Fletcher Challenge Insider Trader To Be Sued
Fletcher Challenge Insider Trader To Be Sued In Court
I have arranged today for two shareholders in Fletcher Challenge to sue Mr Kerry Hoggard for the triple damages penalty payable under our insider trading law. This will be a test case. In the 12 years we have had that law no penalty has ever been imposed. The Securities Commission Report is crystal clear that Mr Hoggard was an insider trader.
The two shareholders are my wife, Catharine, who holds the shares for our children and Roger Kerr Executive Director of the New Zealand Business Roundtable, and also an experienced company Director.
We believe our securities law can work but there has been no commitment by New Zealand government and business leaders to enforce it. Politicians have responded to complaints about crooked business practice by promoting new laws, then letting all the usual enforcement problems stop them working.
This step is not a criticism of the decision by the Fletcher Challenge Board not to take proceedings. Their duty is to think about the best interests of the company. I am sure they saw that as being to exit Mr Hoggard promptly and to ensure compensation for those he had bought from. The Board might have been distracted for months if Mr Hoggard had “dug in” to defend against proceedings brought by the Board.
But the Securities Amendment Act 1988 provides for a shareholder to pick up the company’s rights of action in these circumstances.
We hope that the Court will give us a
speedy decision. The Act has strong penalties for
misconduct of the kind now confirmed by the Securities
Commission Report. It is hard to think of a more
straightforward case. A view has built up that the law is
toothless or that there are impossible obstacles for
ordinary shareholders wanting to use the rights against
We hope that a high profile case will show the business community’s condemnation of sharp practice, and encourage others to pursue wrongdoing in the future. All honest directors are damaged if New Zealanders are left to feel that prominent people can get away with cheating. If the cheats know that any shareholder can pursue them, incidents such as this should become rare.
When I was a senior securities lawyer with Chapman Tripp I worked hard to encourage people to bring test cases of this kind. For various reasons they did not proceed. I am glad now to have a chance to make the law mean what it says. If the Court does not make this law work then we know that the law must be changed.
The problem is just shifted if we simply change the rules. The problem is a lack of determination to enforce the rules.
Mr Hoggard should have been punished by shame, but he seems to have tried to minimise his responsibility, by referring to having “technically breached the company’s share trading regulations”.
It was not a technical breach. He appears not to have complied at all. His colleagues at Nufarm seem to have adopted a benign view of the matter. I found incomprehensible his excuse that an announcement was unexpectedly delayed, when it appears that Mr Hoggard as Chairman was in charge of the release.
I was also disturbed by the NBR poll report on Friday. A widespread view among investors that insider trading is a problem for New Zealand is not backed up by my experience, but it is a serious issue for New Zealand that such a perception is widespread.
Everyone in business has a stake in upholding honesty. A properly functioning share market depends on integrity, and integrity is most important at the top level.
If the application succeeds we will seek an inquiry into damages. The court can decide whether Mr Hoggard has properly compensated the people he bought from by paying the price prevailing immediately after the announcement. The correct measure might include a reflection of other knowledge he had at the time, not fully reflected in the announcement.
The subsequent increase in the Fletcher Challenge share price against a generally flat or declining market implies that as the reconstruction plans have firmed up, or market knowledge of them has become more certain, the price has increased.
We think the most he could be ordered to pay is approximately $600,000, but the final measure of damage may be significantly less, and the maximum penalty the Court can award, is three times the gain.
We will also be asking the court to establish some useful precedents, to reassure applicants in such cases in future that they will be fully reimbursed for all the costs and risks of taking these proceedings on behalf of shareholders generally. Anything received above the costs of the action will go to charity.
Roger Kerr is known for his advocacy for the New Zealand Business Roundtable. But he is taking this action as a director and a citizen. This is not a Business Roundtable action. New Zealanders generally reach for new laws when outraged. In this case existing law could be vigorously enforced, and the law must be enforced. Though our insider trading law is poorly drafted, this kind of insider trading falls within everyone’s definition. If it cannot be enforced effectively it must be changed.