One trader's moment of madness

Paul Hyslop couldn't resist the chance to cash in on a leaked Fletcher's press release. He made money but is now paying a heavy price. SIMON HENDERY reports.

It was the ultimate adrenalin rush Paul Hyslop needed to satisfy his sharetrading addiction.

On the desk in front of him was part of a press release confirming market rumours of a big merger within Fletcher Challenge.

In what he now admits was "a moment of madness," Mr Hyslop snatched the document from his brother-in-law's desk and ran it through the home fax machine.

Even as he stuffed the paper into his pocket he was formulating a devious - but ultimately foolhardy - scheme to make a quick buck.

It was early May last year, and the Business Herald and other newspapers had already run reports speculating that Fletcher's was about to unveil plans for its Paper division.

Mr Hyslop, who already owned 110,000 Paper shares, knew that feeding this press release to the media had the potential to boost the stock's price.

He bought several hundred thousand more Paper shares.

"I am an active share trader both here and overseas. I trade actively on the Nasdaq, in Australia and in New Zealand and I had done for a long time prior to buying shares in Fletcher Paper," he told the Business Herald yesterday.

"I was a bit bored that particular day. I had just lost some money on Brierley shares."

What started as a morning coffee in his brother-in-law's home study ended yesterday in public disgrace for the high-profile wheeler-dealer.

He is now unmasked as the man who faxed and hand-delivered the leaked Fletcher document to brokers and the media, then sold his extra shareholding for a $40,000 profit.

The draft news release he snatched from his brother-in-law's desk should never have emerged from inside Fletcher Challenge's Penrose headquarters.

Fletcher's management knew that the secret merger they were stitching together between Fletcher Paper and its Canadian sister company was big enough to send ripples through the sharemarket, so they were treading carefully.

In early April, a draft 10-page release outlining the deal was circulated to three senior staff for comment. In an almost absurd comedy of mouse-clicking errors, one staffer later accidentally posted the e-mail to a company noticeboard, which 200 staff could scan.

The seriousness of the gaffe was quickly realised and 92 minutes later another message was posted: "Persons having read this file must be aware that the information in it cannot, under any circumstances, be communicated to anyone.

"Be aware that having read it, you are deemed an 'insider' under the Securities Amendment Act."

Seven people printed out the document. One was an information technology contractor with access to Fletcher's computer network.

She told the Serious Fraud Office she had faxed it to a relation, Mr Hyslop's brother-in-law, who was also a Paper shareholder.

She sent the fax before the company issued its warning and says she rang him later and told him to destroy it and forget its contents.

But the fax remained on the desk, and within days Mr Hyslop had it.

While his cunning plan to disseminate it to the market, via the media and brokers, involved keeping his anonymity, the plan fell down when he approached the Herald.

Business Herald reporter Mark Reynolds was lured outside the Herald's Albert St offices to Mr Hyslop's late-model Mercedes by an anonymous phone call.

He was given a copy of the document but also noted Mr Hyslop's licence plate number and traced the car's owner.

Over the next 18 months the affair would be investigated by the Serious Fraud Office and the Securities Commission.

"Both Government organisations frowned on it and said it was not what I should have done, but not illegal under current laws," Mr Hyslop said yesterday.

"Our current laws are the only ones we can work under, whether they be right or they be wrong. I wasn't a director of Fletcher's."

And what of the others who had access to the leaked press release?

Sharemarket records show very heavy trading and a 17 per cent rise in Fletcher Paper stock - from $1.43 a share to $1.67 - the week before the press release bungle.

The following week, when Mr Hyslop began buying, the price rose to $1.75 before falling back to $1.72 at 2 pm on the Friday, when he faxed the document to 13 brokers and the media.

The price peaked at $1.94 the following Monday before dropping to close at $1.82. It continued to drop sharply the next day, closing at $1.68.

With the possibility of up to 200 Fletcher staff having seen the press release well before Mr Hyslop, there is speculation that others were also trading on the information.

"It's human nature, isn't it?"one market-watcher said yesterday. "You can't expect that sort of information to be sent out without people looking to jump on it."

But a source close to Fletcher's disputed the suggestion of insider trading from within the company.

"It's the old story of buying on a rumour and selling on a fact. There was a lot of talk that Fletcher's was going to merge Paper and speculators were just taking a punt."

Mr Hyslop says he has paid the price for his moment of madness.

"I made some money out of the thing, but it has probably cost me 10 times that. It wasn't a great investment. It wasn't one of my better deals."