My former firm, Chapman Tripp have reported briefly on what appears to be an open and shut insider trading case.

The criminal charges filed against Mark Talbot by the FMA in October 2017 have now been aired in the Auckland High Court, with a guilty plea on one charge. The New Zealand Herald has reported that a broader settlement was reached, although FMA has yet to confirm details.

When will we know why the FMA settled? [10 April – the FMA has announced a settlement with further payment that appears to me to impose a sensible cost for the conduct][

Sam Hurley’s Herald report offers detail that is even more puzzling.

Talbot was VMob’s virtual CFO. He knew of a valuable pending contract before it was announced to the market and procured an associated company to buy a million shares. He communicated with the Chairman of the company about more share purchases without disclosing the purchase made, and appeared to accept the Chairman’s proper and inevitable advice against it.

It is astonishing that a partner of Deloitte had such little self respect and concern about his ethical reputation to even raise the possibility of purchase in the circumstances, let alone conceal an existing purchase. So why has the FMA dropped insider trading charges, leaving only a charge of failure to comply with ownership disclosure law?

Almost as disquieting is the Herald report quotation of an email from the Chairman, referring to lawyer Sean Joyce, a VMob director.

It reads:

“I have discussed with Sean Joyce [VMob director and a securities lawyer] the requests you both have made to purchase shares while the price is low,” the email read.

“While technically, the purchase window is still open until the end of August, you are both insiders and aware of the potential large deal with McDonald’s in Japan. Given this deal has the potential to close within a couple of weeks, neither Sean nor I consider it is wise for you to purchase VMob shares until the outcome of the McDonald’s Japan deal is determined and (if successful) announced to the market.”

I hope that the word “both” I have bolded does not mean that Mr Joyce was also seeking clearance to buy.

[I’m told he did not] The “both” was Mr Talbot and some other party. What kind of ethics climate would allow Talbotto even think of approaching the Chair to seek clearance?

[ 10 April – The FMA has now partially explained what moved it drop insider trading charges? It is unfortunate that they were not ready to announce it at the same time as the useful court reporting of the nominee disclosure law breach]

I’m reminded of the bizarre conduct by the Securities Commission in not pursuing the Chair of Fletcher Challenge for open and shut insider trading in the 90s. It was left to me and Roger Kerr of the NZ Business Roundtable to take private proceedings, in disgust.

The Securities Commission tried actively to impede us. We had to get a court order against the Commission, to get access to the evidence they had. We were lucky to have Forrie Miller J as the commonsense judge. Eventually the defendant settled. It cost him over $700k for his $50k profit.

I have always been puzzled by the law change that followed, where the Ministry of Justice promoted an amendment to remove the power of private pursuit for insider trading, at the expense of the company. That possibility was included in the law at my urging, precisely because I knew that regulators are so easily deflected, especially with high profile defendants.

Our case fully reimbursed the company for its legal expenses as well, though we found the company’s lawyers to be of little help. The best help came from an upright company secretary, who was disgusted that his ethical standards might be damaged by connection to the Chair and the company, and the weak Securities Commission.

Later I had an even more shocking experience at the hands of the Securities Commission. The Chairperson of the Commission ensured that the Commission declined to investigate an insider trading complaint about someone who appeared to be a friend of the Prime Minister at the time. The trader appeared to have been tipped off about the Air NZ government rescue. Instead the Chairperson abused me for asking the Commission to intervene, and impugned the integrity of the market participant who was trying to blow the whistle.

Beware any market that relies on official energy and integrity to uphold commercial morality. The countries with long term general honesty in markets tend to have affordable, readily pursued private litigation against wrong-doers as a vital prophylactic and disinfectant.