High Court dismisses One Asia Investment Partners ex-director’s appeal over US$324,500 securities fraud
Dishonest conduct alone is sufficient for conviction, Justice Tay Yong Kwang rules
[SINGAPORE] The High Court has dismissed an appeal by a former fund manager convicted of engaging in acts likely to defraud investors of US$324,500.
Sun Weiyeh, a former portfolio manager and director at the now-defunct One Asia Investment Partners, had challenged both his conviction and six-month jail sentence for two charges under the Securities and Futures Act (SFA).
The conviction is Singapore’s first related to over-the-counter bond trading.
Sun’s lawyers, led by Senior Counsel Jason Chan of Allen & Gledhill, argued that fraud under the SFA required proof of deception with intent to obtain advantage, and that Sun owed no duty to obtain the highest available price for the bonds.
The lawyers also argued that Sun was unaware of higher bids from Morgan Stanley at the time of executing the trades.
Justice Tay Yong Kwang dismissed the appeal on Friday (Oct 31), ruling that there is no requirement for an offender to have a specific intent to deceive, manipulate or defraud for an offence under the SFA to be made out.
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Instead, “the touchstone of fraud is dishonesty”, said Justice Tay, and an offence would be established upon proof that the offender acted with an objectively dishonest state of mind.
“Irresistible inference”
The case centred on trades executed on Jan 19, 2016, when Sun sold bonds at undervalued prices from one fund to another in which he held a 94.1 per cent stake, despite knowing of higher bids from other parties.
Sun had solicited bids from at least 11 counterparties for bonds issued by Mie Holdings. Morgan Stanley offered US$33 for MIE18 bonds and US$32 for MIE19 bonds – significantly higher than other bids received.
Yet, Sun proceeded to execute “pass-through trades” through intermediary Pareto Securities, selling the bonds at US$25.375 and US$21.875, respectively, from the AACF High Yield Basis Fund to the AACF Investment Grade Bond Fund II, in which he was the majority shareholder.
The transactions caused investors in the selling fund to lose US$324,500, while Sun benefited when the bonds were subsequently sold to the market for over US$1.16 million in profit.
In his judgment, Justice Tay said that while fraud and deception would often overlap, fraud under the SFA encompasses situations where a person in a position of trust acts against the financial interests of investors, knowing this would cause them detriment.
“Where a person is placed in a position where he is expected to safeguard, or not to act against, the financial interests of another person, the abuse of such a position which results in detriment to the financial interests would fall within the types of acts envisaged,” Justice Tay said.
The court accepted that Sun had a duty to act honestly as portfolio manager, rather than a strict duty to obtain the highest price. Yet his conduct still fell short of this standard.
Justice Tay added that Sun’s conduct in the trades and sales of the bonds could only lead to the “irresistible inference” that it was calculated to enrich himself at the expense of investors.
Knowledge of higher bids
Central to the conviction was evidence that Sun was aware of Morgan Stanley’s superior bids. The court found he had seen these by 10.15 am on Jan 19, 2016, when he sought confirmation that the bids were for the entire block of bonds.
Although Morgan Stanley’s trader sent a “please refresh before trading” message at 10.23 am, the court found this merely indicated prices should be checked before execution, not that interest had been withdrawn.
Justice Tay identified three factors pointing to dishonest conduct: Sun’s awareness of Morgan Stanley’s keen interest; his deliberate choice to sell the bonds to himself effectively because he “liked” them; and his false explanation to Morgan Stanley that he required bids for all bonds as a block.
“The only inference was that the appellant had acted dishonestly in the trades,” Justice Tay stated. “An honest trader in the appellant’s position would certainly have followed up with Morgan Stanley and refreshed the bids.”
On sentencing, the court found the custodial threshold was crossed due to several aggravating factors: the substantial losses to investors; Sun’s profit motive and actual gains exceeding US$1 million; the element of premeditation; abuse of his position of trust; and the difficulty in detecting such offences.
The court noted the case would not have come to light if not for a whistleblower who wrote to the Monetary Authority of Singapore.
Justice Tay therefore rejected Sun’s submission that a fine or maximum three weeks’ imprisonment would be sufficient, noting he had shown no remorse and made no offer of restitution despite his substantial profits.
Sun was granted a two-week deferment to attend to personal matters before beginning his sentence.
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