong) had previously told Lew that the information discussed at the 2 July 2007 GMC Meeting was price-sensitive. WBL’s solicitors were called to conduct an inquiry, the outcome of which is privileged. On 17 July 2007, WBL filed a Suspicious Transaction Report in respect of Lew’s trade. On 19 July 2007, Lew resigned from WBL with immediate effect.
Issues before the Court
[34] The claim of MAS against Lew is based on s 218 of the SFA, the relevant provisions of which are as follows:
[35] As such, under s 218(1) of the SFA, a person must not sell any shares of the company if:
(a) he is a “person connected to a corporation”;
(b) he possesses information concerning that corporation;
(c) that information is not generally available;
(d) a reasonable person would, if that information were generally available, expect it to have a material effect on the price of the securities of that corporation;
(e) the connected person knows, or ought reasonably to know, that the information is not available;
(f) the connected person knows, or ought reasonably to know, that if it the information were generally available, it might have a material effect on the price of the securities of that corporation.
Conditions (e) and (f) are presumed, until the contrary is proven, if MAS can prove conditions (a), (b) and (c) to the satisfaction of this court (see s 218(4) of the SFA).
[36] It cannot be disputed that Lew is a “connected person” within the meaning of s 218(5) of the SFA. Neither is it in doubt that Lew possessed information at the material time. The issues for this court’s determination are as follows:
(a) what was the “information” Lew possessed at the material time?
(b) was the information generally available?
(c) did the information have a material effect on the price of WBL shares?
(d) did Lew know or ought reasonably to know, that the information was not generally available?
(e) did Lew know, or ought reasonably to know, that the information might have a material effect on the price of WBL shares?
[37] The key witnesses for MAS were CS Tan, Wong and Swee Hong. In addition, Christopher Chong (“Chong”) was its expert witness. Apart from himself, Lew called two other witnesses namely Soh and R, who was his expert witness.
[38] At this juncture, it would be useful for me to make some observations about the evidence that was given. From my observation, I found the key witnesses of MAS to be truthful and honest – there was no reason for me to reject their evidence, especially since they were corroborative on many points. On the other hand, I was not impressed with Lew’s testimony. Lew had, on a number of occasions, been untruthful (see, for instance, [19] above). I should also point out that while R was Lew’s expert witness, Lew did not rely on R’s testimony at all in his closing submissions.
What was the Information Lew possessed at the material time?
[39] Under s 214 of the SFA, “information” is defined as including:
[40] MAS asserted that Lew possessed the following information on 4 July 2007:
(a) As of 2 July 2007, WBL had forecasted a loss for Q3, FY 2007 at $2.3m (excluding MFS and M-Flex’s performance) or $0.4m (including MFS and M-Flex’s performance), which were based on WBL’s most updated internal forecasts and discussions held during the 2 July 2007 GMC Meeting;
(b) WBL needed to take a full impairment for WPT in Q3, FY 2007 from the 2 July 2007 GMC Meeting, and that the quantum of the impairment would be a significant one; and
(c) As a result of the first two pieces of information, Lew knew that WBL would incur a substantial loss for Q3, FY 2007.
[41] A reading of Lew’s closing submissions revealed that he implicitly disagreed with the assertion of MAS that he possessed the information, especially in relation to the quality of the information. Lew argued that the information he received at the 2 July 2007 GMC Meeting was indefinite and unreliable. While these arguments were raised in respect of subsequent issues (viz, materiality and his subjective knowledge), it would be more convenient to deal with them here. Making clear the type of information possessed by Lew with regards to, inter alia, its quality and nature, will avoid the risk of conflating separate issues in the subsequent analysis.
[42] As mentioned earlier, the case against Lew was that he possessed information in the form of a forecast made known at the 2 July 2007 GMC Meeting, that WBL would make a loss of $2.3m (excluding the performance of MFS and M-Flex) or a loss of $0.4m (including the two companies’ forecasted performance). Lew did not dispute that such a forecast was provided at the meeting. Therefore, Lew possessed the information that WBL had forecasted the loss as described above (at [40(a)]).
[43] Lew also did not deny that discussions on impairment were held during the 2 July 2007 GMC Meeting. However, he did not accept that it was decided, at the 2 July 2007 GMC Meeting, that a full impairment would be recognised, and that the quantum of impairment was significant. Lew’s arguments and evidence were that:
(a) If WBL had decided to take a full impairment on WPT at the 2 July 2007 GMC Meeting, it would have discussed issuing a profit warning at that meeting and would not have waited until 17 July 2007 to do so.
(b) The minutes for the 2 July 2007 GMC Meeting suggested that the deadline for taking the impairment had been extended to 31 July 2007 (see above at [23]).
(c) No mention of any impairment was made in the profit warning issued or the suspicious transaction report made by Swee Hong. Similarly, in an e-mail sent by CS Tan to WBL’s Board of Directors on 12 July 2007, CS Tan said that “WBL may have to issue our own warning together with the impairment that may happen in [WPT]” [emphasis added], suggesting that no such actual decision had been made.
(d) WBL’s management kept pushing back the deadline to recognise the impairment as it was reluctant to do so. There was no indication that the deadline given at the 8 May 2007 AC Meeting was a fixed deadline. For example, following from the 9 February 2007 AC Meeting, an impairment should have been taken but was not recognised even when WPT’s losses for Q2 FY07 of $5.3m exceeded the limit of $3.1m decided at that meeting (see above at [18]). New assumptions were constantly introduced. At the 8 May 2007 AC Meeting, it was discussed that WPT could get JVC as a new key customer, and that they were negotiating with other buyers for WPT. As a result, as of 2 July 2007, Lew could not conclude that all these alternatives were dead as there were no updates, and decisions might have been made offline.
