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Reports by
Wong Wei Kong (Business Times 22 Mar 2004)
Chen Yew Choon bought shares using cash and sold them to his own CPF Investment Scheme account at inflated prices. He deceived the CPF Board into releasing more funds into his cash account, taking advantage of illiquid trading conditions and the automated system of Internet share trading.
MOST Singaporeans accept the fact that their Central Provident Fund (CPF) savings are meant for retirement and old age. But in one of the first cases of its kind, one man thought he had found the way to get his hands on his CPF money prematurely. And he even succeeded in deluding the CPF Board on several occasions before he was caught.
What Chen Yew Choon did was clever: he bought shares using his cash trading account at GK Goh Stockbrokers and sold the shares at inflated prices to his own CPF Investment Scheme (CPFIS) account which was maintained at DBS Bank. In doing so, he got the CPF to release more funds to his cash account than should have been the case. In effect, he was withdrawing his CPF savings prematurely.
The case came to light in late 2001 when the Commercial Affairs Department (CAD) received a complaint from the Singapore Exchange (SGX) on Chen's suspicious trading patterns. Chen was an average Singaporean man in his early thirties and married with one young child. He was unemployed, however, and that could have driven him to devise a scheme to cheat the CPF to support his heavy financial commitments.
A CAD team led by Richard Wong started investigations and interviewed Chen and various witnesses, including representatives from the brokerage firm and CPF Board. Documents were also obtained from the agent bank, GK Goh and CPF Board.
An examination of Chen's trading activities found common strands: all the trades were conducted in illiquid counters; Chen bought shares using his cash account and sold to his CPFIS account at higher prices to make a profit; each pair of buy and sell orders entered by Chen matched as they were entered at identical prices which did not coincide with the prevailing market prices; and all the suspicious trades were conducted through Chen's Internet trading account with GK Goh. He did not deal through a dealer or remisier.
At the early stages of the investigation, it still could not be ruled out that Chen was involved in market rigging. Based on his trading activities, Chen could be attempting to mislead the market into believing that there was active trading in the stocks concerned, or could be trying to artificially inflate the share prices of those counters. However, having gathered the available evidence, the CAD team established that Chen's primary intention was to withdraw his CPF funds prematurely.
It soon became clear to the CAD officers why Chen chose to trade only through the Internet. For stock trades conducted online, most of the processes were automated. In a typical online share purchase using a CPFIS account, the agent bank would receive a request from the brokerage firm to release funds from the CPF member's account to pay for the purchase. If the member has enough funds in his CPFIS account, which is maintained with the agent bank, funds would be released to pay for the share purchase. If not, the agent bank would request for funds from CPF Board. If the member has excess funds in his CPF account for the share purchase, CPF would accede to the agent bank's request.
Chen took advantage of the situation and traded shares using his cash account and CPFIS Account. In all, there were five instances in which Chen had sold shares to himself at inflated prices.
On one occasion on Nov 7, 2001, Chen bought 10,000 Craft Print shares at nine cents per share and another 1,000 shares in the same company at 10 cents each using his cash account. Almost immediately after that, he entered a sell order for the 11,000 shares at 10 cents each, and at the same time, entered a buy order using his CPFIS account to match his sell order for the shares. He thus sold 11,000 Craft Print shares to himself at an inflated average price.
In another instance, Chen accumulated 13,000 Craft Print shares at 12 and 13 cents per share on Dec 20, 2001. He then entered a sell order for all the shares at 16 cents each and immediately entered a buy order through his CPFIS account to match his sell order. In doing so, he sold himself another 13,000 shares at an artificially higher price.
In all those transactions, Chen had intentionally entered a price higher than the prevailing share price for his purchase of shares using his CPF Account. As a result, the CPF Board was deceived into releasing more funds than it would have if the shares were transacted at the prevailing market price. Chen made a contra profit in his cash position and was able to withdraw the money from his cash trading account.
The CPF Board made the disbursement on the basis that the shares were purchased from the market at prevailing market prices. According to CPF, it would not allow situations where a member trades shares between his CPFIS and cash accounts at prices above or below the market price. However, in Chen's case, it was unaware that he had artificially inflated the price of the shares bought through his CPFIS account.
Chen's defence was that he had originally intended to buy the shares through his CPFIS account for long-term investment but had bought them using his cash trading account by mistake. He said that he then sold the shares back to his own CPFIS Account to correct his mistake. However, Chen's trading behaviour contradicted his argument. First, there were just too many instances of him selling shares to himself to suggest that it all arose from mistakes on his part. Moreover, there were instances where Chen attempted to sell his shares purchased through his CPFIS Account almost immediately after buying them from his cash account. He was certainly not buying the shares as long-term investments.
In all, Chen managed to withdraw approximately $1,115 in gross contra profits from his CPF account through the five transactions. While the amount was small, he had put the integrity of the CPF system at risk. On June 20, 2003, Chen was charged with breaching the Securities Industry Act on five counts. On Aug 26, 2003, he pleaded guilty to three of the charges while the remaining charges were taken into consideration for sentencing.
'In sentencing the offender, the court agreed with the prosecution that such offences should be dealt with firmly in the public interest. A clear message had to be sent to the trading community that an abuse or exploitation of the CPFIS and the online trading system would not be tolerated. His scheme was tantamount to a premature withdrawal of his CPF funds and a circumvention of CPF rules and regulations,' said CAD.
Chen was fined $20,000 or four months' imprisonment in default for each charge dealt with, for a total of $60,000. While the offences he was charged with carried a maximum fine of $250,000 or imprisonment of up to seven years or both, Chen escaped jail because the court took into consideration the fact that his trades were not large and the amounts involved were not significant, and that he did not cause any loss to a third party.
'Chen thought that he had found a shortcut to withdraw his CPF funds but the law eventually caught up with him. Considering the amount he successfully withdrew, he had paid a high price for his act,' said lead investigating officer Wong.
'This was one of the first cases we encountered which involved the premature withdrawal of CPF savings by a member of the public. CPF savings are meant for old age and CPFIS is a scheme to enable members to enhance their savings. In this case, Chen abused the system and withdrew his CPF savings before he was allowed to do so.'
Click here (1.3MB) to view article.
This is part of a series produced in collaboration with the Commercial Affairs Department and the Legal Division of the Subordinate Courts.
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| Last updated on 17 May 2007 |
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