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On 30 November 2004, China Aviation Oil (Singapore) Corporation Ltd (CAO) shocked the stock market by announcing a massive US$ 550m loss from oil option trading. Investigations revealed the loss arose after CAO had placed wrong bets on oil price movements. By early October, the unrealized losses were US$ 180m. Chen Jiulin, CEO and MD of CAO, had then sought urgent help from parent company China Aviation Oil Holding Company (CAOHC) to transfer all CAO's option portfolios to CAOHC. He also informed CAOHC that if this crisis was not resolved, CAO might face bankruptcy. He thus proposed CAOHC to sell its interests in CAO to raise cash for working purposes. This led to CAOHC selling 145m CAO shares to Deutsche Bank Singapore on 20 October.
Jia Changbin, chairman of CAO, had represented CAOHC in the share sale. Chen, Jia and CAOHC were possessing non-public material information relating to CAO's unrealised US$ 180m loss and were therefore prohibited from trading in CAO's shares. During the share sale, Chen and CAO Head of Finance Peter Lim also made several material misrepresentations to deceive Deutsche Bank into buying the shares. By November, the realized losses of CAO had increased from US$ 132m in late October to US$ 394m. By late October, the unrealised losses were US$ 400m. These extremely material losses were never publicly disclosed before 30 November 2004. Besides Chen and Jia, the other CAO directors who were aware of CAO's crisis were Gu Yanfei and Li Yongji.
Pursuant to CAD investigation, the following accused persons were prosecuted for various offences under the Securities and; Futures Act, Penal Code Chapter, and/or Companies Act:
- Chen Jiulin - Pleaded guilty to six charges with the nine charges taken into consideration for sentencing purposes. Sentenced to 4 years and 3 months' imprisonment and S$ 335,000 fine;
- Peter Lim Tiong Sun - Pleaded guilty to two charges, with three charges taken into consideration for sentencing purpose. Sentenced to 2 years' imprisonment and fined S$ 150,000;
- Jia Changbin - Pleaded guilty to two charges, with one charge taken into consideration for sentencing purpose. Fined S$ 400,000;
Gu Yanfei and Li Yongji - Each pleaded guilty to one charge with one of the charge taken into consideration for sentencing. Fined S$ 150,000 each
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| Last updated on 27 June 2007 |
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