Tranz Rail - Big sale passes watchdog scrutiny

By FRAN O'SULLIVAN

The Securities Commission will not be taking insider trading proceedings against Canadian National, which sold a 23.7 per cent stake in Tranz Rail in February 2002 two weeks after Fay Richwhite sold its shares.

Canadian National yesterday told the Herald it had co-operated with the commission on its insider trading probe.

"We did provide information to the Securities Commission of New Zealand at its request many months ago," said Canadian National spokesman Mark Hallman.

"But we have never heard anything since that time."

Hallman said Canadian National was not represented on the Tranz Rail board when its stake was sold.

"I'm not in a position to elaborate," he said.

"We are obviously not named and we are not involved in this proceeding."

In response to Herald inquiries, the commission said yesterday that it had given careful consideration to the people it should proceed against "on the basis of public interest and a winnable case".

"The outcome of that consideration is reflected in the proceedings that have been filed," it said

Tranz Rail shareholders asked the commission to investigate alleged insider trading by the company's two former major shareholders after bad financial news sent the share price into freefall months after the sales.

On Wednesday, the commission started proceedings against Midavia Rail - a company controlled by Sir Michael Fay and David Richwhite - Richwhite personally, the American Berkshire Fund III, its former managing director, Carl Ferenbach, former Tranz Rail managing director Michael Beard and former chief financial officer Mark Bloomer.

Richwhite was a director of Tranz Rail when Midavia sold its 14.5 per cent stake.

Canadian National acquired its Tranz Rail stake through its 2001 merger with Wisconsin Central, which was a founding shareholder in the rail company with Fay Richwhite. Wisconsin directors on the Tranz Rail board were Robert Wheeler (chairman), Tom Power and Tom Rissman.

Filings at the US Securities and Exchange Commission show that the three directors resigned from Wisconsin's board on October 9, 2001, the day Canadian National acquired Wisconsin Central.

A source said Canadian National wanted to make a clean sale of the Tranz Rail stake.

"So they declared their hand and then disappeared off the board ... They wanted to put themselves into a position where they were privy to no information for a period of time," the source said.

The commission's statement of claim said the Tranz Rail board knew from board papers in the last quarter of 2001 that any material deterioration in the company's financial performance and position was likely to result in an adverse change in the credit rating and "that this has the potential to crystallise financial obligations that could not necessarily be met in the normal course of business".

Tranz Rail reports show that Wheeler and Power stayed on the board until August 14, 2002, resigning one month after Tranz Rail unveiled huge writedowns

Rissman stayed on until Toll started its successful bid.