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2024 MarsdenLR 1525
HIGH COURT MALAYA KUALA LUMPUR
SURUHANJAYA SEKURITI MALAYSIA – Appellant
Versus
NG BACK HEANG – Respondent
[Civil Suit No: WA-22NCC-162-04/2020]
The court established that insider trading occurred when the defendant disposed of shares while in possession of non-public information, resulting in significant financial penalties and a ban from directorship.
Headnote:(A) Capital Markets and Services Act 2007 - Sections 188(1), 188(2)(a), 201(6)(a), 201(6)(b), and 360(1)(a)(L) - Insider trading - Plaintiff sought declaration of contravention, recovery of avoided losses, civil penalty, and barring from directorship - Court found Defendant disposed shares while in possession of non-public information, influencing share price - Reliefs granted in favor of Plaintiff. (Paras 1-151)
(B) Standard of Proof - Balance of probabilities applicable in civil actions under CMSA - Civil penalties and remedies emphasized for maintaining market integrity. (Paras 148-150)
Key Points: - An "insider" is a person who possesses non-public information that could affect securities prices and knows or should know the information is not generally available [p_60-p_62]. - "Inside information" includes matters of speculation, future intentions, financial performance, and transactions that are not yet public [p_97-p_105]. - The Securities Commission may seek civil penalties, including up to three times the avoided losses and a fine not exceeding one million ringgit, to maintain market integrity [p_401-p_405].
How to determine if a person is an "insider" under the Capital Markets and Services Act? What constitutes "inside information" under the Act? On what basis can the Securities Commission impose civil penalties for insider trading?
JUDGMENT
(Post-Trial)
[1] This was essentially an action by the Plaintiff against the Defendant pursuant to, inter alia, s 188(1) and (2) of the Capital Markets and Services Act 2007 ("CMSA") for insider trading.
[2] The main reliefs sought by the Plaintiff are as follows:
i) A declaration that the Defendant has contravened s 188(2)(a) of the CMSA.
ii) A sum of RM1,237,500 being three times the avoided losses under s 201(6)(a) (pre-amendment by the Capital Markets and Services (Amendment) Act 2015).
iii) A civil penalty of RM1,000,000.00 under s 201(6)(b) (pre-amendment).
iv) An order barring the Defendant from being a Director of any public listed company for a period of 5 years under s 360(1)(a)(L) CMSA.
[3] about 8 days of trial and a total of 9 witnesses had testified (4 for the Plaintiff and 5 for the Defendant), and having heard oral submissions by counsel from both sides in addition to their respective written submissions, I allowed the Plaintiff's claim. I set forth the reasons for my decision.
[A] Salient Background Facts
[4] The Plaintiff is a statutory body established pursuant to s 3 of the Securities Commission Malaysia Act 1993.
[5] The Defendant was director of Patimas Computers Sdn Bhd, the full particulars of his directorship and background will be elaborated below.
Patimas Computers Berhad ("PCB")
[6] Patimas Computers Sdn Bhd was incorporated on 15 July 1992 and changed its name to Patimas Computers Berhad ("PCB") on 7 March 1997, at which time it was listed on the Main Market of Bursa Malaysia Berhad ("Bursa"). PCB was delisted on 21 March 2014.
[7] PCB's business included distributing and providing computer hardware, customer-centric IT infrastructure solutions and services, mission-critical business solutions, industry specific solutions, mobile solutions, managed network and IT services and customer support services. PCB's business also included investment holding, providing management services and computer equipment rental.
[8] i material time, PCB's Board of Directors ("Board") consisted of the following individuals whose respective positions are as stated below:
[9] The Defendant has an accounting degree from the Association of International Accountants, United Kingdom, and is a Fellow of the Association of International Accountants.
[10] Prior to joining PCB, the Defendant held various positions in accounting and information technology.
[11] The Defendant held the following key positions in PCB:
i) He was a Non-Independent Executive Director for approximately 15 years from 10 March 1997 until 23 August 2012, until his re-designation to a Non-Independent Non-Executive Director.
ii) He was one of only 4 Executive Directors of PCB.
[12] The Defendant was also a Director of 7 PCB subsidiaries:
i) OED Technology Sdn Bhd;
ii) Patimas HPD Systems Sdn Bhd;
iii) Patimas Computer Security Sdn Bhd;
iv) Patimas Outsourcing Services Sdn Bhd;
v) Patimas Computer System Sdn Bhd;
vi) Patimas Computer Software Sdn Bhd; and
vii) Patimas Dot Com Sdn Bhd.
Audit Queries By Ernst & Young ("EY")
[13] In April 2012, PCB's external auditor, Ernst & Young ("EY"), commenced their statutory audit of the Financial Statements for the 15 months period from 1 January 2011 to 31 March 2012.
[14] In the course of their audit, EY discovered transactions, which they regard or categorised as suspicious transactions, between PCB and 9 companies which were collectively its top debtors ("Top Debtors") ("Suspicious Transactions").
[15] In a meeting held on 24 May 2012 between the Defendant, Law, Chris Kok Wan Chun (PCB's Financial Controller) ("Kok") and EY ("24 May 2012 Meeting"), EY raised audit queries and issues with regard to the Suspicious Transactions, including the following:
i) The Top Debtors (save for Jatiwan Sdn Bhd) shared a common registered address at 3-2, 3rd Mile Square No 151, Jalan Kelang Lama Batu 3½, 58100 Kuala Lumpur.
ii) Some of the Top Debtors had the following common Directors and shareholders:
iii) The Top Debtors had
