CFA goes after own employer after suffering financial loss from non-disclosure

Financial analyst claims misrepresentations were made during key meetings

CFA goes after own employer after suffering financial loss from non-disclosure

The General Division of Singapore's High Court recently dealt with a case about corporate communications and duties during leadership transitions.

The dispute centred on what a worker claimed were misleading statements made by his former employer about upcoming organisational changes and opportunities.

A worker started legal action against his former employer after experiencing significant financial losses.

He stated that the company failed to disclose important information about internal restructuring and alleged that key personnel made inaccurate representations about business prospects.

The case raised questions about corporate transparency and communication obligations during periods of management change.

Background of the case

The dispute involved a fund management company with its main business focused on promoting equity funds to investors, particularly in healthcare and education sectors across Southeast Asia.

The organisation employed a sales director whose role involved introducing clients to private equity investment opportunities between September 2014 and April 2018.

Although his title included the word "director", the court noted he was not a board member. This distinction became important later in the proceedings.

The company's former chief executive officer simultaneously held several leadership positions across different entities. He served as both board director and CEO until October 2016, when he transitioned to a different role within the broader corporate group.

Financial analyst invests in company

The worker, who was a chartered financial analyst, claimed the sales director made several oral representations during their meetings about potential returns and business prospects.

Based on these discussions, the worker invested US$550,000 in one of the company's healthcare ventures.

When examining email exchanges between the parties, the court found that the worker never raised concerns about these alleged representations at the time they occurred. This observation played a crucial role in the court's analysis.

The court addressed important points about director responsibilities during corporate transitions. It stated: 

"[A]ny suggestion that [directors] had some overriding duty to all possible investors to keep updating them about his status is an absurd standard that is bound to be breached in an overwhelming number of innocuous circumstances since it incorporates into directors' duties a duty to be personally involved in all marketing aspects of any business."

The evidence showed that the former CEO's departure was not sudden but planned well in advance. The court noted that the "handover in preparation for his resignation was already put in motion since July 2016."

Employer’s obligation to disclose

The court examined whether companies had an obligation to disclose ongoing investigations or potential leadership changes. It referenced earlier cases, observing:

"Experience and the actual market impact of similar information in the past may be of assistance in evaluating the probable outcome of disclosing the information in question."

Regarding management changes, the court explained:

"The likelihood of information materially affecting the price or value of a company's securities requires a prediction of how investors would react to the information if they were to know of it."

In its conclusion, the court emphasised:

"[I]t is clear that this is an intolerable burden that turns the conventional wisdom on its head – it is well known that investing in private companies inherently carries additional risks, as they are not subject to the much more stringent regulatory requirements regarding disclosure and transparency."

The court ultimately dismissed all claims against the fund management company and its officers, finding insufficient evidence to support the worker's allegations about misleading communications or breach of duties during the leadership transition period.