The New Zealand Shareholders' Association said the case helps to ensure local and overseas investor confidence in the country's market. Photo / File
The New Zealand Shareholders' Association said the case helps to ensure local and overseas investor confidence in the country's market. Photo / File
The New Zealand Shareholders' Association has praised the country's financial markets watchdog for taking a rare insider trading case but is concerned about the length of time it took since the complaint was made.
Te Mana Tātai Hokohoko, the Financial Markets Authority (FMA), yesterday said it has filed proceedings against two people over allegations involving a trade of Pushpay Holdings Limited shares in 2018.
One of the accused faces a criminal charge, filed in the Auckland District Court, and both face civil proceedings in the High Court. The pair have also been granted interim name suppression until the first court appearance.
The FMA said its case stems from when Pushpay, a donor management system for churches and charities in the US, announced co-founder and director Eliot Crowther had resigned and sold down his shareholding in the firm for about $100 million in June 2018.
One of the accused, the FMA claims, used this material inside information to advise or encourage another person to trade in the lead-up to the market announcement. The other person was also involved in the alleged misconduct, the FMA alleged.
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Crowther's trading, the regulator added, was legitimate and he is not a party to the legal proceedings. Pushpay, which is listed on the NZX and ASX, is also not a party.
New Zealand Shareholders' Association chief executive Oliver Mander said compliance should be a top priority. Photo / File
As the case began to make headlines in Australia and US, New Zealand Shareholders' Association (NZSA) chief executive Oliver Mander told the Herald he was pleased the regulator had taken action because it ensures local and overseas investor confidence in Aotearoa.
He said the FMA plays a critical role in the country's financial ecosystem to ensure market integrity and prevent people from "stacking the deck against every other investor".
However, Mander was concerned about the length of time from the alleged offending to it becoming public yesterday.
The matter was referred to the FMA by NZX Regulation, the frontline regulator of the New Zealand stock market now called NZ RegCo, in July 2018.
"I suspect some of the delay may represent natural caution with the legal processes," Mander added.
However, he said compliance should be a top priority and the NZSA would welcome greater government investment in the FMA if it helped progress investigations faster.
"The effectiveness of the response and timeliness of the response [are important] because it's also that timeliness that builds market confidence," he said.
The government agency said it would be investigating referrals from the NZX and other complainants and taking enforcement action.
Mander said more complaints about alleged investor misconduct were a positive sign and showed an engaged market, but added the FMA also needed the right level of support to ensure the increase in complaints could be dealt with in a timely manner.
In a statement, an FMA spokesman said the agency could not discuss the details of the Pushpay case but that it "came with varying complexities" and noted other insider trading cases overseas which had taken similar periods of investigation.
"The FMA follows a robust investigation process to ensure it gathers the necessary evidence before bringing a case before the courts, particularly with the high threshold of criminal proceedings," he said.
Pushpay's chief executive officer Molly Matthews said the company seeks to ensure all its people are aware of and understand their obligations under insider trading laws. Photo / Supplied
In an announcement to the NZX yesterday, Pushpay's chairman Graham Shaw also said the firm supports the FMA's commitment to the integrity of the capital markets in New Zealand.
He said at all relevant times Pushpay had in place and continues to have robust policies, procedures and training for trading of its shares.
"We take seriously our responsibilities as a listed company, and our values, ethics and integrity as a company are at the heart of our business practices," he said.
Pushpay's chief executive Molly Matthews said: "As a listed company we take our market responsibilities seriously and seek to ensure that all of our teams and individuals are aware of and understand their obligations under insider trading laws."
Both the FMA and Pushpay, which has offices in Auckland, Seattle and Colorado Springs, said the company had co-operated during the investigation.
Pushpay said it would not be making any further comment on the proceedings and directed any questions to the FMA.
The Financial Markets Conduct Act prohibits people who hold material information about an issuer not generally available to the market from trading with that information, disclosing it in certain circumstances, and advising or encouraging other individuals to trade the issuer's shares.
Criminal insider trading can be punishable in New Zealand with a prison term of up to five years, a maximum fine of $500,000, or both for individuals. Civil proceedings can include a pecuniary penalty not exceeding the greatest of the consideration for the relevant transaction, three times the amount of the gain made or the loss avoided, and $1m in the case of an individual or $5m in any other case.
Insider trading cases, however, are rare in New Zealand.
Former Eroad executive Hamish Sansom was acquitted of insider trading allegations in 2018. Photo / File
A landmark insider trading trial for New Zealand ended with Hamish Sansom, a former executive of transport and technology company Eroad, being found not guilty in 2018.
His acquittal came at a retrial after the first trial ended in a hung jury.
Sansom was charged by the FMA after selling 15,000 Eroad shares for about $50,000 just days before its stock price plummeted.
He sold his shares two days after he received texts from Eroad's former insights and analytics manager Jeffrey Peter Honey.
Honey, who was hired at Eroad by Sansom after the pair grew friendly while working at Vodafone, was convicted and sentenced to six months' home detention in 2017.
