Fighting words from US fund over rail allegations

By FRAN O'SULLIVAN


The Boston-based Berkshire Fund has accused the Securities Commission of launching insider trading proceedings "without even having spoken to us" over the sale of its former Tranz Rail stake.

The private equity partnership yesterday "emphatically denied" allegations of "securities violations" in Tranz Rail shares by itself and former managing director Carl Ferenbach.

High Court proceedings were this week launched against Berkshire and Ferenbach, along with four other defendants.

The commission alleges they sold Tranz Rail shares while holding internal reports which disclosed the company's finances were failing. An additional action for tipping has been taken against Ferenbach, a former Tranz Rail director.

Berkshire general partner Richard Lubin said the Berkshire Fund and Ferenbach found the charges to be "completely without merit and will contest the commission's allegations vigorously".

Berkshire sold its 3.5 per cent stake in Tranz Rail on February 12, 2002, at $3.60 a share, just months before major writedowns were revealed.

Lubin emphasised the share sale was made in compliance with the fund's "strict internal procedures and securities regulations in both New Zealand and the US".

"In 20 years of fund management that has included the disposition of numerous companies whose shares are publicly traded, Berkshire has always held itself to the highest standards and this investment was treated no differently.

"We are surprised and disappointed that the Securities Commission has pursued this action without even having spoken with us to address any concerns which they may have had, particularly since the previous investigation by the New Zealand Stock Exchange found similar allegations to be completely unfounded."

Herald inquiries disclose the US Securities and Exchange Commission required Berkshire to produce documents relating to its period as a Tranz Rail shareholder which were forwarded to the New Zealand commission to aid its inquiries.

"There was some direct information sought via the SEC - but that was many months ago - and they responded properly to that," said Lowndes Jordan lawyer Rick Shera, representing the two US parties.

"I was surprised at seeing my name in the Herald [as representing Berkshire]. I had no idea how they would have found that out because we've had no contact whatsoever with the commission ... neither has our client."

Shera said his firm was retained when Berkshire become aware an investigation was going on. Top Auckland QC David Williams had already been secured.

Princeton-educated Ferenbach, 62, who is a Berkshire general partner, is also chairman of English Welsh & Scottish Railway (EWS), Britain's largest rail freight operator.

EWS was formed in 1996 and acquired five of the six freight operating companies sold by the Government during the privatisation of British Rail.

Its shareholders are: Canadian National Railway Company, Berkshire Partners and Fay Richwhite. All three are former Tranz Rail shareholders.