The “White-Collar” Crime Of Market Rigging Under SFA

Oct 19, 2023

Market Rigging

Market Rigging is a “white-collar” crime that is criminalised under the Securities and Futures Act (“SFA”). By and large, an offence of market rigging is deemed to be more serious than an offence of insider trading, hence demands attention from criminal lawyers. The former involves the artificial inflation or deflation of share prices to distort the true forces of market supply whilst the latter is an offence which is sometimes said to move the market to its true level.

The following are some common examples of market rigging^[1]:

• ‘Pump and Dump’ – A scheme which involves the flooding of the internet with false information that greatly exaggerates the value of a stock. Once the value of the stock rises dramatically, the offender then sells off the stock immediately to make a profit.

• The dissemination of false or misleading information which influences market traders to falsely believe in the trade value or trade volume of a security. This creates a drop or increase in demand for a particular security, which the offender then uses to his benefit.

• ‘Wash Sales’ – a purchase or sale of any security that does not involve a change in the beneficial ownership of that security. A ‘wash sale’ creates the false impression that a security is actively traded on the market.

• ‘Marking the close’ – the practice of purchasing or selling a security near the close of a trading day to alter the closing price of the security.
  
  

The relevant provisions under the SFA

Section 197 of the SFA captures all forms of market rigging, and it reads as follows:

“A person must not do any thing, cause any thing to be done or engage in any course of conduct, if the person’s purpose, or any of the person’s purposes, for doing that thing, causing that thing to be done or engaging in that course of conduct (as the case may be) is to create a false or misleading appearance —

• of active trading in any capital markets products on an organised market; or

• with respect to the market for, or the price of, any capital markets products traded on an organised market.”

Section 200 of the SFA is also pertinent. This particular section addresses the mischief of the dissemination of false and misleading statements to manipulate the market. Section 200 of the SFA reads as follows:

“A person must not —

• by making or publishing any statement, promise or forecast that the person knows or ought reasonably to have known to be misleading, false or deceptive;

• by any dishonest concealment of material facts;

• by the reckless making or publishing of any statement, promise or forecast that is misleading, false or deceptive; or

• by recording or storing in, or by means of, any mechanical, electronic or other device information that the person knows to be false or misleading in a material particular,

induce or attempt to induce another person to deal in capital markets products.”

Another SFA provision which is relevant to an offence of market rigging is Section 201(b) of the SFA. Quite often, in the commission of an offence of market rigging, an offender would have to utilise more than one trading account due to the sheer volume of securities manipulated. Section 201(b) of the SFA targets this mischief – it makes it an offence for an offender to use another’s trading account to engage in the execution of trades. Section 201(b) reads as follows:

“A person must not, directly or indirectly, in connection with the subscription, purchase or sale of any capital markets products —

…

(b) engage in any act, practice or course of business which operates as a fraud or deception, or is likely to operate as a fraud or deception, upon any person;”…

Punishment provisions

There are both civil and criminal penalties for an offence of market rigging. The following provisions are applicable to offences within the meaning of the 3 forecited provisions (Section 197, Section 200, and Section 201 of the SFA).

The criminal penalty provision is Section 204(1) of the SFA, which reads as follows:

“Any person who contravenes any of the provisions of this Division shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to both.”

The civil penalty provision is found in Section 232 of the SFA. In brief, the Monetary Authority of Singapore can, with the consent of the Public Prosecutor, bring an action in Court against the offender. Then, if the Court is satisfied on a balance of probabilities that the person has committed an act of market rigging, the Court may make an order against the person for the payment of a civil penalty of a sum not exceeding the greater of the following:

• 3 times –
  • the amount of the profit that the person gained as a result of the contravention; or
  • the amount of the loss that the person avoided as a result of the contravention;

• $2 million

Notably, the civil penalty must not be less than $100,000 if the offender is a corporation, and, in any other case, must not be less than $50,000.

General Sentencing Guidelines for offences under Section 197/200/201 SFA punishable under Section 204(1) of the SFA

Courts will not shy away from imposing a custodial sentence for an offence of market rigging within the meaning of Section 197 SFA. Often, the custodial term is also accompanied with a fine to disgorge any profits made by the offender. The Courts are cognisant of the evils of market rigging – it has been said that market rigging is not a victimless crime. Indeed, the victims are all the other members of the investing public.

In deciding if the custodial threshold is crossed, the Courts will consider the harm caused and the culpability of the offender. Relevant factors going towards harm include: (a) the scale of the market rigging (i.e., how many instances of market rigging the offender engaged in etc.); (b) the duration of the market rigging; and (c) the profits made by the offender. Relevant factors going towards culpability include: (a) the level of planning and premeditation; (b) the motivation of the accused; and (c) the complexity of the scheme.

Once again, the Courts will likewise not shy away from imposing a custodial sentence for an offence under Section 200 SFA. In fact, the High Court has held that “where materially false information is disseminated with dishonest intent to induce other persons to purchase or sell shares, a custodial sentence should (in combination with fines) almost inevitably be imposed”.

In fashioning the appropriate sentence, the Court will have regard to the harm caused and the culpability of the offender. A relevant factor that goes towards harm is the extent of the dissemination of the false information. For instance, it goes without saying that posting false information on a publicly available internet forum will cause more harm than posting false information in a WhatsApp group with only 20 members. A relevant factor that goes towards culpability is the accused’s level of planning and premeditation.

An offence under Section 201(b) of the SFA will not always be met with a custodial sentence. It must first be understood that an offence under Section 201(b) of the SFA can be committed in two ways: (a) it could refer to lack of consent on the part of the accountholder; or (b) it could refer to a lack of consent on the part of the securities trading firm with whom the account was opened. If the case is one which falls in the latter category, then a custodial term may not be imposed on the offender. In such a scenario, courts have preferred to mete out a fine rather than impose a custodial term on the offender.

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[1] Hamidul Haq, Thong Chee Kun, and Istyana Ibrahim “Financial Crimes in Singapore”