Dealers convicted of super fund scam

Two financial dealers were found guilty yesterday of corruption charges involving the use of inside knowledge of the Government Superannuation Fund to profit from trading by hundreds of thousands of dollars.

Judge Graham Hubble delivered guilty verdicts against Damian John Palmer, of Wellington, and Christopher John Ferris, of Devonport, following a two-week trial in the Auckland District Court last month.

Palmer, a senior dealer and analyst for the fund, and Ferris were remanded on bail for sentencing in July. Judge Hubble, who heard the case alone, said they faced the prospect of imprisonment.

Palmer had pleaded not guilty to two Crimes Act counts of corruptly using and corruptly disclosing information he had as an official of the Government Superannuation Fund. The fund provides pensions for public servants. Ferris, who also pleaded not guilty, was charged as a party to the same two offences.

In his verdict Judge Hubble referred to "a tidal wave of circumstantial evidence" in the Serious Fraud Office prosecution.

Palmer and Ferris could not deny that they had positioned themselves for a "major risky foray" into the futures market on April 13, 2000.

Palmer risked $380,000 of his own money which was in the hands of Ferris. Between the two, in one day's trading, they managed to make a profit of about $260,000 through bond and futures trading.

Judge Hubble said it was the nature of circumstantial evidence that one particular item of evidence might be capable of several inferences and on its own would not be sufficient to point to guilt. But in the case against Palmer and Ferris there were 17 strands of circumstantial evidence to the extent that it was impossible for all to be coincidental.

"Depending on the quality of that evidence it can point to guilt."

Included in the evidence relied on by the prosecution were:

* The disguising of Palmer's involvement in trading company Gamma Investment Trustee Company which in early April he instructed his accounting firm to establish and in which Ferris was the sole director and shareholder.

"The only inference is that Mr Palmer did not want to be seen as the party trading," said Judge Hubble.

* The absence of Palmer's superior, former investment manager of the fund, Natalie Aitken, who was on leave on April 13. Her absence gave Palmer the opportunity to mould strategy to suit his own programme.

"The evidence is that Mr Palmer's strategy may not have been in place if Ms Aitken had been present."

* A last-minute change in strategy by Palmer.

"The inference here is that Mr Palmer is manipulating the market to suit his own strategy through Mr Ferris."

* The Government Superannuation Fund-Gamma trading was seen as suspicious by two other experienced traders who reported their suspicions to the Business Conduct Committee of the Futures Exchange immediately.

* The use by Palmer of a cellphone in the fund's dealing room when all telephone conversations had to be recorded.

"It cannot necessarily be inferred that Mr Palmer or Mr Ferris were instrumental in these tapes going missing but nor is it helpful."

How it worked:

* Government Super Fund trader Damian John Palmer used inside knowledge to corruptly make a profit on a $200 million bond deal.
* Palmer knew a colleague in the same room would first bid aggressively for the new bonds and then sell other bonds to make prices drop.
* Using this knowledge, he bought futures contracts to profit from the rising prices and then sold them before prices dropped.
* Palmer set up a company with his friend Christopher John Ferris which made gains of $208,076.40 from fund trades.