(e) There was no requisite quorum for the 2 July 2007 GMC Meeting as Dr Lim and Jane Lim, who were both involved with WPT, were absent. Lew also knew that Wong, Dr Lim and Jane Lim would be visiting Thailand after the 2 July 2007 GMC Meeting for further discussions with potential buyers, and therefore, no decision to impair could have been made at that meeting.
[44] The common testimony of CS Tan, Wong and Swee Hong was that at the 2 July 2007 GMC Meeting, it was clear that the impairment had to be recognised. From CS Tan’ perspective, it was because WPT had failed to satisfy the condition imposed by the AC during the 8 May 2007 AC Meeting (viz, to secure a contract with JVC) (see above at [20]-[21]). From Wong’s and Swee Hong’s perspective, the fact that no mention of any JVC deal was made at the 2 July 2007 GMC Meeting meant that no such deal had been reached. As a result, the impairment had to be recognised as the condition imposed at the 8 May 2007 AC Meeting was not satisfied. This would be so even if a sale of WPT (or its assets) materialised as it was unlikely that the selling price would be above WPT’s carrying value on WBL’s accounts. In any case, Wong’s evidence was that the chances of a sale were slim. However, Wong admitted that the AC subsequently had to agree to the impairment and that there was a possibility that the update to the AC would be different if a sale or new deal with a customer had materialised.
[45] I accept that there were apparent inconsistencies between the evidence of Wong and Swee Hong on the one hand and CS Tan’s evidence on the other. The former two suggested that the decision to impair was made during the meeting, while the latter suggested that the decision was made before the meeting as the condition had not been satisfied. In my view, this apparent inconsistency arose due to the different perspectives taken by them, and it was not indicative of any confusion or uncertainty as Lew contended. CS Tan, as CEO, had personally promised the AC that an impairment would be recognised if WPT did not secure a new customer by 30 June 2007. From his perspective, since WPT did not secure a new customer, the decision to impair was set in stone. However, from the perspective of the other two, they might not have the same information as CS Tan. Until the GMC Meeting took place, they were unable to assume that the impairment would take place.
[46] In my view, the important feature of the evidence of CS Tan, Wong and Swee Hong was that any attendee of the 2 July 2007 GMC Meeting would know that the decision to impair was almost a certainty. I accept that the decision to impair was subject to the AC’s subsequent approval, but given the known implausibility that there would be any buyers for WPT and that an impairment would have to be recognised regardless, I cannot accept Lew’s evidence that he did not know that an impairment was very likely to materialise. On the contrary, Lew accepted during cross-examination, that he had heard CS Tan say words to the effect that WBL would take a full impairment in Q3 FY07, corroborating the evidence of CS Tan, Wong and Swee Hong. I therefore find that Lew possessed information that WBL was very likely to recognise an impairment in Q3 FY07.
[47] In my view, the other points raised by Lew do not detract from the fact that he possessed information relating to the impairment. The fact that no profit warning was issued until a much later date is not determinative of the issue, viz, whether an impairment was very likely to materialise, and does not aid his case. The SGX Listing Manual (“SGX-LM”) does not impose on listed companies an absolute duty of immediate disclosure (see Rule 703(3) of the SGX-LM for exceptions relating to confidential, insufficiently definite or internal information). In addition, I accept the explanation of CS Tan that the issuance of a profit warning by WBL was a sensitive matter which required internal discussions and advice from counsel, all of which would take time. His evidence was corroborated by Swee Hong. In any case, Wong and Swee Hong testified that they had (separately) given consideration on the issue of providing a profit warning on 2 July 2007, and that Swee Hong had discussed this issue with CS Tan immediately after he returned from his holiday. While there is no documentation to show that discussions on the profit warning had taken place before 12 July 2007, the e-mails exchanged between Debra and Swee Hong during the 2 July GMC Meeting (see above at [25]) strongly suggests that the issue of the profit warning would have been raised soon after the meeting. Debra and Swee Hong, being in charge of WBL’s communications and legal matters respectively, would have been key personnel involved in the preparation of a profit warning. The facts therefore lend support to the strong inference that a profit warning had been discussed soon after the 2 July 2007 GMC Meeting. As such, I do not think the failure to issue a profit warning immediately after the 2 July 2007 GMC Meeting was indicative of any uncertainty in the forecasted loss or the taking of the impairment, per se.
[48] CS Tan’s statement (as recorded in the minutes) that he would “like to see an end by 31 July and greater sense of urgency” (see above at [23]), when read on its own, suggests that the deadline for recognising an impairment had been pushed back. However, when read in context, that was not the intended meaning. Instead, that deadline referred to any plans to divest WPT’s plant. Both CS Tan and Wong testified that those observations referred to the decision on the size of the impairment (e.g., whether a sale of WPT or its assets would materialise), and not the decision to impair itself. Their explanation was consistent with such an interpretation, viz, that the deadline referred to plans to divest WPT’s plant and not the impairment. Hence, I do not find that the 31 July deadline was referable to the decision to recognise an impairment.
