KEY POINTS:
The Court of Appeal has rejected an appeal by the Securities Commission over whether punitive damages could apply in a long-running Tranz Rail insider trading case.
The substantive case against merchant banker and former Tranz Rail director David Richwhite and Midavia Rail Investments, the investment vehicle of merchant bank Fay Richwhite, owned by Richwhite and partner Michael Fay, is yet to be heard.
The case dates from October 2004, when the securities watchdog filed proceedings against six defendants, alleging the former Tranz Rail insiders sold shares in 2002 while in possession of information that, if publicly available, would have resulted in Tranz Rail's shares fetching less than the prices at which they sold.
The commission has settled with four defendants, but Richwhite and Midavia are fighting the charges which they deny.
An earlier High Court decision found too long had elapsed between when the case was brought and when the alleged insider trading occurred for punitive penalties to be considered.
The crux of the issue was whether a two-year period mentioned in the law started from the date of the trading or started from when a regulator was readily able to find out about it, known as "reasonable discovery".
The High Court found reasonable discovery did not apply and rejected that appeal also.
Just last month the Securities Legislation Act was passed, which included a law change that would have clearly allowed the commission to press for punitive damages.
Richwhite and Midavia could still face paying up to $25 million in compensation when the substantive case is heard next year.
Those who settled were United States-based former Tranz Rail director Carl Ferenbach, Berkshire Fund III, former chief executive Michael Beard and ex-finance chief Mark Bloomer.
They settled without accepting liability and are expected to be key prosecution witnesses against the remaining two defendants.
Ferenbach and Berkshire Fund III agreed to pay the full compensation sought by the commission of $7 million and $350,000.
- NZPA
