SINGAPORE - A director of advertising firm Brandz Group was sentenced to 15 months’ jail on Monday (Oct 7) for obtaining convertible loans as investments from the public without undergoing the proper proceedings to do so.
The loans were convertible to shares of the firm on the condition that it became eligible to list on the Australian stock exchange, court documents showed.
To attract these investments, the director – Jovan Tay Chee Ming, 54 – touted Brandz Group’s success with well-known clients like Great Eastern Life and the Prime Minister’s Office.
Tay also said Brandz Group was likely to be listed on the Australian stock exchange, promising in the convertible loan agreements that the listing would happen by June or August 2006.
Investors were given a pre-Initial Public Offering (IPO) investment summary which painted a rosy picture of the company, stating that its net profit after tax in 2006 was at least $4 million. But there was no evidence to back up the claim, according to court documents seen by The Straits Times.
Tay faced 25 charges involving over $2.8 million in convertible loans. None of the 16 investors were repaid.
The investors were told their money was to support the company’s IPO and if successful, would reap them a profit from the rise in share price. It was represented to the investors that if the IPO does not take place, they would be repaid with interest.
However, despite the firm’s unsuccessful listing in the Australian stock exchange in 2006, the loans were not repaid.
Tay had made the offer of “securities” – which can refer to shares or debentures of a corporation or entity – each time he entered into a convertible loan agreement with a lender as well. But he did so without a prospectus, and this is against the authorities’ requirements.
Tay claimed at his trial that he was told by professional advisers that he did not need a prospectus. But this was disputed by Deputy Public Prosecutors Kevin Yong and Tow Chew Chi.
District Judge Jasvender Kaur noted in judgment grounds that the requirement, under the Securities and Futures Act, was primarily “to protect retail investors by ensuring that they have access to all material information set out in the prospectus for the purpose of making an investment decision”.
She added that this was applicable to private limited companies as well. Brandz Group was a private limited company prior to July 2006.
Several brokers were among the lenders, and they were persuaded by Tay to introduce their contacts to enter into the loan agreements in exchange for a commission. Some of the other lenders had attended presentations about the investment given by Tay.
In mitigation, it was submitted that the task of issuing the pre-IPO convertible loan agreements fell to the company’s listing team. But the judge said it was “plain that the accused ran the show” and had absolute control over the fundraising.
The judge noted as well that Tay “gave no acceptable explanation” on why the pre-IPO summary did not state that the proceeds the company was raising were to be used towards debt repayment as well.
She agreed with prosecution that “the accused must have known that if he made this disclosure, the pre-IPO fundraising would fail”.
Noting that there was “material information that was deliberately withheld” and that lenders were “lulled into a false sense of security that the company was successful”, she sentenced him to 15 months’ jail.
Tay is appealing against the judgment.