It's monkey business

A six-word throwaway line to his broker proved enough to cut short Kerry Hoggard's six-year Fletcher directorship, report FIONA ROTHERHAM and GEOFF SENESCALL


Six small words caught on tape damned Kerry Hoggard as an insider trader.

They were: "But hold your breath, it will."

Meaningless on its own, the electric phrase was part of a revealing three- minute conversation between the Fletcher Challenge chairman and a JB Were broker.

The words left the Securities Commission in no doubt that Mr Hoggard had broken the rules.

He had bought $635,000 worth of shares in the Fletcher Challenge's four letter stocks ahead of the company announcing that it was restructuring and had recorded its best first-half earnings result since FCL's share split in 1996.

The restructuring - dismantling the letter stock structure - was finalised by directors at a board meeting on December 14, 1999.

The next day at 2 pm, Mr Hoggard, whose fortune is estimated at $100 million, rang his broker at JB Were to give an order for 390,000 FCL shares. He advised the company by facsimile of the transaction the same day.

At this point, he clearly had important information not available to the sellers.

During the taped conversation with the broker, Mr Hoggard confirmed there had been a board meeting, that no public statement had yet been released but one would be.

In his own words: "But hold your breath, it will." (It is standard practice for sharebrokers to tape calls with clients to protect parties in case disputes arise.)

Based on the conversation - of which only fragments have been released - the Securities Commission surmised that JB Were would have learned that a news release was pending, making it an insider as well.

JB Were managing director Clark Perkins contends that the firm did not believe it had inside information, thinking Mr Hoggard's words were a "throwaway line."

Clearly the commission did not think so. Mr Hoggard's conversation with JB Were also makes it difficult to credit his later comments that he was caught out by a delay in making the announcement. He also confirmed to the Herald that night that an announcement would be made the following day. Indeed, the restructuring details hit the market the next day. Four days later, FCL told Mr Hoggard it was concerned that the share purchases breached its insider trading prohibitions, outlined in its securities trading code of conduct for directors and employees.

These guidelines state directors should not deal in shares several months before a profit announcement or before important announcements.

Company authorisation is also required.

Company secretary Gary Key told the commission that Mr Hoggard had said he intended to buy the FCL shares on either December 13 or 15. Mr Key said he advised the chairman not to buy shares until after the announcement, and recorded his warning on a facsimile from Mr Hoggard which detailed the transaction.

Mr Hoggard said he had no recollection of this advice, as he would "undoubtedly have paused" as to the appropriateness of purchasing FCL shares at that time.

Mr Hoggard told the commission he bought the shares because he wanted to demonstrate to the board and senior FCL management just how committed he was to the company changes.

The public was not to find out about the affair until December 23, when Mr Hoggard suddenly resigned after one month as FCL chairman. He had been a director since 1993.

Whether he fell on his own sword or was impaled by the board remains unclear, but his reputation was dented by the scandal.

Act MP Stephen Franks, a commercial lawyer and former Securities Commission member, said that if the FCL board had not been of high integrity it could have let him get off scot free through using the exemption notices under the Securities Act.

FCL has since revealed itwas the second time Mr Hoggard had breached the company's trading rules. He had also done so earlier when buying 9455 shares in Fletcher's letter stocks from a neighbour in August 1998, on the day the annual result was announced.

The FCL board decided then to take no action because of the small number of shares involved and because he was honouring a contract with a neighbour.

On the latter occasion, the board asked him to repay sellers his $58,000 profit, the difference in what the shares were selling for when he bought them and when the announcement was made. He still holds the shares, worth around $260,000 more than last December.

The day after news of his resignation broke, JB Were staff are understood to have been hauled into a meeting by their boss and told that Mr Hoggard had been a victim of timing. Furthermore, they were told, the broking firm intended to stand behind the man, wh had been a good customer for a long time.

Mr Hoggard has refused several requests to be interviewed. In a prepared statement this week, he said he gave no thought to personal potential short-term financial gain. He remains chairman of the listed Nufarm.

The actions of JB Were and other traders in FCL shares also came under Securities Commission scrutiny. It found that there was no evidence JB Were relied on the insider information it had received for any purpose.

There has been some dispute over the exact number of FCL trades JB Were made that day.

The commission, while not releasing the figures, said the Hoggard trades were clearly significant as a percentage of the total trades.

JB Were has a best-practice guide for employees in possession of inside information. The commission said the employee who dealt with Mr Hoggard's order did not observe the guide. The firm said it considered Mr Hoggard to be an experienced and highly respected company director, openly purchasing shares in his own name.

"What does that tell you?" said JB Were's Clark Perkins. "That says to me that there is nothing going on, because otherwise he is going to find himself in a lot of trouble. And that is what happened."

The commission's report said it found no evidence that any JB Were employee, acting on his own, the firm's account or that of a client, had dealt in FCL stocks or encouraged others to do so through information Mr Hoggard gave the firm.

As part of its inquiry, the commission reviewed the procedures of all NZ broking firms when handling share purchases in listed companies by people known to be insiders. A separate report is to be made on this later.

As a seemingly pre-emptive strike, the Stock Exchange this week announced that the Hoggard case had triggered a similar review of its members.

Would another firm have acted any differently when faced with one of NZ's most eminent businessmen?

Merrill Lynch's Peter Fredricson said that his firm would not have taken Mr Hoggard's order without a sign-off from the Fletcher company secretary.

"We would have asked for that letter even before the board meeting because of the amount of discussion in the market place at the time."

He had been around a long time and had close associations with a number of broking houses, Mr Perkins said.

"Before this incident, if you asked corporate New Zealand who were the people with the highest standing in management - you know, name your top three - how many of the lists wouldn't have included Kerry Hoggard?"

Asked if he thought they would now, Mr Perkins made clucking noises and said the telephone line must have broken up.

When the question was repeated, he said: "I think that's up to you to answer. I refuse to answer that question."