Jail may be norm for false online postings on firms

March 14, 2008

Jail may be norm for false online postings on firms

By Alvin Foo

LEGAL experts have warned people to be careful about what they say online about listed companies after a landmark judgment in Singapore.

Former share trader Able Wang Ziyi was jailed six months earlier this week for posting false, price-sensitive information online about Singapore-listed tech firm Datacraft Asia.

In 2004, he spread a rumour on a popular investor forum that the Commercial Affairs Department had raided Datacraft's offices.

He was charged and acquitted in 2006 but the prosecution appealed, and the verdict was overturned in favour of a guilty one by the High Court last November. Wang did not gain financially from spreading the rumour, although Datacraft stock closed 10 US cents down at US$1.38 that day.

Justice V.K. Rajah said in his ruling that it was especially important to penalise the spreading of false information, given 'the legislative and regulatory shift to a disclosure-based regime'.

He added: 'A fine would be inappropriate for offences such as the present one, where the potential harm caused can be enormous and devastating.'

Lawyers told The Straits Times that the case was significant on two counts - it was the first of its kind to result in a jail term and the first such case to reach the High Court.

Mr Nish Shetty, a partner at WongPartnership, said: 'The possibility of jail terms will be more readily accepted in future. It'll set a precedent at the sub courts for jail terms involving such cases.'

Another lawyer added: 'This sends a strong deterrent message. If you post anything factual, you have got to ensure that the facts are correct. If you post and it turns out to be wrong, you may be hauled up because you've posted recklessly.'

A stock-market analyst agreed: 'The authorities are sending out a strong message that they are treating market manipulation seriously. People will be scared to make such postings now.'

Wang was charged under Section 199 of the Securities and Futures Act. The maximum penalty he could have received was seven years' jail and a $250,000 fine.

The case has raised questions among industry players as to what constitutes a legal breach and where the line is drawn on Internet share forums.

Mr Shetty explained: 'Good news may also induce people to buy or sell shares. It's not an answer or a defence if you give good news that is false because it is still market manipulation. What matters is whether the news is accurate.'

In 2001, a securities dealer was fined $80,000 for posting a bogus notice on a financial website about a purported takeover of Venture Corp, then called Venture Manufacturing.

The use of online forums to discuss stocks has caught on in recent years. Shareinvestor's forum, for example, gets more than 1,000 posts a day. ShareJunction and Stocklion are also popular forums.

The Able Wang case has led to calls for such forums to be screened. Securities Investors Association of Singapore president David Gerald said: 'Owners of these sites must also exercise diligence and be responsible enough to disallow posting of such irresponsible statements on their sites.'

However, Shareinvestor chief executive Christopher Lee said: 'It doesn't make commercial sense for us to screen all the postings. We'll act only if a user complains.'

He added that the site went from being an open forum to a closed one about three years ago to 'develop and promote a community of responsible users'.

Mr Shetty's advice to investors?

'Behave responsibly - ensure any information disseminated is accurate. If there's any possibility of inaccuracy, then it's wise not to post it,' he said.

[email protected]