Between the lines: Breach affects whole market

By FIONA ROTHERHAM

Kerry Hoggard had inside knowledge of Fletcher Challenge when he bought company shares on December 15.

That is the blunt finding of the Securities Commission into the former Fletcher Challenge chairman's share dealings last year.

The commission's report, released yesterday, says there was a clear breach of an important law by Mr Hoggard when he asked brokers JB Were to buy nearly 400,000 Fletcher Challenge shares the day before a restructuring was announced.

The commission's report is clear that, whatever his intentions, Mr Hoggard, as the head of New Zealand's second-largest listed company, should have known better.

It is not just the people who lost money who were hurt, his actions affect confidence in the market as a whole. Yet the commission's damning finding amounts to a slap on the hand.

If found guilty of insider trading in Australia or the United States, he could have faced a jail sentence.

Unlike most overseas jurisdictions, New Zealand's toothless insider trading laws stop short of any criminal prosecution.

Mr Hoggard has paid back to sellers the $58,000 profit he made, but his professional reputation has been sullied.

The Government is reviewing insider trading.

Securities Commission chairman Euan Abernethy saysthe law should be changed to allow criminal prosecution while still retaining the rights of affected shareholders to seek redress through civil action.

The difficulty with criminal actions is the higher level of proof required: beyond reasonable doubt, rather than the civil law requirement of the balance of probability.

Penalties are one thing. Defining insider trading is another.

A commission report in late 1998 into dealings in McCollam Printers' shares by entrepreneur Eric Watson stopped short of accusing him of insider trading "as the Securities Act defines it." But it said his personal trading had not enhanced the reputation and standing of our market.

Mr Watson reckons he did nothing wrong.

Mr Hoggard describes his own actions as a "technical breach."

Some say the definition of insider trading is so wide that it encompasses legitimate entrepreneurial activity, while others argue it is too narrow.

Act MP Stephen Frankssays the Securities Commission will continue to be ineffectual unless the definitions are reviewed.

The Hoggard case shows investors cannot always rely on directors, however experienced, to follow company share dealing rules.