WWLegal.com :: MAS Takes Civil Penalty Enforcement Action Against China Aviation Oil Holding Company for Insider Trading

MAS Takes Civil Penalty Enforcement Action Against China Aviation Oil Holding Company for Insider Trading
Posted on Friday, August 19, 2005 - 12:00 AM

The Monetary Authority of Singapore (MAS) announced that it has entered into a civil penalty settlement with China Aviation Oil Holding Company (CAOHC).

Singapore, 19 August 2005...The Monetary Authority of Singapore (MAS) announced that it has entered into a civil penalty settlement with China Aviation Oil Holding Company (CAOHC), the parent company of China Aviation Oil (Singapore) Corporation Ltd (CAO), for contravening the insider trading provisions under section 218(2)(a) of the Securities and Futures Act (SFA). CAOHC has paid a civil penalty of S$8 million to MAS without court action.

2. The relevant conduct by CAOHC involved the placement by CAOHC of approximately 145 million CAO shares at S$1.35 per share on 21 October 2004 under a vendor sale agreement with Deutsche Bank AG, Singapore Branch, while CAOHC was in possession of material price sensitive information concerning the financial condition of CAO that was not generally available. According to the investigation findings by the authorities:

2.1 CAOHC had carried out the placement in response to CAO's request for funds to meet the margin calls payable by CAO at that time;

2.2 The placement was used to raise funds to try to avert the forced closures of CAO's open derivative positions and the insolvency of CAO; and

2.3 The net share placement proceeds amounting to approximately S$185 million went directly to CAO to meet margin calls that were payable by CAO.

3. CAOHC has admitted to civil penalty liability for contravening section 218(2)(a) of the SFA and has paid a civil penalty of S$8 million to MAS without court action. While CAOHC accepts responsibility for its contravention of Singapore Law, CAOHC has submitted that the placement was not motivated by a desire to trade on inside information but to rescue CAO from its financial crisis.

4. The civil penalty settlement with CAOHC is separate from the current charges for insider trading against various individuals.

5. Under a debt to equity swap in CAO's debt restructuring scheme of arrangement, CAOHC will receive CAO shares in respect of the proceeds raised in the placement that are characterized as a loan from CAOHC to CAO. CAOHC has agreed to transfer all such CAO shares received to minority shareholders.

6. Mr. Shane Tregillis, Deputy Managing Director (Market Conduct), MAS emphasized, "Insider trading undermines investors' confidence in the integrity of our capital markets. The Singapore authorities will take firm and effective action against persons who contravene our insider trading laws. The civil penalty action against CAOHC is a signal to the market that we expect all entities undertaking transactions in this jurisdiction to fully comply with Singapore law."

7. Mr. Tregillis also said, "In deciding on the course of action and the penalty, MAS took into account the specific facts and mitigating circumstances of this matter. CAOHC has also subsequently acted responsibly in providing moral, management and financial support to assist CAO to put together swiftly a commercial restructuring plan that had received overwhelming support from creditors. In addition, CAOHC has cooperated with the authorities' investigations. These actions highlight CAOHC's positive efforts following the collapse of CAO to deal with this matter responsibly under Singapore Law."

***

Notes to Editor:

A The civil penalty regime

(i) A civil penalty action is a court action that MAS may, with the consent of the Public Prosecutor, bring against a person for market misconduct contraventions under the Securities and Futures Act ("the SFA"), Part XII, (of which insider trading is one such contravention) to seek an order from the Court requiring that person to pay a civil penalty to MAS. A civil penalty action is not a criminal action and does not attract criminal sanctions. The civil penalty regime is designed to complement criminal sanctions and provide a nuanced approach to combat market misconduct. It became operational at the beginning of 2004.

(ii) Under Section 232 of the SFA, the Court may, if satisfied that a person has contravened a provision in SFA, Part XII, make an order against that person for the payment of a civil penalty of a sum not exceeding three times the amount of the profit gained or loss avoided by that person, subject to a minimum of $50,000 if the person is not a corporation or $100,000 if the person is a corporation, where the contravention has resulted in the person gaining a profit or avoiding a loss. Where the contravention did not result in the person gaining a profit or avoiding a loss, the Court may make an order against that person for the payment of a civil penalty of a sum not less than $50,000 and not more than $2 million. MAS may enter into agreements with any person for that person to pay, with or without admission of liability, a civil penalty within the limits referred to in Section 232 for a contravention of any provision of the SFA, Part XII.

(iii) Unless arrived at by agreement, civil penalties in civil penalty actions brought by MAS are ordered by the Court. In determining the quantum of civil penalties to seek in such actions, MAS takes into consideration all facts and circumstances relating to the contravention and the contravening person.

(iv) MAS takes into consideration the degree of seriousness of the misconduct, the extent of impact of the misconduct on the market, the need for effective deterrence and other relevant characteristics of the case when deciding to undertake civil penalty enforcement action.

B Insider Trading under Section 218 of the SFA

(i) Section 218(2)(a) of the SFA prohibits a person who is in possession of material price sensitive information concerning a corporation (to which he is connected), which he knows is not generally available and material price sensitive, from subscribing for, purchasing, selling, or entering into an agreement to subscribe for, purchase or sell those securities of that corporation.

(ii) Section 218(5)(b) of the SFA provides that a person is connected to a corporation if he is a substantial shareholder within the meaning of Division 4 of Part IV of the Companies Act (Cap. 50) in that corporation or in a related corporation. Section 81(3) of the Companies Act, Division 4, provides that a person who has a substantial shareholding in a company is a substantial shareholder in that company. Section 81(1) of the Companies Act, Division 4, provides that a person has a substantial shareholding in a company if he has an interest or interests in one or more voting shares in the company and the nominal amount of that share, or the aggregate of the nominal amounts of those shares, is not less than 5% of the aggregate of the nominal amount of all the voting shares in the company.

(iii) Section 218(4) of the SFA provides that where it is proved that a connected person possessed at the material time, information concerning the corporation to which he was connected and that the information was not generally available; it would be presumed until the contrary is proven, that the connected person knew at the material time that:
* the information was not generally available; and
* if the information were generally available, it would be material price sensitive.

(iv) Section 213(b) of the SFA provides that SFA, Part XII, Division 3 on insider trading applies to acts occurring outside Singapore in relation to securities of a corporation that is formed or carries on business in Singapore, or securities of a corporation listed for quotation or quoted on a securities market in Singapore.

C Criminal Fine under the SFA

(i) Section 221 of the SFA, read with Section 333(1) of the SFA, provides that a corporation which contravenes section 218 of the SFA shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $500,000.

News