Case: Offence of Raising Funds Without Prospectus and Small Offer Exemption

Significance: In Public Prosecutor v Tay Chee Ming [2020] SGMC 1, the court found a company director and shareholder, Tay, guilty of an offence under section 240 of the Securities and Futures Act (Cap. 289) (SFA) for raising funds from the public in Singapore through offers of convertible loan agreements (CLA) with investors by his company. Tay was sentenced to imprisonment for 15 months. Tay raised about S$8 million in total.

This appears to be the first court decision on the offence and a discussion on the small offer exemption under section 272A(1) of the SFA, which is one of the safe harbour exemptions from prospectus requirements for businesses to raise funds. The private placement exemption in section 272B of the SFA was not raised by the accused and so was not considered.

Background: the Small Offer Exemption

The small offer exemption applies to offers of securities, securities-based derivatives or units in collective investment schemes (CIS) (whether or not the schemes have previously been issued) made by any person where the total amount raised by the person from the offers does not exceed S$5 million (or its equivalent in any foreign currency) in any 12-month period.

This exemption sits alongside other exemptions as follows.

Private placement exemption. Section 272B(1) of the SFA provides a safe harbour for private placements of securities or securities-based derivatives contracts of an entity or business trust offered to not more than 50 investors (or such other number as may be prescribed by MAS) during a 12-month period. Section 302B of the SFA is the corresponding exemption provision for units in CIS.

The applicable limit is placed on the number of offerees (calculated in accordance with section 272B(5) of the SFA) and not on the persons accepting the offer.

Note that there are certain MAS guidelines on calculating the aggregation of offers for small offers and private placement exemptions.

Institutional investor exemption (sections 274 and 304 of the SFA): exemption from prospectus requirements in respect of an offer of securities, securities-based derivatives or units in CIS that is made only to institutional investors (as defined under the SFA).

Accredited investor and relevant persons exemption (sections 275 and 305 of the SFA): applies to offers made to the following persons: a “relevant person” (which includes accredited investors, as defined under the SFA); or a person who acquires the investment as principal if they can only be acquired at a consideration of not less than S$ 200,000 (or its equivalent in a foreign currency) for each transaction.

An offer of units in CIS in reliance on the section 305 exemption may require notification to MAS beforehand for the CIS to be place into a List of Restricted Schemes.

To rely on the Section 305 exemption, the documents that must be filed with the MAS include the information memorandum (containing the prescribed information), as well as any other material or information that is intended to be distributed to prospective investors in Singapore.

The information memorandum may need to contain certain prescribed statements and disclosures. Relevant disclosures on the investment objectives and focus of the restricted scheme must be disclosed to investors in the information memorandum.

Convertible Loan Agreement Deemed Offer of Securities i.e. Debenture and Shares

The court found that CLA were considered debentures under the deeming provision in section 239(3) of the SFA: [65]. The CLA was also deemed an offer of shares given that under the CLA, the lenders would have an exercisable right to shares in future subject to conditions which would constitute an interest in the shares pursuant to the broad language of section 4(7) of the SFA: [74].

The court found on the facts that requirements for the small offer exemption were not complied with even though the accused purportedly signed a notice of exemption in reliance on section 272A of the SFA. The notice was however found not to have been given to the lenders: [85].

Personal Offers

The court found that section 272A(1) of the SFA was not fulfilled. There has to be a “personal offers of securities” to a designated group of offerees with an offer limit of $5 million within a period of 12 months. A “personal offer of securities” is defined in s 272A(3) as one that can be accepted only by the offeree and the offeree is likely to be interested in the offer due to: previous contact or professional or other connection with the offeror; or previous indication of interest to the offeror; or by Singapore licensed or exempt dealers and licenced financial advisers, dealers and financial advisers in other jurisdictions.

On the facts, the investors had no previous contact or professional or other connection with the accused. Some investors came to know of the investment opportunity through friends and were thereafter introduced to the accused. In turn, they were the brokers who introduced others to the investment, and the persons that they introduced in turn introduced others. The investment was therefore found to have been opened to the public at large: at [78].

S$5 million Limit

Further, there is no evidence that the accused had sought to limit his offers to a total of $5 million within a 12-month period. In fact, on the evidence there was no limit of $5 million. The documents and the accused’s own evidence suggested that S$6 million to S$8 million was raised and it was intended that S$9 million would be raised: [79].


‘Advertisement’ is defined to mean in section 272A(10) of the SFA as:

“(a)    a written or printed communication; …

that is published in connection with an offer of securities, but does not include—

(i)    a document —

(A)    purporting to describe the securities being offered, or the business and affairs of the person making the offer, the issuer or, where applicable, the underlying entity; and

(B)    purporting to have been prepared for delivery to and review by persons to whom the offer is made so as to

assist them in making an investment decision in respect of the securities being offered;”

The court found that the marketing materials accompanying the offer of the convertible loans constituted an “advertisement” because they are written or printed communication published in connection with an offer of securities (i.e., the offer of the convertible loans).

The marketing materials could not come within the exception in s 272A(10)(i)(B) of the SFA because the evidence at trial was that the marketing materials were freely presented to anyone interested in the convertible loan investment scheme. The marketing materials were not prepared for “delivery to, and review by, the persons to whom the offer was made”: [86].

Selling or Promotional Expenses

Under section 272A(1)(d) of the SFA, commissions for the promotion of the offer can only be paid to the holder of a capital markets services licence (CMS) or an exempted person.

On the facts, the court found that the accused had arranged to pay commission to brokers at 3% to 5% per investment. These brokers were not holders of a CMS licence or exempted persons.

Personal Liability

The accused argued that it should be the company and not him personally who should be charged. However, the court found that the accused (as a director of the company) was in breach of section 240(1) read with section 331(1) of the SFA for consenting to the company making an offer of securities to the individual lenders, which offer was not made in or accompanied by a prospectus: [92].

The decision is undergoing appeal.


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