Insider case given go ahead

New Zealand has jurisdiction over United States-based defendants in the Tranz Rail insider trading case but too much time has passed to allow actions seeking millions of dollars of penalties.

This is the thrust of a judgment yesterday of pre-trial issues in a high-profile case between a newly empowered New Zealand Securities Commission and Midavia Investments, the investment vehicle of Sir Michael Fay and David Richwhite, and US-based investment fund Berkshire Fund III and former director Carl Ferenbach.

The commission alleges Tranz Rail shareholders sold stock in early 2002 with inside knowledge of financial problems, and that Mr Ferenbach and Mr Richwhite "tipped" the sellers about problems at the company.

Former managing director Michael Beard and chief financial officer Mark Bloomer settled without admitting liability.

Commission spokeswoman Catherine Chapman said the commission would take some time to consider the judgment and had no comment at this point. The legal team for Berkshire and Mr Ferenbach is also considering its position.

The case is the first under tougher insider trading laws, and pre-trial skirmishes included where it was to be heard. Midavia and Mr Richwhite deny they had inside information and argued the commission was barred from claiming monetary penalties by a two-year statute of limitation.

Berkshire Fund III and Mr Ferenbach challenged the authority of the New Zealand courts and supported the limitation argument.

The judgment by Justice Hugh Williams said the trading at issue by Midavia occurred on February 8, 2002, and the trading by Berkshire and Mr Ferenbach on February 12, 2002.

The claim by the commission began on October 13, 2004.

An action to recover penalties cannot be brought two years after the cause of action.

"Contrasting those dates shows that unless reasonable discoverability applies to the action for pecuniary penalties, that claim was brought outside the time bar," the judgment said.

Roger Partridge, of Bell Gully, is representing Midavia and Mr Richwhite. He said: "We're pleased that the court has accepted all of our arguments on the three issues we put relating to the penalty aspect of the claim.

"We can now proceed (subject to any appeal from the Securities Commission) to strike out the commission's claim for penalties and we will do that and defend the remaining aspects of the claim."

Total compensation and penalties being sought, before the settlement with Mr Beard and Mr Bloomer, has been calculated as high as $250 million. Early estimates last night were that $21 million of $28 million sought against the US investors under the commission claim, and $76 million of $100 million against Midavia, would no longer apply.

- NZPA