Ex-Tranz Rail man claims cover-up

Former Tranz Rail chief financial officer Mark Bloomer has effectively accused the Securities Commission of a cover-up and challenged its right to take an insider trading action against him.

Bloomer has refused to file a statement of defence to the commission's allegations that he sold parcels of Tranz Rail shares totalling 596,000 shares between February 13 and May 24, 2002 while in possession of inside knowledge that the company's financial position was rapidly deteriorating.

Instead the former high-flier yesterday filed an "appearance under protest to the jurisdiction" in the High Court, claiming the commission had no standing to take an action against him in Tranz Rail's name.

Bloomer - who is now Australia-based - has also filed a list of objections to the commission's allegations.

The key objection is his claim that the commission has no standing to bring the action in Tranz Rail's name under section 18A of the Securities Markets Act - which allows the commission to take actions in the name of public issuers - because the law was not enacted until after the relevant share trades took place and did not have a retrospective effect.

Among other major objections:

* There was no entitlement under High Court rules to serve him with proceedings out of the New Zealand jurisdiction.

* The commission was out of line in alleging the "purported consents" Bloomer successfully sought from Tranz Rail's compensation committee to sell shares were "invalid on the grounds that at all material times Tranz Rail could not have been reasonably satisfied as to the truth of the statement in the request for consent that Bloomer had not made his decision to dispose of the shares on the basis of inside information".

* The commission is bound by the actions of the public issuer and is stopped by law from contending that Tranz Rail "could not have been reasonably satisfied" to Bloomer's applications to sell shares.

* That the commission's claim for pecuniary penalties of up to three times any avoided losses is barred under the Limitation Act.

The most damaging allegation in Bloomer's arsenal is his contention the commission failed to put relevant facts in front of the High Court during an application hearing to serve Bloomer outside of New Zealand.

In particular there is the non-disclosure by the commission that it had not asked Bloomer questions about the reasons he had given on his application forms for wanting to sell his shares, and the genuineness of those reasons, at an examination at Sydney's Westin Hotel in December 2003.

Nor did the commission disclose to the High Court that its own Queen's Counsel, Robert Dobson, had assured Bloomer at the hotel examination that "I think it's fair ... to indicate at this stage of the enquiry that the commission doesn't have on its radar screen the prospect of any insider issues with your own trading" .

Bloomer is also concerned that the commission did not disclose at the ex parte service application hearing that he did not sell all his shares but had retained shares "with a value to him" of more than $600,000.

Furthermore, he says, it failed to disclose he did not obtain Tranz Rail's consent to the disposal of a May 24 parcel as he was no longer then employed by the company.

But before he had left he had discussed the proposed sale with the company secretary, who subsequently recommended a course of conduct he should adopt to sell the shares - which he followed.

He says he sold the shares because he was leaving New Zealand to return to Australia to live; that he did not have a job to go to; and that he sold the shares to reduce debt.

Along with other defendants, Bloomer is alleged to have had inside information about financial forecasts, capital expenditure plans, negotiations with RailAmerica, advice on asset writedowns, and risks of a ferry lease carried off balance sheet which had share-price impacts.

Those defendants, which include Midavia Rail Investments - owned by Sir Michael Fay and David Richwhite - Boston-based Berkshire Fund and Berkshire Fund partner Carl Ferenbach, are vigorously contesting the allegations.

Former Tranz Rail chief executive Michael Beard settled the suit with the commission just before Christmas.