Tranz Rail insider trading settlement diverted into government coffers

Thursday 24th September 2009

The residue from the 2007 Tranz Rail insider trading settlement, which had been earmarked for the Securities Commission’s litigation fund, was instead diverted into the government’s coffers after policy makers leaned on the state sector to cut back on costs.

In May, some $2 million in the Securities Commission’s fund for court proceedings was paid to the government as part of its cost-saving measures, chair Jane Diplock told Parliament’s Commerce Select Committee in Wellington today. The fund has dwindled to $781,000 from $2.9 million.

“The ministry felt that it could be better used,” Diplock told the committee. She’s confident the litigation fund will be topped up as required by the Ministry of Economic Development and the commission’s legal muscle won’t be undermined.

The select committee was today presented with two deep reviews of the securities regulator by KPMG and a review team which concluded it needs a substantial funding boost, more staff, and upgraded IT capabilities. The commission needs some 30 additional staff to administer the new Financial Advisers Act and to tackle broader anti-money laundering duties.

The commission filed insider trading proceedings in 2004 against Midavia Rail Investments, Berkshire Fund III, former Tranz Rail executives Michael Beard and Mark Bloomer, and former directors Carl Ferenbach and David Richwhite. Midavia and Richwhite settled with the commission, resulting in the payment of some $27.5 million.

It was the first time the Securities Commission had used its power to take court action for insider trading, and the inquiry focused on sales of shares in the first half of 2002 at $4, before they collapsed to a record low 30 cents in 2003. The commission claimed the parties who sold their shares before their price deteriorated did so with knowledge not available to the public.

In April this year, the regulator said it had paid out around $17.3 million to 30 counterparties, but was waiting to hear from some 535 investors eligible for the remainder of the settlement.

Businesswire.co.nz

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