[49] Lew relied on the 20 November 2006 and the 9 February 2007 AC Meetings to argue that the 30 June 2007 deadline fixed at the 8 May 2007 AC Meeting was not definite as the management kept pushing back those deadlines. I have already (at [19] above) rejected Lew’s claims that a definite deadline had been imposed at the 9 February 2007 AC Meeting. Nothing said at the 20 November 2006 AC Meeting suggested that a definite deadline was imposed. Therefore, Lew had no basis for asserting that the deadline fixed at the 9 May 2007 AC Meeting was not definite. Lew’s argument, that he did not know that the JVC deal or deals with other buyers were dead, cannot stand, particularly since Lew had admitted that CS Tan had said words to the effect that an impairment had to be taken.
[50] The fact that there was no quorum at the 2 July 2007 GMC meeting does not assist Lew’s case. I accept that the decision to impair was not made at that meeting itself, but in the circumstances, it was clear to all attendees that it was very likely that the impairment would be recognised, for the reasons explained above (at [44]-[49]).
[51] As for the suspicious transaction report, Swee Hong’s explanation was that the impairment had been implicitly referred to in the suspicious transaction report as “other financial information” that was involved. In any case, given the strong evidence that any attendee at the meeting would know that an impairment was almost certain to be taken, and that Lew had admitted hearing CS Tan mention that an impairment would be taken, I do not think what was written in the suspicious transaction report or in CS Tan’s e-mail to WBL’s Board of Directors can make a difference to the conclusion. I therefore find that Lew possessed information that WBL was very likely to recognise an impairment on WPT at the material time.
[52] I turn now to consider the information that Lew possessed on the quantum of the impairment. At the 8 May 2007 AC Meeting, WBL’s external auditors had informed those present (including Lew) that WBL’s value-at-risk was at $22.5m and $30.5m (excluding and including freehold property respectively), and it was suggested that a $30m write-off was the most predictable outcome (see above at [20]-[21]). Lew contended that the maximum value at risk could not be $30m, because no assessment was made as to WPT’s valuation or its value in use. In my view, it is difficult to appreciate how Lew could contend that the impairment would not be significant. Even taking into account any possibility of a sale of WPT (at a distressed price or any other valuation), the evidence strongly suggested that the impairment would still be a substantial one, even if it may not be at $30 million.
[53] As such, I find that Lew was in possession of the following information at the material time:
(a) That WBL had forecasted a loss of loss of $2.3m (excluding MFS and M-Flex’s performance) or a loss of $0.4m (including MFS and M-Flex’s forecasted performance) for Q3 FY07.
(b) That it was very likely for WBL to recognise a significant impairment on WPT in Q3 FY07.
(c) As a result of (a) and (b) above, that it was very likely that WBL would incur a significant overall loss for Q3 FY07.
Whether the Information was generally available
What is “generally available” information?
[54] Under s 215 of the SFA, information is generally available if:
[55] I will refer to s 215(a) as the “readily observable test”, s 215(b) as the “publishable information test” and s 215(c) as the “market analysis test”. At this juncture, I should observe that these definitions are not without difficulty, for reasons which will be explained in greater detail below. Ironically, the Australian equivalent to s 215 of the SFA was introduced to provide more certainty on the type of information that was intended to be caught by the provisions (see Kendall and Walker, Insider Trading in Australia and New Zealand: Information that is “generally available” (2006) 24 C&SLJ 343 at 345). The prior Australian position (found in the Australian Securities Industries Act 1980) did not define what information was “not generally available”, and this made the previous regime uncertain and difficult to police (see Lyon and du Plessis, The Law of Insider Trading in Australia (Annandale, N.S.W.: The Federation Press, 2005) at p 30).
[56] The Australia draftsmen of this legislation meant to provide a fair market for trading securities, vis-à-vis the information that is available to the investing public. As was noted in its report, Griffith, Fair Shares for All, Insider Trading in Australia (Australian Government Publishing Service, 1989) (“Griffith Report”) (at para 3.3.6):
[57] It should, however, be noted that the Griffith Report only touched on the requirements of the publishable information test. With regard to the readily observable test, it was explained in the Explanatory Memorandum to the Corporations Legislation Amendment Bill 1991 (the “Explanatory Memorandum”) that that test was subsequently included because (at para 327):
[58] There is, however, considerable uncertainty regarding the applicability of the readily observable test in Australia. These difficulties were raised in the decision of the New South Wales Criminal Court of Appeal in R v Firns [2001] NSWCCA 191 (“Firns”). There, the accused acted on information obtained from the Papua New Guinea (“PNG”) Supreme Court which was favourable to a certain company. The information was made known to him through that company’s solicitors (who had attended the hearing before the PNG Supreme Court) and he went on to purchase shares in that company. The issue was whether a judgment issued by the PNG Supreme Court could be considered “generally available information”. On appeal, it was held, by a majority, that such information was generally available. Mason P, delivering the majority’s judgment, recognised that there was a tension between the Australian equivalent to s 215(b) of the SFA, which reflected the policy of equality of access to relevant information to ensure fair markets (the “fairness policy”), and the Australian equivalent to s 215(a) and s 215(c) of the SFA, which recognised that “cleverness, swiftness and efficiency” were to be encouraged for some types of information (the “efficiency policy”) (see Firns at [51] and [57]). Given the conflation of competing policies within the same section, Mason P took the view that the Australian equivalent of s 215(a) of the SFA had to be read literally to reflect the efficiency policy. As such, the class of persons by whom the matter in question was to be regarded as readily observable was not confined to existing shareholders or persons who traded on the Australian Stock Exchange (see Firns at [70]). On the facts of the case, Mason P found that the PNG judgment was readily observable as it was available, understandable and accessible to a significant group of the public, viz, those present and capable of being present in court in the ordinary course (see Firns at [76]).
