Broker faces probe over Rubicon deal

By CHRIS DANIELS

A disciplinary committee of the Stock Exchange will hear charges against brokerage JBWere, after rival brokers last week laid complaints about its behaviour.

They say JBWere broke exchange rules when it acted for Guinness Peat Group in an overnight raid to buy 18 per cent of listed forestry and biotech company Rubicon.

Exchange rules state that if more than 10 per cent of a company is being bought, then at least 20 per cent of the deal must be conducted on the open market.

JBWere has strenuously defended its actions, saying it took legal advice and no part of the $37.5 million deal needed to have been done on the open market.

It says it approached only a few big investors during the night and asked them to sell their Rubicon shares.

JBWere said yesterday it was disappointed at the NZSE's decision to proceed with the investigation, as it believed it had acted responsibly and reasonably at all times.

"JBWere would like to see clarification around the interpretation of the regulations to provide member firms with certainty in conducting their business," said the firm's head of investment banking, Paul Harris. "We understand the regulations are currently being reviewed and redrafted with this purpose in mind."

Harris said there seemed to be "some confusion among brokers as to the purpose of the regulations, vis a vis the Takeovers Code, as regards to the protection of minority interests".

This refers to the question about whether the rule that JBWere is said to have broken was written to allow small shareholders to take part in deals such as that offered by Guinness Peat Group last week, or simply to share business around the sharebroking community.

If JBWere is found guilty of the breaching exchange rules, the committee can impose one or more of the following penalties: expulsion from membership of the exchange, suspension for a stated period, or fine the company up to $1 million, plus GST.

The committee can also censure a member and order an individual broker or firm to pay the cost of any investigation.

One broker said that punishing JBWere by suspending it from the exchange would be counter-productive.

It would hurt the market itself and other brokers in the process.

One option for punishment, suggested by another broker, was to fine JBWere the amount it would have earned in fees from the deal.

This would have been between $375,000 and $562,000, depending on how the fees were structured.

One broker said that it appeared JBWere's investment banking arm "got a bit too excited" during the deal, breaching the rules when there was no need to do so. Had it simply stood in the market and offered to buy the shares at 75c each, it would have been swamped.

"One matter was considered by the Disciplinary Committee in 2000-2001" says the last annual report of the Stock Exchange, that one sentence being the full description of any of the committee's activities for the past year.

Members of the Stock Exchange's Disciplinary Committee are John Gibson, QC (chairman), Gary Gould, Chris Horton, Geoff Clatworthy and committee secretary Phillipe Leloir.

NZSE members rules