Tranz Rail insider trade case hits buffers

The Securities Commission is expected to weigh up whether to seek an out-of-court settlement of the Tranz Rail insider trading case after the High Court effectively quartered the maximum amount it could extract if it proves its case against the high-profile defendants.

Justice Hugh Williams delivered a serious setback for the market watchdog on Wednesday with his ruling that the commission's proposal to seek pecuniary damages for alleged insider trading or tipping against Sir Michael Fay and David Richwhite's Midavia Investments, US-based Berkshire Fund III and its managing director, Carl Ferenbach, is statute-barred.

The commission alleges that Midavia, Berkshire and Ferenbach sold Tranz Rail shares in early 2002 when they were in possession of inside knowledge of the company's deteriorating financial situation.

Ferenbach and Richwhite - former Tranz Rail directors - face additional allegations that they "tipped" the sellers.

But Justice Williams ruled that the commission's bid to seek pecuniary penalties of up to three times the size of the alleged avoided losses is statute-barred. The commission did not file its insider trading proceedings until last October - six months too late.

Commission spokeswoman Catherine Chapman said it was "considering" the judgment. She would not be drawn on whether the commission would seek leave to appeal.

But the defendants' lawyers said they were pleased the court had knocked back the "excessive" claim.

Berkshire Fund III and Ferenbach are considering whether to seek leave to appeal against Justice Williams' decision to uphold the jurisdiction of the New Zealand courts to decide the overall insider trading case. The US defendants had argued that the New Zealand courts should not have jurisdiction.

Lowndes Jordan partner Rick Shera would not disclose whether his clients would seek to open settlement talks with the commission now that the amount at stake has been slashed from $28 million to $7 million.

Legal speculation suggests the US parties might try to end an embarrassing saga. But Shera said "$7 million is $7 million".

Two previous defendants - former Tranz Rail managing director Michael Beard and former chief financial officer Mark Bloomer - settled without admitting liability.

Fay and Richwhite's lawyer, Roger Partridge of Bell Gully, indicated his clients had no plans to seek a settlement.