[59] Carruthers AJ, however, dissented from the majority’s judgment on this point, taking the view that (see Firns at [112]-[113]):
[60] On the one hand, the insider trading rules were promulgated with the intent of correcting any unfair informational asymmetry that may arise in the securities market. On the other hand, the test of what is “generally available information”, if construed strictly, would mean that the diligent would be unduly penalised by the wide scope of insider trading laws. As was recognised by the US Supreme Court in Dirks v Securities Exchange Commission 463 US 646 (1983) (at p 658-659):
[61] Locally, s 9A of the Interpretation Act (Cap 1, 1999 Rev Ed) states that:
It is however not apparent, whether the legislative purpose of s 215(a) is such that the policy of fairness should trump the policy of efficiency. At the second reading of the Securities and Futures Bill (Singapore Parliamentary Debates, Official Report (5 October 2001) vol 73 at col 2136-2137) (“the Parliamentary Debates”) by BG Lee Hsien Loong, Deputy Prime Minister (“BG Lee”) it was suggested that the underlying rationale for implementing the current insider trading rules was to ensure fairness within the securities market. BG Lee explained (id at col 2136):
[62] However, it has been pointed out that the policy of efficiency was not far away from the regulator’s minds in promulgating the current rules (see Lee, “Americanisation” of the Civil Liability Regime for Insider Trading in Singapore (2005) 23 C&SLJ 396 at p 397-398). According to MAS’ Insider Trading Consultation Paper, 2001 (the “MAS Consultation Paper”), the current provisions on insider trading were created to “further enhance the effectiveness of our insider trading laws” and were part of MAS’ “continuing efforts to ensure that our markets operate fairly and efficiently” [emphasis added] (at para 21). It would therefore appear that both policies of fairness and efficiency were considered pertinent in passing the relevant provisions in the SFA. In construing the insider trading provisions, I am mindful of Mason P’s observation (in Firns at [40]) that:
[63] It is not strictly necessary for me to decide whether the majority or minority decision of Firns, or even a different formulation therefrom, should be adopted in Singapore. MAS, in its submissions, did not dispute that the information which Lew sought to rely on (viz, the press releases and announcements of companies listed in Singapore or the USA) satisfies the readily observable test or publishable information test. However, I take the view that the efficacy of the insider trading regime would be best maintained by imposing a narrow view of what is “generally available information”. Lew’s counter-argument was that it would place an onerous burden on company insiders as they would not be able to trade on their option shares, which, I recognise, may comprise a not insubstantial portion of their income (see generally the observations of the US District Court for Eastern District of Pennsylvania in United States of America v Kevin Heron 525 F Supp 2d 72). However, that is not a good reason for construing “generally available information” expansively. As was observed by BG Lee (Parliamentary Debates at col 2157-2158):
Clearly, therefore, if a company executive is in possession of sensitive information that is not known to the market, he should not be allowed to trade in those securities.
[64] With regard to the market analysis test, Lew argued that the words “deduction, conclusion and inference” in s 215(c) should be given their respective dictionary meanings, with an “inference” being less certain than a conclusion. As such, under the market analysis test, the “deductions, conclusions or inferences” need not be correct, so long as it is not fanciful and was arrived at with some basis. It would be possible to arrive at different conclusions, deductions or inferences from the same data, and therefore, the threshold for such “deductions, conclusions or inferences” was rationality, not certainty.
[65] In R v Hannes [2000] NSWCCA 503 (“Hannes”), a person who called himself “M Booth” had instructed his brokers to purchase call options in TNT Limited (“TNT”). The call options were due to expire in two months, had a strike price of $2, and were purchased at 2 cents a piece. Two weeks later, a take-over bid for TNT was announced at $2.45 per share, and TNT’s share price rose to $2.25 as a consequence. “M Booth” made a $2m profit from his call options. The jury, after considering the evidence, took the view that H had purchased the options using the false name “M Booth”. H was an executive director of MCF, a division of a major bank that had advised TNT at the material time.
[66] The prosecution in Hannes relied on the cumulative effects of four separate elements of the information possessed by H, namely, that (Hannes at [28]):
(a) there was a prospect that TNT would be the subject of a take-over;
(b) there was a prospect that the offer would be at a price in excess of $2 per share;
(c) MCF was advising TNT in relation to the possible take-over; and
(d) TNT securities had been placed on MCF’s embargo list.
[67] On appeal, H raised a number of grounds to challenge his conviction, including the ground that the trial judge had erred in directing the jury on the type of information which was considered to be “not generally available” (see Hannes at [103]). On this point, the appellant sought to rely on, inter alia, contemporaneous brokers’ reports and newspapers articles, which referred to TNT as a take-over target and valued TNT shares in excess of $2 each. Spigelman CJ first observed that the reports and articles only related to the first two of the four elements of information that the Prosecution relied on. He observed, in respect of the third and fourth elements, that (see Hannes at [256]):
