Singapore’s central bank said its victory in the country’s first civil lawsuit for stock rigging against fund manager Tan Chong Koay and Pheim Asset Management Sdn. shows its determination to enforce market rules.

Tan and his Malaysian fund management company were fined $250,000 each for manipulating United Envirotech’s share price in December 2004 to maintain their performance benchmarks and boost their reputation, according to a Sept 17 ruling by Justice Lai Siu Chiu.

The Monetary Authority of Singapore had sought a fine of $1 million each from Tan and Pheim after they bought almost 90% of the traded shares of United Envirotech from Dec 29 to Dec 31, 2004. The share purchases had raised the net asset value of Pheim’s accounts, triggering outperformance bonuses of $50,790 and a management fee of $115. Lai said the gain sought wasn’t monetary.

“As this case illustrates, MAS will not hesitate to pursue and take stern action against anyone who attempts to rig our capital markets, regardless of whether the perpetrator is in Singapore or overseas,” said Leo Mun Wai, assistant managing director of the capital markets group at the central bank.

Tan, 60, and Pheim declined to comment saying they are studying the judgment and working out their options before making a decision on an appeal, according to an e-mailed statement on Sept 18. from Wong Soohow, Tan’s spokesman.

‘Bona Fide’ Deals
The share price movement of United Envirotech was due to a “proper interplay of supply and demand” and the purchases were “bona fide” transactions, lawyers for Tan and Pheim had argued.

A ruling against their clients would send a signal that investors can “no longer exercise value investing, buying shares when others are not,” the lawyers Michael Hwang and Foo Maw Shen said in a submission. That could chill trading in illiquid stocks and push them to other markets where they are “less exposed to unintentional incurrence of regulatory sanctions,” the lawyers said.

The ruling “ illustrates what type of trading activity constitutes prohibited conduct in Singapore, said Lock Yin Mei, a Singapore-based partner at London-based law firm Allen & Overy LLP. “I doubt very much it will deter fund managers from doing business in Singapore.”

Singapore, which grew its fund management industry to a record $1.2 trillion at the end of 2009, joins other financial centers in cracking down on market misconduct. The central bank also won its first civil lawsuit for insider trading against former WBL Corp. chief financial officer Kevin Lew this year.

‘Leveling Up’
“Singapore is leveling up to other leading financial centers like Hong Kong and London both in terms of market activity and the enforcement actions of its regulator,” said Wilson Ang, a Singapore-based regulatory and investigative lawyer with London-based Norton Rose LLP.

“It’s also pertinent that MAS emphasised its intention to pursue and take stern action against market manipulators who may be overseas,” Ang said. “This foreshadows the extraterritorial impact of MAS regulatory actions in the future.”

Tan, who founded Pheim Group which manages about US$1 billion ($1.3 billion), was in 2002 named one of five successful Singapore-based boutique fund managers by the Government of Singapore Investment Corp., which is one of Pheim’s clients.

The case is Monetary Authority of Singapore and Tan Chong Koay, Pheim Asset Management Sdn Bhd., S658/2008/P in the Singapore High Court.