Milford a test case, lawyer says

Thursday, August 6th 2015, 6:00AM

by Susan Edmunds

The FMA will be reasonably confident in its chances of success in civil proceedings against Milford Asset Management portfolio manager Mark Warminger, a financial services lawyer says.

Chapman Tripp says proceedings filed by the regulator against Warminger for market manipulation will be an interesting test case.

It is only the second case of market manipulation that has made it to court in New Zealand, after Brian Henry was ordered to pay $130,000 for manipulating the price of Diligent shares.

The FMA allegations fall into three categories: Placing small trades directly on market in one direction, followed by large off-market trades in the opposite direction; trading that manipulates the closing price, and trading conducted in order to set the price rather than for a genuine commercial purpose.

The FMA has decided to take civil rather than criminal action, which Chapman Tripp partner Geof Shirtcliffe said meant the burden of proof was less.
It only needs to prove its case on balance of probabilities, not beyond reasonable doubt.

There is also no requirement to prove Warminger knew his trading would create a false or misleading appearance, just that he reasonably ought to have known.

A civil claim is also open to settlement.

“If the FMA proves its case, it may open the way potentially for third parties to sue Milford and/or Warminger. But the fact that the FMA has settled with Milford means that the claimants will be on their own in taking action for compensation against Milford. The FMA cannot join them.”

Shirtcliffe said the challenge was that the relative thinness of the market meant legitimate trades could look like market manipulation.

“Fund managers with a large position in a small company who legitimately decide to off-load their holding can move that company’s share price. Similarly, on some stocks, a broker might be the only trader in the stock on a particular day.”

He said the case was unusual. “No one is going to make the allegation that [the FMA] have moved with incredible speed in this. They’ve spent a lot of time looking at it and I don’t imagine they take these prosecutions lightly. They must be feeling confident but they have got to prove it.”

He said the case was unlikely to be the beginning of a change in approach from the FMA. “It is clearly a different beast to its predecessor organisation. They genuinely do have an increasing focus on being the fence at the top of the cliff rather than the ambulance at the bottom.”

Shirtcliffe said it was hard to judge the ongoing impact of the claims on Milford Asset Management. “Clients of ours in the financial services industry hate the thought of any public sanction or anything like that. They perceive it as being bad for them and I would be surprised if Milford didn’t have the same approach.”

Tags: Chapman Tripp FMA Milford Asset Management