[68] In addition, Spigelman CJ also observed that the articles and reports relied on by the accused were not of the same quality as the information in his possession, as follow (see Hannes at [258]):
[69] Despite the vagaries in those articles and reports, H argued that the information in his possession could have been deduced or inferred from information generally available (i.e., the reports and articles). Spigelman CJ gave short shrift to this argument, explaining that:
[70] Spigelman CJ further explained that (see Hannes at [382]):
[71] In short, Hannes supports the proposition that the deduction, conclusion or inference drawn must be of the same quality and character as the information possessed by the defendant. Otherwise, a person who possesses information that a merger is about to take place will be able to trade, so long as there are rumours in the market that the merger may take place. I accept the submission of MAS that Hannes applies with equal force in Singapore. It would make no sense to allow a corporate insider to trade with impunity simply because (whether fortuitously or otherwise) the same outcome had been predicted by outsiders with less certainty. The insider possesses information of an entirely different quality from that relied upon by an outsider, in the sense that the information available to the insider is more reliable, and the predictions by the insider are therefore more certain than that by an outsider. To allow the corporate insider to trade on the basis of more reliable insider information simply because the same outcome could be predicted by outsiders with less certainty would be to promote an unequal playing field. I therefore reject Lew’s contention that rationality to the exclusion of certainty is the threshold for the market analysis test.
The parties’ arguments
[72] On the facts, Lew relied on various press releases from WBL, announcements posted on SGX’s or WBL’s websites and public announcements by MFS, M-Flex or WBL’s major customers (e.g. Motorola). As I had highlighted earlier (at [63] above), there is no real dispute that such information satisfies the readily observable test or publishable information test.
[73] Lew’s argument was that the forecasted loss and impairment could have been deduced, concluded or inferred using the market analysis test, because:
(a) The Q1 FY07 Announcement (see above at [13]) and Q2 FY07 Announcement (see above at [14]) showed a declining trend, suggesting that there was a “real possibility of a continuing decline in performance”. Since there was no good news during this period, the generally available information on WBL as on 2 July 2007 was “pessimistic and cautious”.
(b) WBL’s profit in Q2 FY07, being only 0.32% of its revenue, was marginal and insignificant in comparison. As such, any deterioration in performance would easily bring WBL into a loss. Based on Q2 FY07’s results, it was “certainly a real possibility” that it could be deduced, concluded or inferred that Q3 FY07 would be a loss. This was especially since those profit and revenue figures were readily available figures which WBL expressly brought to the public’s attention.
(c) In WBL’s forward looking statements in their results announcements for the past six quarters, the company suggested that its performance could deteriorate. Despite subsequent drops in profits, WBL maintained that its results were “in line” with its previous guidance. Considering WBL’s declining profits and those pessimistic statements, a loss was therefore more logically probable for Q3 FY07. This was especially since “companies trumpet good news and are euphemistic about bad news”. It was reasonable to use the preceding six quarters of financial information as it was not affected by any impairments and therefore reflected a fair view of WBL’s operational performance.
In the light of the above, Lew argued that while the market did not know of the forecast made by WBL’s management, it was possible to conclude, deduce or infer that WBL would make a loss. It did not matter if it was the right or only conclusion, so long as it was a reasonable conclusion.
[74] Lew had further argued that the impairment could have been deduced, concluded or inferred from the generally available information. In particular, while WPT was not a major part of WBL, its poor performance had been consistently singled out by WBL’s management. Despite the management’s assurance given in Q3 FY06 and Q4 FY06 that it would improve margins, WPT’s results did not show any improvement. WBL’s press release for Q2 FY07 would have been viewed with even more pessimism as it was retrenching staff and scaling down on operations without explaining why they failed to turn WPT around. As such, Lew contended that it was objectively possible to conclude, deduce or infer that WBL would “have to contemplate the closing down of the WPT business, sale of WPT or the downsizing and continuation of WPT and the consequent impairment which may be taken”. Therefore, the news of the impairment taken by WPT would have been in the market, in the sense that under the market analysis test such information could be deduced, concluded or inferred, on 4 July 2007.
[75] To summarise, Lew’s argument was that a person who considered WBL’s results and forward-looking statements for the past six quarters, would or could reach the deduction, conclusion or inference that WBL would suffer a loss in the next quarter, and that WBL would take a sizeable impairment on WPT.
Was the forecasted loss “generally available information”?
[77] I will now consider Lew’s argument that the forward-looking statements and results announcements suggested that WBL would suffer a loss in Q3 FY07, and that it was a real possibility that WBL would incur a loss then because its profits were already hovering just above breakeven. Chong’s evidence on this point was that there was no indication that WBL would suffer a loss in Q3 FY07. While the forward-looking statements and results announcements were cautious, it did not state that WBL would suffer a loss. In addition, WBL did not incur a loss in previous quarters even though the results announcements and forward-looking statements released prior to those quarters were similarly cautious. No profit warning had been issued by WBL as of 4 July 2007, and investors would therefore not deduce, conclude or infer that it would be announcing a loss the next quarter.
