This is a practice known as "layering" and lifts the price of shares and gives a false appearance of activity.
After a penalty hearing in the High Court at Auckland this week, Justice Geoffrey Venning today declared Henry had breached prohibitions against market manipulation.
"The conduct that Mr Henry engaged in undermines the development of a fair, efficient, and transparent financial market. Such market manipulation is likely to undermine the integrity of the NZX and jeopardise the confidence of both overseas and domestic investors in the NZ security markets," Justice Venning said.
The FMA and Henry both suggested a penalty of $130,000, which the judge approved. The penalty is to be applied first to the FMA's costs.
Justice Venning said Henry made no discernible profit from the conduct.
"Mr Henry apparently saw himself as an amateur 'market maker' providing support and liquidity for Diligent's stock. However, he ought to have known that his trading was likely to give a misleading appearance of the demand for Diligent shares," the judge said.
"While Mr Henry's actions in themselves were deliberate, he did not deliberately set out to breach the Act. It is acknowledged his liability arises because 'he ought to have been aware' that what he was doing was a breach".
See Justice Venning's judgement here:
New-York based Henry said in a statement he was pleased to have settled with the FMA.
"Back in 2010 I was not certain of my obligations when trading in NZX listed shares and I did make a call to the Securities Commission to seek advice at that time," he said.
"The trades were small and there was no material gain involved so I was not surprised when no action was taken by the Securities Commission.
"However a year ago - three years after the trades - the FMA decided that they had a valid point to make about the integrity of the market, and I respect that. It is disappointing that it has taken four years and extensive legal fees for both parties to get to this point. I am delighted to have this issue finally settled with an outcome that is fair and reflective of the issues raised by the Authority," he said.
The FMA's Belinda Moffat said misconduct like Henry's undermined "the integrity and trust in the fair and orderly operation of the equities market".
"There is a strong public interest in deterring share trading that is false and misleading. Where there is a case that meets the standard of evidence required and where court action satisfies the public interest, then FMA will take proceedings to ensure confidence in the development of fair, efficient and transparent markets," Moffat said.
Henry was one of Diligent's founders and resigned as chief executive just two days after it listed on the NZX.
The company makes software allowing executives and directors to manage board documents online.