SALE OF UNITED INDUSTRIAL CORPORATION LTD SHARES (Allegations of insider trading)

The following Question stood in the name of Assoc. Prof. Maurice Choo -

Assoc. Prof. Maurice Choo: To ask the Minister for Finance if he will elaborate on the recent allegations of insider trading against individuals involved in the sale of United Industrial Corporation Ltd shares.

Mr S. Chandra Das (Cheng San GRC): Question No. 5, Sir.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, in October 1990, UIC negotiated with Mr Liem Sioe Liong on two transactions:

First, a proposal by Singapore Land Limited, a subsidiary of UIC, to buy shares in Marina Centre Holdings Ltd (MCH) and Marina Bay Hotel Pte Ltd (MBH) from Mr Liem's private company.

Second, a proposal by Mr Liem's private company to buy new UIC shares.

The negotiations continued through November and December, but on 21st December 1990, Singapore Land and Mr Liem's private company agreed not to proceed with the sale and purchase of shares in MCH and MBH.

On 22nd November 1990, almost a month after UIC started negotiating with Mr Liem's private company on the two proposed transactions and before they agreed not to proceed with the sale and purchase of shares in MCH and MBH, Mr Lee Kim Yew, Chairman of UIC, sold his personal holdings of 25.3 million UIC shares to Mr Liem. On 28th December 1990, one week after Singapore Land aborted the acquisition ofshares in MCH and MBH, Mr Oei also sold his personal holdings of 182 million UIC shares to Mr Liem.

During UIC's negotiations with Mr Liem in late October 1990, Mr Oei Hong Leong, in his capacity then as chief executive officer of UIC, told Mr Liem that the value of UIC's portfolio investments had fallen by between $50 million and $100 million. However, UIC did not announce this fact publicly until 12th March 1991, when UIC published its 1990 results, which showed a provision of $77 million for its investment in the shares of two Japanese banks.

We must, Mr Speaker, Sir, distinguish between the actions of UIC and of its individual shareholders, that is to say, Mr OeiHong Leong and Mr Lee Kim Yew. The question for the company is whether it has complied with the Stock Exchange's disclosure requirements by withholding the investment losses from the public until 12th March 1991. The SES considers that it did not. The Stock Exchange does not dispute the need for Mr Oei, who then represented UIC, to disclose the losses to Mr Liem for the purpose of Mr Liem's purchase of new UIC shares to be issued by the corporation. But UIC should have informed its existing shareholders at the same time. The SES has therefore censured UIC publicly for non-compliance. Besides public censure, the SES can suspend UIC shares from trading temporarily or delist the shares from the Official List permanently. But such penalties would hurt UIC's public shareholders unnecessarily.

A separate question is whether Mr Oei and Mr Lee, in their personal capacity as individual shareholders of UIC, infringed any legislative provision on insider trading. Section 103(11) of the Securities Industry Act states that it is a defence for a person charged with insider trading if he can prove that the other party to the transaction knew, or ought reasonably to have known, of the inside information before entering into the transaction. The rationale is that when both the buyer and the seller are then on an equal footing, the other party to the transaction, knowing the information, is not therefore at a disadvantage.

Mr Oei informed Mr Liem about UIC's investment losses in late October 1990. Mr Lee sold his UIC shares to Mr Liem on 22nd November 1990. Mr Oei sold his UIC shares to Mr Liem on 28th December 1990. Thus, Mr Liem knew about UIC's investment losses before he bought the UIC shares from Mr Oei and Mr Lee.

Based on these facts and on legal advice, the SES concluded that Mr Oei and Mr Lee had not committed insider trading as defined under the Securities Industry Act. The SES therefore decided not to pursue the matter. The Monetary Authority of Singapore (MAS) reviewed the evidenceand agreed with the Stock Exchange's decision.

Mr Chandra Das: Mr Speaker, I thank the Minister for the answer. I think we can accept the explanation that there was no insider trading as alleged by many people. However, Sir, I would like to ask the Minister: is the public censure of UIC the maximum powers available to the Stock Exchange of Singapore? If this is so, would the Minister be prepared to ask the Securities Industry Council (SIC) to advise the Stock Exchange on sterner measures, other than just public censure, for serious offences of this nature?

Sir, following this, I would like to ask the Minister whether he is aware that the Stock Exchange of Singapore, for the moment, does not give reasons for rejecting applications from listed companies for rights, bonuses, splitting of stocks, etc. This is not in keeping with the open and consultative style of Prime Minister Goh Chok Tong. Would the Minister be prepared to ask the Stock Exchange to give reasons for such rejections?

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, under present arrangements, the Stock Exchange has, as I mentioned earlier, additional powers to delist the company's shares from the main board. But this would be a very extreme measure which would hurt the shareholders more than the individuals concerned. Beyond that, I amprepared to suggest to the SIC that they should advise SES to consider other measures more appropriate for offences of this nature. But I would like to point out that the Stock Exchange is an independent body which should act on its own and both the Government and the SIC can only advise it on what procedures it should adopt. But I am prepared to suggest to the SIC that they should advise SES to consider what measures they might want to introduce in future for offences of this type.