[78] I accept Chong’s evidence on this point. None of the forward-looking statements or results announcements alluded to the possibility that WBL was going to suffer a loss in the next quarter, although I accept that they were fairly described as being pessimistic. In this regard, I find it significant that no profit warning was issued. Chong, who is also a director of several companies, gave unchallenged evidence that it would have been bad practice from a corporate governance perspective for any company not to issue a profit warning before announcing a loss. Lew’s expert, R, also agreed that a reasonable investor could not reasonably have expected a loss at the end of Q2 FY07, based on the forward-looking statements and results announcements. That would militate against any conclusion, deduction or inference that WBL was likely to suffer a loss.
[79] Another argument of Lew was that if one considered WBL’s consistently declining but positive PATMI for the past six quarters, it would be “rational” to conclude, deduce or infer that a loss would materialise in Q3 FY07. I do not accept this argument. Insofar as the regression analysis is used to show that it was possible for a person to deduce a loss in Q3 FY07, it does not assist Lew’s case. This is so because the conclusions drawn by Lew based on the information he possessed would have been of far greater certainty than the conclusions drawn from a regression analysis based merely on six data points. In other words, because of the difference in the quality of information (the information Lew had as compared with the six data points available to the public) Lew could be more certain of his conclusions than an investor who relied on the regression analysis (see in this regard [71] above). Insofar as this regression analysis is used to show that there was the same degree of probability that a loss would be incurred by WBL in Q3 FY07, I reject the argument. In addition to the point made earlier that Lew could be more certain of his conclusions than an investor who relied on the regression analysis to draw his conclusions because of the difference in the quality of information on which the conclusions were drawn, the regression analysis was also deficient as an analytical tool. As Chong had pointed out, taken to its logical extreme, the invocation of the regression analysis would lead one to the conclusion that WBL would never make a profit from Q2 FY07 onwards. Furthermore, the accuracy of Lew’s simple regression analysis is also questionable. There were only six data points and such an analysis assumed, very questionably, in my view, that the variables were homoscedastic, i.e. that there was a constant variance. Lew conceded that it was “anybody’s guess” what the results for Q3 FY07 would be based on the regression analysis. R, during cross-examination, found it “naïve” to think that an investor would apply a linear regression to predict the future, in the first place.
[80] I conclude that a forecast based on the regression analysis could not be of the same quality as a forecast made by Lew based on the information he possessed, which rested, inter alia, on figures for two months of actual results. This argument did not support Lew’s position that the information he possessed was generally available. For the foregoing reasons, I hold that the forecasted loss was not generally available information.
Whether the taking of an impairment was “generally available information”
[81] WPT was consistently singled out by WBL in its announcements despite its relative small size. WBL’s management gave repeated assurances that things would improve at WPT but it never did. WBL also announced that it was retrenching staff and scaling back on operations in WPT. In addition, WPT’s losses for the first half of FY07 were as bad as its loss for the whole of FY06. Based on these bits of information, Lew argued that it could be deduced, concluded or inferred that the impairment would be taken, as WPT was doing very badly despite the management’s attempts to turn it around. Again, the deduction, conclusion and inference he sought to draw is clearly of a different quality. This form of inference is, at best, speculative. This is in contrast to the information Lew possessed, that it was very likely that a significant impairment would be recognised. On this ground alone, Lew’s contention that information on the impairment was generally available would fail, since it is clearly of disparate quality. As MAS rightly pointed out, the public would also not possess various particularised aspects of the information Lew possessed, for example, that the decision to impair came from the CEO or that WPT had recorded losses that were worse than expected. Lew and R both agreed that the quantum of the impairment could not be deduced by the investing public, again, lending support to the finding that the information possessed by Lew and the inference he sought to draw were of disparate quality.
[82] It is difficult to see how it can be argued that the information which Lew possessed, that WBL would very likely incur a significant loss in Q3 FY07, was generally available. As MAS pointed out, there was no evidence of any report by any investor or analyst that deduced, inferred or concluded the information that Lew possessed. I therefore hold that MAS has established that the information Lew possessed was not generally available.
Did the information have a material effect on the price of WBL shares?
[83] Section 218(1)(a) of the SFA, additionally, requires the information to be of such a character that:
[84] As to what is considered of “material effect”, s 216 of the SFA sets out that:
[85] In other words, the relevant test here is whether a reasonable person would expect that the information in question would, or would be likely to, influence the common investor in deciding whether or not to buy or sell WBL shares. The following principles can be distilled from these provisions and the cases:
(a) From the language of the provision, it is clear that the test is to be objectively applied (see also Hannes at [287]).
