Jail, fines in insider trading shake-up

Investors breaching insider trading laws face up to five years in jail under sweeping new proposals to beef up securities law.

Tabling the Securities Legislation Bill in Parliament yesterday, Commerce Minister Margaret Wilson said the move to introduce criminal remedies for insider trading, a boost to civil remedies and other changes were needed because the existing laws were ineffective.

"No one has been found liable of insider trading since the act came into effect," Wilson said.

Research had shown that enforceable insider trading laws could increase trading volumes, so "the need to beef up our insider trading legislation becomes apparent".

Existing insider trading laws were complicated, difficult to enforce and easy to avoid.

She said the bill, produced by the Ministry of Economic Development after 2 1/2 years of work, would deter misconduct in the markets and make New Zealand a more attractive investment destination.

It amends the 1978 Securities Act, the 1988 Securities Markets Act, the 1993 Takeovers Act and the Takeovers Code.

It proposes a system similar to that of Australia, where the focus is on the threat insider trading poses to market integrity and confidence rather than a breach of duty owed to a company.

The new laws will not cover the Securities Commission's High Court insider trading case against former Tranz Rail managers and executives.

The new bill will introduce insider trading and market manipulation provisions to futures trading, and remove the $20 million asset threshold for companies to be subject to the Takeovers Act and the Takeovers Code.

The Securities Commission will get a public enforcement role for investment advisers and broker law and an extra $1 million a year from the Government.

Investment advisers will have to make all disclosures mandatory and make more disclosures before giving investment advice or receiving investment money or property.

Civil penalties for insider trading will be extended.

Courts can now impose penalties of the greater between three times the gain made or loss avoided and the total sum paid for the shares.

The new bill also allows for a $1 million fine if that sum is larger than either of the other options.

The introduction of criminal penalties means companies could face fines of $1 million for insider trading, and individuals fines of $300,000 and jail terms of up to five years.

Another change is that those liable for mis-statements in advertisements or registered prospectuses or breaches of contributory mortgage regulations will face fines of up to $5 million.

Securities Commission general counsel Liam Mason said the bill would give the commission more power to take action in situations where previously only investors had been able to. The commission would have simpler and firmer laws and more powers to enforce them.

But Act Party justice spokesman Stephen Franks said the Australian system was one of the most expensive in the world and had not improved integrity. He predicted a lawyers' paradise because lawyers "can always find loopholes in complex laws".

Beefed up

* Commerce Minister Margaret Wilson says new securities legislation is needed as the existing laws are ineffective.

* The Securities Legislation Bill introduces criminal remedies including jail terms of up to five years for insider trading and increases the existing civil penalties.

* The Government claims an effective and enforced insider trading regime could boost confidence in the securities markets and attract capital to NZ.