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Warminger faces $1m penalty per trade

The Financial Markets Authority’s case against a Milford Asset Management portfolio manager accused of market manipulation has begun.

Monday, September 26th 2016, 2:32PM 6 Comments

The trial of Mark Warminger is being held in the High Court at Auckland, and is set down for four weeks.

There are hefty financial penalties at stake if he is not successful in fighting the FMA’s allegations: He faces a penalty of up to $1 million per trade if he is found to have made trades that breached market manipulation rules.

Warminger has been on extended leave from his role at Milford since last year.

The FMA said Warminger was under pressure over performance issues before he made the trades in question, between December 2013 and August 2014.

There are 10 causes of action against him.

Justin Smith QC, acting for the FMA, said Warminger is accused of misusing his privileged position with an institutional investor by placing trades in stocks in one direction to move the price so he could later shift significant off-market sales at a greater profit. This is known as cross-trading.

He is also accused of making trades to set artificial prices.

New Zealand's market was illiquid by international standards, which made it more susceptible to manipulation, he said.

Smith said Warminger managed funds worth $669 million.

But in mid-2014 questions were being asked about his performance.

The fund he was responsible for had been performing below the benchmark, and he was called into a meeting with Milford executive director Brian Gaynor and former managing director Anthony Quirk.

Shares in A2 milk had dropped substantially, which caused a decline in fund performance.

"This put him under a certain amount of pressure,” Smith said.

His remuneration package included a share of the company’s total profit, so there was a “very, very substantial” bonus at stake, too.

Witnesses are expected to be called tomorrow. Milford Asset Management itself is not involved in the case – it agreed to a $1.5 million settlement with the FMA. Gaynor will be called as a witness.

It earlier said Warminger’s decision to fight the allegations was a personal one.

Tags: Milford Asset Management

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Comments from our readers

On 26 September 2016 at 4:52 pm Brent Sheather said:
This is shaping up to be an interesting case and I am sure all the other people who up until recently engaged in the same sort of strategies will be wondering, privately to themselves, why Mr Warminger got the attention of the FMA for what is regarded by some as legitimately “working a trade”.

Reading between the lines, as so often happens in the finance sector, it might be that staff were put under pressure by management to perform and, given that beating the index is so difficult, resorted to strategies not so dependant on skill.

Regards
Brent Sheather
On 27 September 2016 at 7:58 am MPT Heretic said:
If the FMA proves their case of market manipulation perhaps they could also comment on why they believe there is not a substantial benefit to a fund manager that is able to promote higher performance, attract more $ and earn more fees. To say client funds were not affected just because they went up and not down hardly makes it right.
On 27 September 2016 at 12:03 pm Tash said:
I do not know the details but believe it is important that this action is brought based on an accusation that a law has been breached, not simply that activity, which individuals at the regulator don't like or understand, has been engaged in.
Good on Warminger for defending himself, this will result is legal precedent/better understanding by all.
On 27 September 2016 at 1:00 pm Another AFA said:
I note that A2 Milk is mentioned in the article; "Shares in A2 milk had dropped substantially, which caused a decline in fund performance." The shares have lifted significantly over the last 12 months, time in the market not timing....
I do get the feeling that Warminger is something of a scapegoat here, not only was the fund jointly managed (albeit, the other manager sitting in Sydney) but what about company oversight? Should the company not be sitting along side him in this case?
My other thought, is a penalty of $1m per charge appropriate? Seems very steep to me.... doesn't seem like he was running a ponzi scheme or a Finance Company......
Will watch with interest.
On 28 September 2016 at 10:09 am R1 said:
I see a couple of major issues which are likely to be at play:
1. Short term performance incentives which can cause some people to take risks and actions which benefit them selves and sometimes break the law; called "you won't be here - I won't be here" because these people expect to move on (along with others in the know) in the near term and in the meantime that get rewarded for bad behaviour.
2. When the bad behaviour is found out the organisation for which these people work is fined by the regulator without charges and a proper hearing to understand what went on, why and how and who is responsible and no legal precedent is created. This gives the organisations a sense of impunity and the reward for the bad behaviour can often far exceed the fine; business goes on pretty much as usual. This is exactly what has happened with the banking industry around the developed world. Interestingly, if other highly regulated industries such as casinos engaged in such bad behaviours they would be shut down and the management prosecuted; at least in most well regulated countries. Bottom line is the regulator (FMA) fails to regulate as it should to properly hold management to account and so discourage this behaviour in future. Fining an organisation because the costs to prosecute could be high and the outcome uncertain is simply an excuse for not regulating your mates, I believe. The real cost of not taking such action is huge and cuts across what the fundamental purpose of the FMA.

When will we all get angry and hold these turkeys to account along with their mates?

PS Thank you Prof. John Kay for your insight into how things really work in the finance sector these days.
On 30 September 2016 at 4:45 pm Winka said:
Earlier this year I seem to recall the FMA putting it's hand up to Government (of which the FMA is merely another division)for a 'top-up' of a few million dollars because they felt that the +-$10 million they had in the kitty at the time was considered a bit light (by the FMA)? Maybe if they can squeeze a few million out of prosecuting per trade would save the government from writing the cheque?
And I agree with what many have said, "why does the FMA not apply their regulation during the alleged illegal trading.....instead of shutting the gate after the horse has bolted"? Much like they did in relation to Mr Ross' Ponzi scheme..!
Also... is all this barrage of opinions allowed when Mark Warminger' case is before the courts??

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