Strengthen insider law says top watchdog

By FIONA ROTHERHAM

Securities Commission chairman Euan Abernethy is calling for a change to insider trading laws after a report found former Fletcher Challenge chairman Kerry Hoggard breached the rules last year.

A commission report issued yesterday found Mr Hoggard in breach for buying 390,000 Fletcher Challenge shares worth about $630,000 on the eve of a December announcement on a radical company restructuring.

Fletcher Challenge said it was the second time he had bought company shares when he should not have.

It said Mr Hoggard breached the company's securities trading code of conduct in August 1998 when he bought a total of 9455 shares in Fletcher's four letter stocks from a neighbour.

The purchase was made on the day the company's annual result came out. Under the code, directors are banned from trading in company shares for several months before the profit announcement and until the day after. The price Mr Hoggard paid on that occasion was said to be above the day's market closing price.

Fletcher Challenge said the board decided against taking any action then because of the small number of shares involved and because of the circumstances: a neighbour had asked him to honour an earlier agreement to buy the shares.

New Fletcher Challenge chairman Roderick Deane said the commission finding reinforced the board's decision to accept Mr Hoggard's resignation.

Fletcher Challenge has decided not to take any action against Mr Hoggard because he had already offered compensation to shareholders who lost money from the deal.

Under the Securities Amendment Act, Fletcher Challenge as the public issuer could also have made a claim. There is no legal precedent for penalties under this provision as it has never been taken to the courts since coming into force in 1988.

In response to a request from the board after his resignation, Mr Hoggard set up a trust fund to pay back shareholders the $58,000 profit he had made.

Law firm Rudd Watts & Stone recently transferred the money to various brokers for distribution to clients who lost money from the deal.

Mr Abernethy said the law, which is under review, should be changed to allow criminal prosecutions while retaining the rights of shareholders to seek civil redress.

Mr Hoggard was unavailable to be interviewed yesterday. In a prepared statement, he said his sole motivation in acquiring the shares was to show his total commitment to a restructuring process that he believed would take 12 months to complete.

"The investment was to be long-term and I gave no thought to any personal potential short-term financial gain."

The consequences of being an insider trader stop at having to pay back shareholders involved.

Under New Zealand's relatively toothless insider trading law, a criminal prosecution cannot be taken.

Mr Hoggard said he had suffered "severe personal damage to my professional reputation." He is still chairman of Nufarm (formerly Fernz) in which he is a major shareholder.

He also still owns the shares he bought in December. He has made roughly $200,000 on these shares after taking out the $58,000 he had to pay back.

The inquiry looked at all trading in Fletcher shares in December. The commission said no other trading appeared to call for comment.

Fletcher's company secretary, Gary Key, said he had advised Mr Hoggard before the transaction not to buy shares until after the restructuring.

The commission decided not to make a finding on whether Mr Hoggard intended to break the rules.

But it was surprised he was not more familiar with his obligations under the company's code and securities law.

"We would have thought that a director of a major listed company would ensure he or she was aware of the relevant law," the report said.

The commission also investigated sharebroking firm J B Were's handling of Mr Hoggard's share purchases.

J B Were had been the largest trader of Fletcher shares on that day and the Hoggard trades were clearly significant as a percentage.

When Mr Hoggard rang to place the order, he confirmed no public statement had been released about a board meeting on December 14.

"But hold your breath, it will," he said.

The commission found no evidence J B Were relied on the inside information it received for any purpose or that the other Fletcher transactions it handled were driven in any way by its dealings with Mr Hoggard.