I am also aware that, so far, the Stock Exchange has not issued reasons for rejecting applications for bonus issues and rights issues and this is a matter of some concern to the public. The MAS has, in fact, suggested to both the SIC and the SES that they should consider giving reasons if they feel that the disclosure of such reasons would be in the public interest. But again I would stress that this must be at the discretion of the SES. I have asked the SIC to consider this.

Dr Lee Siew-Choh: Mr Speaker, Sir, the Minister gave a statement very early in the day concerning the issue. I wonder why the Minister has taken on himself the role of a judge and pronounced that there was no possibility of insider trading.

Mr Speaker: Dr Lee, are you asking a question?

Dr Lee Siew-Choh: Yes, that is the question. I ask why the Minister has taken on himself the role of a judge in pronouncing that there was no case for the prosecution of insider trading.

Another question, Sir, that follows is: in view of the heat and controversy of the whole issue, would the Minister be prepared to have a special committee to look into the matter so that the whole question can be thrashed out and everybody knows exactly what is happening? Otherwise, many people will still be in the dark, especially the shareholders, as well as other people who are interested in the issue of insider trading.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, as Minister, I have not taken on myself to decide on this issue. It is the Monetary Authority of Singapore, as a regulatorybody, which made the recommendation which I support.

I think the question on whether the MAS acted correctly is very straightforward. The MAS is the regulator of the securities industry. It routinely evaluates many cases of possible violations of the Securities Industry Act. Where there is prima facie evidence of wrongdoing, these cases are sent to either the Commercial Affairs Department (CAD) or the Attorney-General (AG) for further investigation and prosecution. In other cases, as in the UIC case, where the evidence is clearly insufficient to support prosecution, no further action is taken. For the MAS to send each and every case to the AG's Chambers and the CAD, even when it is clear that no offence is disclosed, is to abdicate its responsibility as a regulatory body. Further, this will only overload both the CAD and the AG's Chambers with redundant work. The evidence in this case is quite clear. Mr Liem bought shares from Messrs Lee and Oei. He had all the information available on the share losses incurred by the company. The law is also quite clear in this case. So I see no further reason to refer the matter to a separate commission.

Mr Chiam See Tong: Can I ask the Minister to clarify? He said that Mr Liem was informed in late October 1990 of the losses of UIC. Was he informed orally or in writing and, if in writing, can he state the date of the letter?

Dr Richard Hu Tsu Tau: I mentioned earlier in my reply to the question that the information was passed over a prolonged period during the negotiation with Mr Liem's private company which was in the process of selling shares in the Marina Centre Holding to Singapore Land. This negotiation took place over several months. As far as the actual mechanics of the transfer of information are concerned, I do not have the details. But I can assume that such information must have been passed in many forms.

Mr Chiam See Tong: Mr Speaker, Sir, I have got it in my notes that the Minister distinctly said that Mr Liem was informed inlate October 1990 of the losses of UIC. I am not referring to the long period of time in which he could gather this information. That was mentioned earlier in the Minister's speech. But, in the course of his statement, he said that under section 103(11) of the Securities Industry Act, there was a good defence if the buyer knew of the losses and both the buyer and the seller would stand on the same footing. After that, he said that this information was given to Mr Liem in late October 1990. I want to know whether this information was given orally or in writing to Mr Liem. If it is in writing, can he give us the date of the letter?

Dr Richard Hu Tsu Tau: I will repeat again. The information was transferred during a prolonged period of negotiations, starting in late October. I have no details of the actual mechanics of the transfer of information. I suggest that the Member contact Mr Liem and see whether he would like to act as his advocate.

Mr Chiam See Tong: Mr Speaker, Sir, I am only quoting the words of the Minister.

Mr Speaker: But what is your question?

Mr Chiam See Tong: Is he denying that he did not say that in late October the information was given to Mr Liem? Is he saying that? I am only quoting his words?

Mr Speaker: Mr Chiam, do you have a supplementary question?

Mr Chiam See Tong: I am only seeking a clarification which I am entitled to.

Mr Speaker: Mr Chiam, do you have a supplementary question?

Mr Chiam See Tong: That is my supplementary question.

Mr Speaker: The answer has already been given.

Mr Chiam See Tong: I say that I am entitled to clarification of what the Minister has said in his speech. Check your notes.

Dr Richard Hu Tsu Tau: I fail to see the purpose of this question. The crux of the matter is: was the information passed and was it passed before the sale of the shares? And the answer must be yes.

Mr Chiam See Tong: If the answer is yes, what is the problem of the Minister in giving me the answer I require. I have got it in my notes that he said the information was given in late October. Is he denying that he did not say this? You can check the Hansard.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I am not denying anything. I just fail to see the relevance of what he is trying to pursue.

Mr Speaker: Neither do I. Mr Chiam, your next Question.