Milford Asset Management's Mark Warminger manipulated the market when trading two stocks, a High Court judge has ruled.

The Financial Markets Authority alleged that 10 instances of Warminger's trading breached market manipulation rules during a four-week trial last year.

He was accused of breaching securities laws that prohibits trading that is not for a genuine commercial purpose and creates an artificial appearance in the market in relation to 10 sharemarket trading actions carried out in 2014.

It was the country's first market manipulation case to come to trial.


In a just released decision, Chief High Court Judge Geoffrey Venning said the FMA had satisfied the court on the balance of probabilities that Warminger "manipulated the market" in specific trading of Fisher & Paykel Healthcare (FPH) shares and A2 Milk (ATM) shares.

The judge declared that Warminger breached the Securities Market Act "by manipulating the market for shares in FPH on 27 May 2014 by increasing the offer quote and price for FPH shares and maintaining them at a higher level than otherwise would have been the case and also by entering a crossing for the sale of FPH shares which created a misleading appearance as the price of the crossing was influenced by his earlier trades".

Justice Venning also declared that Warminger breached that same law "by manipulating the market for shares in ATM on 9 July 2014 by increasing the offer quote and price for ATM shares and maintaining them at a higher level than otherwise would have been the case and has also created a misleading appearance as to the demand and/or price for ATM shares on the day".

It has yet to be decided if Warminger must pay a penalty for these breaches and what any penalty would amount to.

The maximum possiblke penalty is $1 million per trade.

While Justice Venning found Warminger breached the Securities Markets Act in two instances of trading, he dismissed the other eight claims which the FMA brought.

"The FMA however has failed to satisfy the onus on it to prove in relation to the other causes of action that Mr Warminger manipulated the markets as alleged. While the trading raises a number of issues, in relation to some causes of action in particular, on the evidence before the Court and given Mr Warminger's explanation for those transactions, the Court cannot be satisfied that the trades amounted to market manipulation," Venning said.

The FMA in a statement this afternoon said it was "pleased with the outcome of the proceedings".


"The market manipulation threatens our core objective of promoting fair, efficient and transparent financial markets. For investors to participate confidently in our markets we need to target and respond to misconduct. That is what this case was about. In terms of the broader consequences for conduct within our markets, we need to review and fully consider the judgement before making further comment," the market watchdog said.

The Queen's Counsel acting for Warminger, Marc Corlett, said:

"Obviously, Mr Warminger is disappointed that teh court found against him on 2 causes. However, it would be inappropriate to comment further until we have worked through the judgment and what it means for Mr Warminger. Consequently, neither Mr Warminger nor counsel will be making further comment at this time."

Roger Wallis, a Chapman Tripp partner focusing on corporate and securities law who has followed and written extensively about the case, said the judgment had been keenly awaited and both parties would be considering whether to appeal.

"The FMA really only needed to win one" instance of a breach, Wallis said. "They just took a representative set of instances. The case is really about testing the law to better inform the market, unfortunately at the expense of Mr Warminger.

"Our initial view is that the case does helpfully do that - it sets a clearer picture for the market as a whole on what constitutes manipulation versus a good trading strategy. It was pretty hard for Warminger to explain being on both the buy side and the sell side at the same time."
Wallis said the case was never about the FMA wanting to put Warminger in jail nor to hand out a significant fine, but would be carefully studied here and in the UK and Australia, which have similar market regulation regimes.


"These cases don't come up very often. The FMA has been a little bit hamstrung in this area because of this case," Wallis said.

"The NZX currently has a paper out on conduct in the market so it's quite timely. It is a very expensive way to teach ethics and good conduct but it gives clarity where the boundaries are."

The local market is particularly susceptible to concentration of ownership, with relatively few broking firms and relatively few stocks that institutions actively trade, opening it up to allegations of manipulation, Wallis said.

"There are unique features in the New Zealand market. Once you get past the top 10 to 20 stocks, some of the stocks on the NZX don't get traded that frequently. It is quite common for reasonable volumes to be traded off-market and reported to the market. Other markets are much deeper."

The only people likely to seek compensation would be people in the market for A2 Milk and Fisher & Paykel Healthcare shares on the day, Wallis said. The FMA will reflect on whether it wishes to appeal the eight remaining breaches and Warminger will consider whether to appeal the two. If one appeals, the other would likely cross-appeal, Wallis said.

Warminger was one of the stars of Milford's investment team. He accepted Milford's trophy when the firm was named top fund manager, for the fifth year in a row, at 2014's Infinz finance industry awards.


He joined Milford in 2011 and had previously been New Zealand head of investment strategy for Macquarie Private Wealth. Before that, he managed two investment funds for Goldman Sachs NZ.

Prior to announcing its case against Warminger, the FMA reached a $1.5m settlement with Milford following a market manipulation probe. Milford rejected any liability in reaching the deal.

Milford appointed PwC to review its governance, risk and compliance capabilities.
That review led to a series of changes in its trading systems, including the introduction of centralised dealing, through which staff who are not involved in funds management execute trades, the company said.

additional reporting: BusinessDesk