NZ soft on insider trading

The New Zealand business community believes tougher laws are essential to stamp out insider trading. Selwyn Parker reports on one of the latest instances.

New Zealand's Securities Commission is under pressure to toughen up insider trading laws after an admitted case of suspect share dealing failed to produce prosecution. The commission has now made eight investigations into insider trading during the past two years without any charges being laid. The companies included Brierley Investments, Force Corporation, Spectrum Resources, Fletcher Challenge, and now Fletcher Paper. The Securities Commission and the Serious Fraud Office investigated the Fletcher Paper share dealing but concluded a successful prosecution could not be mounted within the present laws. There is mounting agreement that the laws should be strengthened along the lines of Australian legislation and elsewhere which are generally much more explicit. "A tightening-up of the laws is long overdue," says David Newman of the Institute of Directors. "The definition needs to be broadened." The Institute has submitted its own proposal to the competition and enterprise branch of the Ministry of Economic Development which is producing a discussion document on insider trading. The Institute wants to see criminal penalties added to the present civil remedies, plus continuous disclosure of directors' share trading. "And we think the Securities Commission should be funded to undertake prosecutions," added Newman.

Fletcher Challenge chairman Roderick Deane said in late November: "The company is very concerned that such incidents [the Fletcher Paper share dealing] can take place, but the law ... makes it difficult to test the behaviour in court." Fletcher Challenge was trying to obtain the evidence accumulated by the Serious Fraud Office and the Securities Commission. If it could do so, Fletcher Challenge would "review its position". It was Dr Deane (Deloitte/Management magazine choice for outstanding executive of the last decade) who forced the resignation of Fletcher Challenge chairman Kerry Hoggard after the latter had (mistakenly, the Securities Commission accepted) placed an order with his brokers for shares before a company announcement had been released to the New Zealand Stock Exchange. Privately, business people say that tougher laws are essential if only to forestall action by the Labour/Alliance government. Deputy Prime Minister Jim Anderton, who regularly attacks "big business", has threatened much tougher criminal penalties.

This is perhaps why Stephen Franks, lawyer and MP of the pro-business ACT party, is launching with the Business Roundtable a legal challenge against Hoggard over the earlier incident. But the latest breach involving Fletcher Paper shares could be instrumental in the laws being rewritten. "Our insider trading laws are a farce," concluded columnist and analyst Brian Gaynor in the New Zealand Herald. In the latest case, a woman executive contracted to a firm supplying services to Fletcher Paper saw confidential information on an internal computer notice board about a proposed merger between the company and Fletcher Challenge Canada. That was in April of last year. She allegedly faxed the information to a relative who left it on his desk at home where it was later spotted by his brother-in-law, Paul Hyslop, the executive director of Wilson Neill. Hyslop photocopied the document. All the parties then bought shares in Fletcher Paper. One party sold his shares in July this year for a gross profit of about $NZ120,000 after Norske Skog took over Fletcher Paper. Hyslop sold his shares in May last year for a gross profit of around $NZ40,000.

If the Institute's submissions are accepted, all gains from insider trading would have to be reimbursed.

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