Tranz Rail litigation settlement

Mark Bloomer

The Securities Commission and former Tranz Rail chief financial officer Mark Bloomer have settled the landmark insider trading action launched last year by the sharemarket watchdog.

Bloomer has not admitted liability, but has agreed to pay $156,000 and, if requested by the commission, make himself available as a witness in the continuing litigation.

The Australia-based Bloomer was alleged to have breached insider trading laws when he and several others traded shares between February and May in 2002.

The case is the first in which the commission has used its powers to bring court action for insider trading.

It could lead to penalties totalling hundreds of millions of dollars against the remaining defendants.

Bloomer applied to the company to sell shares between February and March 2002. When he ceased selling in March, he retained 646,654 shares which represented more than half the shares that he was able to sell.

In May, shortly after he left the company, he sold a parcel of 23,937 shares which vested in him on the termination of his employment.

When it filed its original action last year, the commission alleged Tranz Rail's approval of the first set of share sales was invalid. It also said Bloomer did not request or obtain the company's consent for the second share sale.

In a statement agreed as part of the settlement, the commission said Bloomer acknowledged the watchdog had a case against him in respect of the final sale, as it was not made under the protection of the company's approved procedure.

But notwithstanding that, he considered that he had a defence.

It said the $156,000 payment represented the maximum sum recoverable for compensation and pecuniary penalties, in relation to this share sale and a contribution to the costs.

For its part, the commission recognised that Bloomer's defence of the earlier sales, made under the company-approved procedure, might succeed.

It said: "In the months that have passed ... Mr Bloomer has provided extensive information to support his reasons for needing to sell the shares."

The settlement was approved by the High Court.

Bloomer had earlier filed an "appearance under protest to the jurisdiction", claiming the commission had no standing to take the action against him in Tranz Rail's name.

The remaining defendants in the action are Midavia Rail Investments (an investment vehicle of high-profile investment bankers Sir Michael Fay and David Richwhite), American investment fund Berkshire Fund III, former director Carl Ferenbach and Richwhite, also a former director.

The commission settled with former Tranz Rail managing director Michael Beard last December.