(b) From the language of the provision, it is also clear that there is no need for there to be an actual impact on company’s share price in order to establish the element of materiality (see The Law of Insider Trading in Australia at p 25).
(c) Be that as it may, the court is entitled, in deciding the materiality of the information, to consider the actual effect on the price of the securities when the announcement is released. However, the court, in so assessing the materiality of the information, should remain alive to the possibility that the quality of the information announced (which may be couched in absolute terms) may not be the same as that possessed by the defendant (which may be couched in terms of a high degree of probability) (see Hannes at [295] and [298] and R v Rivkin [2004] NSWCCA 7 (“Rivkin”) at [195]). As was observed in Hannes v DPP (Cth) (No 2) [2006] NSWCCA 373 at [351]:
(d) The source of the information is relevant towards the test of materiality and can have a significant impact on price-sensitivity (see Rivkin at [132], [134] and [232]).
[86] It has been suggested that the decisions of the US courts on the materiality threshold are persuasive in the Australian context and, by parity of reasoning, in Singapore (see Baxt, Black and Hanrahan, Securities and Financial Services Law (Chatswood, N.S.W.: LexisNexis Butterworths, 7 Ed, 2008) at para 18-17). The leading case in the US on the materiality threshold is TSC Industries Inc v Northway Inc (1976) 426 US 438 (“TSC”), wherein the US Supreme Court held that information would be considered material if (at p 448-449):
[87] However, this approach appears to have been criticised by the Court of Appeal of Western Australia in Jubilee Mines NL v Riley [2009] WASCA 62, on the ground that (at [34], per Martin CJ):
[88] The italicised portion of the judgment, read in isolation, suggests that the Court of Appeal of Western Australia treated the US and Australian approach on materiality as being conceptually different, as the former approach is concerned with the materiality of the information itself, while the latter approach is concerned with materiality in the sense of the effect of the information on the share price. However, reading the judgment as a whole, it was clear that the Court of Appeal of Western Australia was criticising the trial judge’s holding that s 1001D of the Australian Corporations Act required that the “information should have a “material” effect on the share price”, conflating the two principles (on the materiality of information and on materiality in terms of effect on share price) together (at [33]). The Australian Corporations Act and the SFA both require proof that a reasonable person would expect the information in question to have a material effect on the share price. It does not require proof that the information would have a “material” effect on the share price. An expectation that certain information would have a material effect on the share price and the actual materialisation of that effect are different things. In addition, a reasonable person is deemed to expect that the information would have a material effect on the share price, if it is shown that the information would, or would be likely to, influence a common investor in deciding whether or not to buy or sell the shares of that company. In other words, there is no basis for rejecting the US approach simply because the test of materiality there is referable to information, and not share price. In my view, the approach in TSC is persuasive, insofar as it serves as a reminder to the court that the materiality of the “inside” information is to be considered in the context of the information that is available in the market, and how the “inside” information affects or alters the information that is available in the market when made public. It is noteworthy that the ruling in TSC was adopted by the US Supreme Court in Basic Inc v Levison (1988) 485 US 224 in relation to Rule 10b-5 in the context of insider trading.
[89] It is common ground between the parties that the date for assessing the materiality of the information possessed by Lew is 4 July 2007, the date of Lew’s trade. It would be useful at this juncture to refer to two Australian cases, where a finding of materiality was made out in one but not in the other. In Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963, the Federal Court of Australia found that even if information that Citigroup was acting for a particular client was generally available, it would not have had a material effect at the time of the alleged insider trade by the defendant, because the price had, at that point of time, already reflected a substantial likelihood of a takeover (at [569] and [571]). In Rivkin, the appellant heard from M, the Executive Chairman of Impulse Airlines (“Impulse”), that there was a deal for merging Impulse with Qantas, that he could only buy the accused’s property after ACCC had approved the merger, and that he believed the ACCC approval would be forthcoming (see Rivkin at [4]-[5]). The appellant then instructed his broker to purchase shares in Qantas for his company and was charged for insider trading. The court observed that the appellant’s expert had conceded that “the fact of the price rise, after the announcement, meant that the market had not factored in the disappearance of one of the players” (see Rivkin at [196]) and agreed that the information was, therefore, material.
[90] Lew raised a whole host of arguments to assert that the information he possessed was not material. I will deal with each argument in turn.
[91] In respect of the forecasted loss, Lew argued that the information was not material on two broad grounds. First, generally, such forecasts were inherently flawed because:
(a) a number of WBL’s subsidiaries did not have qualified accountants preparing the figures;
(b) there was a great deal of subjectivity involved in preparing the forecasts, for example, in determining any consolidation adjustment; and
(c) Lew’s past experience was that the forecasts were not a reliable predictor of whether WBL would record a profit or a loss.
