Insider Trading Proceedings Filed: Tranz Rail Case

Securities Commission Files Insider Trading Proceedings In Tranz Rail Case

The Securities Commission filed insider trading proceedings relating to share trading in Tranz Rail Holdings Limited in the High Court in Wellington today. Tranz Rail is now called Toll NZ Limited.

The defendants named in the proceedings are:

Midavia Rail Investments BVBA (previously known as Pacific Rail Limited NV), Berkshire Fund III A Limited Partnership, Michael Beard (former Managing Director of Tranz Rail), Mark Bloomer (former Chief Financial Officer of Tranz Rail), Carl Ferenbach (former Director of Tranz Rail), David Richwhite (former Director of Tranz Rail).

This is the first time that the Commission has used its powers to take court action for insider trading.

The Commission’s inquiry focused on sales of shares in the first half of 2002, before the share price of the company began to deteriorate from about the middle of 2002. At the beginning of 2002 the share price was $4.00. By 16 April 2003 it had fallen to its lowest level ever ($0.30).

The inquiry has involved obtaining documents both in New Zealand and overseas. It has involved a large number of interviews and the receipt of formal oral evidence from many witnesses. … more … The basis for the proceedings is that the parties who sold their Tranz Rail shares had information about the company which was not publicly available and which would have affected materially, or would have been likely to affect materially, the price of the shares if it had been publicly available.

An additional action for tipping is raised against Carl Ferenbach (representing Berkshire Fund III A Limited Partnership) and David Richwhite (representing Midavia/Pacific Rail, an investment vehicle controlled by Fay Richwhite interests).

The proceedings seek compensation for the losses avoided by the traders. The proceedings also seek to have pecuniary penalties imposed.

The inside information at issue relates to:

the forecast financial performance of Tranz Rail, the forecast capital expenditure by Tranz Rail, a bid by Rail America for Tranz Rail (in the event not proceeded with), asset and investment write downs in Tranz Rail, and the financial obligations and credit worthiness of Tranz Rail.

The proceedings are brought under section 18A of the Securities Markets Act 1988. This enables the Commission to exercise a public issuer’s right of action against an insider (in accordance with section 18B) if it considers that it is in the public interest to do so.

The Commission has decided that it is in the public interest to do so in the present case.

The Commission has actively investigated the matter since February 2003, when the Market Surveillance Panel released its report on Tranz Rail.

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