SINGAPORE, July 10 — Armed with confidential and market-sensitive information, two traders from a multinational fund management firm colluded with their friend, a remisier, to make personal profits of S$8.07 million in total.
The three men did this over seven years, from March 2007 to May 2014. Their crime spree finally came to an end when their case became the first in Singapore where “front-running” was prosecuted as an insider trading offence, which carries a more severe penalty.
A front-running offence is one where the perpetrator makes improper use of information about a large order in a listed security, by placing a similar trade in advance in the same security for his or her own benefit.
Today, Leong Chee Wai, 50, E Seck Peng Simon, 50, and Toh Chew Leong, 43, were sentenced in the State Courts to jail terms of three years, 2.5 years, and one year and eight months respectively. They pleaded guilty to more than 30 charges each under the Securities and Futures Act.
In a news release today, the Monetary Authority of Singapore (MAS) said that it has served notices of its intention to impose prohibition orders on them. The regulator is seeking to ban Leong and E for 15 years, and Toh for 13 years, from performing regulated activities under the Securities and Futures Act.
The court also ordered S$310,000, S$770,000, and S$1.35 million to be forfeited to the State from Leong, E and Toh respectively.
At the time of their offences, Leong and Toh were senior equity dealers at First State Investments Singapore (FSIS), which provides fund management and investment services to their clients. Both of them worked for the company’s dealing desk.
Leong primarily covered the markets in Singapore, Taiwan, Thailand and Indonesia, while Toh covered those in Malaysia, the Philippines and India. E, a UOB Kay Hian remisier, knew Leong from their university days.
How it worked
As part of their jobs, Leong and Toh were privy to inside information about FSIS’ intended orders.
The potential effect of FSIS’ trades on the market was typically significant, as they generally involved large quantities of shares.
Leong and Toh would pass the information to E, who used his personal trading account to place orders in the same counters, usually ahead of FSIS’s trades. This is known as front-running.
Some of the counters that they provided information on included Allgreen Properties, M1, DBS, Capitamalls Asia, Singapore Post, and SMRT Corporation.
The two men told E to buy or sell in the same counter that FSIS intended to trade in. They also instructed E on the quantity to buy or sell (usually smaller than FSIS’ quantity), and the price to trade.
This would happen either before or when Leong and Toh executed FSIS’ orders, that were placed by the company’s portfolio managers through a trading system.
E would then unwind his position in the opposite direction of FSIS before or when the company executed its trades.
They were consistently able to make profits, which they split equally between themselves, because:
* E usually closed off their position before FSIS completed its intended order.
* Leong and Toh were able to dictate the order price for FSIS, and told E what price he should trade at.
* E could unwind his trades at a profit, based on the prices that Leong and Toh gave him. The two would later fill or execute FSIS’ orders at the prices they gave to E.
Leong admitted that they would not get E to front-run FSIS’ orders with a larger volume than what FSIS intended to trade, in order to avoid significantly impacting the market and rousing suspicion.
In addition, Toh and E used the inside information to trade in contract for differences (CFDs) on the counters that FSIS intended to trade in. This netted them additional profits.
When the Singapore Exchange Securities Trading Ltd caught wind of what they were doing, it referred the matter to the MAS. The men were charged with their offences in August 2016.
Driven by greed
Deputy Public Prosecutor Hon Yi argued that the three men “grossly abused” the inside information to “generate a staggering amount of profit”, as they were motivated by greed.
“Trades made by FSIS for their clients’ portfolios would be large in quantity, and at prices calculated by FSIS to be beneficial to their clients. Information about these trades, which have the ability to affect the market, are juicy for persons who trade in securities on the markets,” he added.
In mitigation, the men’s lawyer Thong Chee Kun said that the profits were “largely made at a time when the equity market was especially volatile”, and there was no evidence that anyone suffered losses.
He argued that the level of exploitation of the inside information was also “significantly lower” than that of traditional insider trading, and as it did not relate to pending material transactions or news of a listed company.
The way the offences were committed was “really simple and straightforward”, Thong further noted, with “no cunning criminal mastermind work” involved.
He added: “They are extremely sorry for the state that their respective families are in. They look forward to completing their punishments so they can move on.”
In sentencing, Principal District Judge Ong Hian Sun agreed that a deterrent sentence was needed to ensure integrity is maintained in the trading system.
Insider trading arrangements are typically difficult to detect due to their private nature, surfacing only if these crimes occur repeatedly over a period of time. — TODAY