[92] Second, Lew claimed that the specific forecasted information was not definite because it did not incorporate the forecast figures of M-Flex and MFS even though both were key subsidiaries. The figures for June 2007 were simply forecasts. The overall forecast was also so close to break-even point that any such small errors or accounting adjustments could result in WBL breaking even or recording a profit. This uncertainty was, in Lew’s view, reflected in the fact that WBL did not announce a profit warning immediately after the 2 July 2007 GMC Meeting.
[93] I reject Lew’s arguments. First, Lew’s submissions assumed that the common investor would know that the forecasts provided were generally unreliable (assuming that the common investor was privy to the forecasts). It would not be possible to attribute such knowledge to the common investor. In Rivkin, for example, the trial judge directed that the jury could take into account (at [227]):
One of the appellant’s arguments on appeal was that the directions did not go far enough to eliminate the precise circumstances in which the information had been received in considering the materiality of the information. However, the New South Wales Court of Criminal Appeal took the view that the directions given were correct and appropriate (see Rivkin at [232]). It is therefore supported, by both logic and authority, that the common investor cannot possess information that was not generally available or not inferable from generally available information. In the present case, the common investor cannot be expected to know about the unreliability (if true) of the forecasts (assuming the forecasts had been made public).
[94] Second, as of 4 July 2007, the latest publicly available information that a common investor possessed on WBL’s financial matters would be its Q2 FY07 results. It is inconceivable that a forecast by WBL itself that was based, in part, on two months of actual results, could not influence the common investor’s decision to buy or sell shares. I agree with Chong’s commonsensical approach that, ceteris paribus, the more recent the information, the greater weight a common investor would attach to it.
[95] In my view, it would be too myopic to say, as Lew did, that the information was not material because the forecasted loss was marginal and the $2m drop in profits was small compared to WBL’s size and performance. WBL was about to record its first loss after six consecutive quarters of profits. Nothing in the forward-looking statements or results announcements suggested that a loss was imminent. The fact that no profit warning had been issued as of 4 July 2007 meant that the common investor would not likely expect WBL to report a loss for Q3 FY07. Taking all these factors into consideration, the common investor would not expect a loss to be forthcoming. Seen in this light, the forecasted loss would, at the least, be likely to influence the common investor’s decision to buy or sell WBL shares. One would certainly take a step back to consider if this would be the start of many more quarters of losses, or was simply an aberration. As such, I am of the view that the common investor would regard the information possessed by Lew on the forecasted loss as being material.
[96] I turn now to consider the impairment charge. I have already dealt with Lew’s contention that the impairment was not certain or definite as of 2 July 2007, and that the value of the impairment was not known as of 2 July 2007 (see above at [43]-[48]). One other argument raised by Lew was that the common investor would not react to the impairment because it was simply an accounting adjustment and/or because of WBL’s previous impairment in Q4 FY05. I reject this argument. Insofar as he suggested that there was no informational value to the fact of an impairment, his assertion is unsubstantiated and may be rejected outright. As for the reference to WBL’s previous impairment, Lew argued that there was no real effect on WBL’s performance, and therefore, the common investor would not be affected by the impairment in July 2007. However, as Chong had pointed out, there were numerous differences between the circumstances in which the previous impairment was taken in FY05, and the circumstances in which the impairment was to be taken in Q3 FY07. In particular, after the previous impairment in FY05 was announced, WBL’s share price fell by 2.5% in a rising market, suggesting that news of the impairment was material. Chong’s evidence was that the common investor would tend to look at an impairment as “something big”, suggesting that it would have a material effect on the share price. I agree. Much would depend on the common investor’s expectations at that point in time – if, for example, the impairment was smaller than expected by the common investor, the news of such an impairment would certainly affect the common investor’s decision to invest or not. Here, considering the quantum of the impairment, I cannot accept that the information was not material. There was no evidence that the common investor would have, in deciding whether to buy or sell WBL shares, already factored in a significant impairment at the material time.
The expert evidence on materiality
[97] I will now turn to consider how WBL’s share price reacted when the information possessed by Lew was subsequently released. On this point, the parties were diametrically opposed. MAS contended that the subsequent price changes in WBL’s share price reflected that the information possessed was material; Lew disagreed.

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Monetary Authority of Singapore v Lew Chee Fai Kevin

Laws this judgment relies on

Grounds of decision

The facts

WBL

Information announced by WBL prior to the 2 July 2007 GMC Meeting

Internal Discussions on WPT

The 20 November 2006 Audit Committee Meeting

The 9 February 2007 Audit Committee Meeting

The 8 May 2007 Audit Committee Meeting

The 2 July 2007 GMC Meeting

Events subsequent to the 2 July 2007 GMC Meeting

The sale of WBL shares by Lew

Lew’s resignation from WBL

Issues before the Court

What was the Information Lew possessed at the material time?

Whether the Information was generally available

What is “generally available” information?

The parties’ arguments

Was the forecasted loss “generally available information”?

Whether the taking of an impairment was “generally available information”

Did the information have a material effect on the price of WBL shares?

The expert evidence on materiality