Commerce Minister's Failings Snare Prime Minister

Thursday, September 27 2001 Stephen Franks Press Releases -- Commerce

ACT Commerce Spokesman Stephen Franks said today that Helen Clark is highly exposed to liability under New Zealand's insider trading laws for her advice to Air New Zealand shareholders.

Yesterday Mr Franks said that the process of due diligence is almost always a clear breach of insider trading law. "The Stock Exchange and the Securities Commission turn a blind eye to these breaches provided the directors can be sure the information will be kept confidential, and those getting the benefit of due diligence do not trade or tip. The directors of Air NZ have now lost that defence."

Having explored the issue further, Mr Franks a former member of the Securities Commission, said that even before the Prime Minister's blunder, the Government, Air NZ directors and senior management faced the prospect of liability. "They could have to pay up to three times the amount of any gain or loss made on share trading connected with statements made by any of them. After Helen Clark's statement the risks became very real.

"Even when due diligence is conducted to the highest ethical standards and people observe the rules, it remains unlawful. This is because the Government never fixed the definitions in our insider trading law. Minister Swain came to power vowing to reform insider trading law. Two years later we don't know what his changes will look like, and his statements only cover cosmetics. There is no indication the changes will cover the real problems.

"The law was introduced hastily in 1988 as a political response to the sharemarket crash. It was soon realised that the definitions caught normal market practices. The Labour Government at the time sneaked through a small 'technical' amendment to exempt the Government from some embarrassing liability, but refused to deal with the main problems for underwriters, analysts, and law abiding investors.

"The Securities Commission and Minister Swain's officials are well aware of the problem. I raised it with the Minister last year when his September 2000 discussion document failed to touch on the root problems with insider trading law and instead pumped only the populist 'solution' of criminalisation.

"It will serve the Government right if the most prominent public defendant before real reform turns out be his Prime Minister. Even the Stock Exchange and others who have been pushing for more fundamental reform might get some satisfaction, though less if the taxpayer has to pay the cost of defending the Prime Minister. She hasn't in the past seemed keen to meet her legal costs ," Mr Franks said.

For more information visit ACT online at http://www.act.org.nz or contact the ACT Parliamentary Office at act@parliament.govt.nz.

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