Milford Asset Management portfolio manager Mark Warminger was under pressure from the firm over the performance of funds he managed at the time of his alleged market manipulation, the Financial Markets Authority has said at the start of its High Court case in Auckland.
Warminger, who has been on extended leave from his position as a portfolio manager at the firm since last year, is fighting alleged breaches of the Securities Markets Act 1988 relating to sharemarket trading carried out between December 2013 and August 2014.
Justin Smith QC, acting for the FMA, said Warminger is accused of misusing his privileged position with an institutional investor by placing trades in stocks in one direction to move the price so he could later transact significant off-market sales, known as cross-trading, at a greater profit. He's also accused of placing trades in companies to set artificial prices.
The activities were in contravention of the act which prohibits trading that is not for a genuine commercial purpose and creates an artificial appearance in the market, Smith said.
Smith said Milford's former managing director Anthony Quirk and director Brian Gaynor had meetings with Warminger in 2014 over performance issues because the funds under his management had not delivered the expected returns. In one example, shares in A2 Milk had dropped 36 percent which had caused a decline in fund performance over the previous six months. "That had put him under a certain amount of pressure," Smith said.
Warminger made the trades through brokers knowing they represented prohibited market manipulation. Even if he didn't know, lack of knowledge about the prohibition is no defence, Smith said.
The way in which he placed the trades allowed him to have anonymity in many cases, he said.
Warminger is said to be a highly experienced equities trader, having worked in New Zealand and overseas for several global firms and he had autonomy at Milford to buy and sell New Zealand traded equities without adequate oversight, Smith said.
As 31 August, 2014, Warminger had $669 million of assets in several funds under his management, including funds invested through a mandate at the time with the NZ Superannuation Fund.
Warminger could face a penalty of up to a $1 million a trade if any of them breached market manipulation rules, which he has denied.
Milford Asset Management has paid a $1.5 million fine under an agreement with the FMA following a year-long investigation. It also committed to introducing new governance and trading controls as recommended in a PwC review.
Last week Milford played down its role in the case which is only the second market manipulation trial in New Zealand. In a note to clients, Milford said there was likely to be media coverage of the case and that its only role was through background evidence to be provided by executive director Brian Gaynor. It said the issues were not "clear-cut" around how the relevant law applies to trading practices.
Warminger still has a 1.5 percent shareholding in the 13-year-old firm which has more than $3.5 billion of funds under management, mainly through KiwiSaver, and 20,000 clients.