New insider laws 'no magic bullet'

The Government's broad-ranging proposals to strengthen securities law would increase the Takeovers Panel's powers by enabling it to sue companies for up to $5 million for misleading or deceptive conduct during takeover battles.

The changes, outlined in the Securities Legislation Bill, received a mixed welcome from market participants and legal experts yesterday.

They include the introduction of criminal penalties, including jail terms of up to five years, for insider trading.

The bill would extend the Takeovers Panel's powers by allowing it to supervise advertisements and letters sent to shareholders during takeover battles.

Now it just polices formal offer documents.

The change would see New Zealand adopting what Australians call truth in takeovers, or rules for last and final statements. Misleading and deceptive conduct during a takeover battle would be prohibited.

The panel could seek civil penalties of up to $500,000 against individuals or $5 million against companies.

Furthermore, if the panel obtained a court order of contravention against a company, shareholders who had lost money could piggyback on the ruling and would not need to prove liability themselves.

Other changes would prohibit people creating false trading activity such as buying and selling stock to themselves, and so-called "pump-and-dump" schemes.

"These new powers do have the potential to curb the enthusiasm of offerers, targets, major shareholders and certainly their PR advisers," said Roger Wallis, securities lawyer at Chapman Tripp.

Changes to insider trading laws, outlined in the Herald yesterday, would also see brokers liable if they placed trades for clients knowing their clients were insider trading.

A person would be liable if they possessed information they knew or ought reasonably to have known was material information which was not generally available, and traded, disclosed or procured another to trade.

The person would not have to have a relationship with the source of the information. At present, to be an insider, a person must have a relationship with a listed company that holds the inside information and have obtained the information through this connection.

Arthur Lim, Macquarie Equities investment director, said the new laws would not be a magic bullet. Enforcing insider trading would remain problematic.

"But to the extent that it brings NZ into line with the rest of the world, it has to be positive."

Andy Coupe, head of equity capital markets at UBS Warburg, said anything that boosted public confidence in the market would be a good thing.

Daniel Gill, a lawyer at Phillips Fox, said the bill would increase the effectiveness and efficiency of securities trading.

The bill says an effective insider trading regime could boost market trading volumes by 5 per cent.

But a senior commercial lawyer, who asked not to be named, said he would rather the Government adopt what was best for New Zealand than mimic Australian law.

There had been less than six successful insider trading cases in Australia in 10 years with only Rene Rivkin jailed.