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Singapore: DPPs appeal stricter sentence for ex-Lukoil fuel oil trader who exploited internal loophole

06 Aug 2020

Singapore Deputy Public Prosecutors (DPPs) on Monday (3 August) submitted an appeal to the High Court of the Republic of Singapore for an increased jail term of David John Kidd, a 32-year-old male Singapore permanent resident and British citizen formerly employed by Lukoil Asia Pacific Pte Ltd (Lukoil).

A District Judge on 13 March 2020 sentenced Kidd, who started serving his sentence on 23 March 2020, to 36 weeks’ imprisonment; the DPPs are now appealing to the High Court to increase his jail sentence to 18 months (72 weeks), according to a court document obtain by Manifold Times.

Kidd was the sole trader responsible for a high sulphur fuel oil (HSFO) contract with Transocean Oil Pte Ltd (Transocean) between April and September 2016, where Transocean agreed to purchase 50,000 metric tonnes of HSFO on a monthly basis from Lukoil.

His job was to enter the trade into Lukoil’s internal computer system (the ETRM system) whenever Transocean made a HSFO purchase from Lukoil; the operation also required him to hedge the trade to cover Lukoil’s price exposure through the purchase of oil futures or swaps.

However, the DPPs noted Kidd entering the trades in an untimely manner on 18 occasions between April to July 2016 into the ETRM system.

“The delay allowed him to speculate on market conditions, to wait for a more favourable price to hedge the trade. He did so in order to gain a financial advantage for the contract, knowing this would translate into a better bonus for himself if the contract performed well,” they explained.

Kidd backdated the trade in the ETRM system without hedging the trades on the same day on each of the 18 occasions; the delay in performing the hedges caused losses to Lukoil totalling USD 755,260 (equivalent to SGD 1,024,208) for 17 of the trades.

He entered false mark-to-market (MTM) updates into the ETRM system in an attempt to cover the losses and created an impression that there would be future sales of HSFO by Lukoil at a profit; the activity in turn created a false impression of unrealised gains, which were then factored into Lukoil’s daily Profit & Loss statements.

“The net effect within the ETRM system was that the losses caused by the Respondent’s late hedges were effectively negated or mitigated by the false MTM updates. This helped conceal the losses incurred by the Respondent from Lukoil’s Risk department,” added the DPPs.

The legal team reasoned a stiff sentence will act as general deterrence to deter like-minded individuals from engaging in offences of a similar nature and recommended the court to adopt “an uncompromising stance in meting out severe sentences” to protect Singapore’s international recognition as a reputable trading and financial hub.

“Actions from individuals like the Respondent threaten Singapore’s reputation in the bunkering industry and a stiff sentence is therefore warranted to deter others from gaming the system,” they said.

To date, Kidd has not provided restitution to Lukoil.

The High Court has reserved judgment to a later date.

 

Photo credit: Manifold Times
Published: 6 August, 2020

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