Richard Inder: Inside the mind of the insider

Smoke and mirrors

Commerce Minister Margaret Wilson's moves to beef up insider trading laws are as much about symbolism as they are about practical legislation.

Either way, she has taken a step in the right direction. As she points out, no one has been found liable of insider trading since the Securities Markets Act came into effect in 1988.

This does not mean that New Zealand is free of the problem; rather it suggests something is wrong with our securities legislation and its enforcement.

The most dramatic of her proposals is criminal remedies for insider trading, bringing New Zealand into line with the rest of the world.

They include jail terms of up to five years and fines of up to $300,000 for individuals and $1 million for companies.

Such criminal actions are unlikely to come thick and fast.

Convicting someone of insider trading will require prosecutors to make a case that is "beyond reasonable doubt".

This is an onerous test.

It compares with "the balance of probabilities" standard for civil actions and requires prosecutors to prove investors knew what they were doing rather than what they ought reasonably to have known.

Overseas jurisdictions have found this standard too high. In Australia, only the flamboyant stockbroker Rene Rivkin has been jailed for insider trading during the past 10 years.

Despite this, the threat of jail in addition to a fine can only give those contemplating the use of inside knowledge an extra incentive to pause for thought.

The proposals likely to be of greatest practical use are those allowing the Securities Commission to take a civil action off its own bat and the extension of civil remedies.

Primary responsibility for taking an insider trading action rests with the affected company and shareholders, who respectively often lack the will or the financial clout to take action.

Meanwhile, plans to bring in fines in civil actions of $1 million, like the threat of jail, will put a stop to low-level insider trading.

The present maximum is three times the gain, or loss avoided, and the total sum paid for the shares. For the well-heeled, this sanction might be regarded as an acceptable level of risk.

One question, however, looms large - funding. To prosecute its new responsibilities, the commission gets a measly $1 million increase, taking its total budget to $7 million. This compares with the $A191 million ($206 million) budget of the Australian Securities and Investment Commission.

If the Government is serious about building confidence in securities markets and attracting capital it needs to give the commission (and the SFO) the tools as well as the financial means.

Rushed exit

Trans Tasman Properties this week finally sold the Auckland Finance Centre, but it was a graceless exit.

After three aborted attempts, the motley collection of tower blocks in the heart of the city is to be sold in two separate deals.

It is hard to say which one was the most entertaining.

The first, the $42 million disposal of Qantas House to Sir Robert Jones, was rich in irony as Trans Tasman arose from Sir Robert's former property empire.

And, using his brief moment in the spotlight, the property tycoon also declared his return to the top pile, claiming his new company the largest privately owned commercial property investor.

The second was the sale of the Simpson Grierson Building, Brookfields House and the Finance Centre Carpark in Durham Lane to Gulf Harbour and Quay Park developer Jamie Peters for $58 million.

The $5.7 million plus book loss Trans Tasman is wearing on both deals is not huge.

But the company's decision to accept a house in Herne Bay, a residential section in Gulf Harbour and 11 lifestyle blocks in Christchurch as part payment for the second sale will not endear it to disgruntled shareholders.

It looks like a rushed exit.

As a result, it will fuel scepticism about the company's decision to focus on Asia, the home market of its 60 per cent shareholder SEA Holdings.

Trans Tasman executive chairman Don Fletcher admitted the company did not normally trade properties, but said it was confident about their quality.

He would not disclose much detail about those in Auckland, but said the ones in the South Island were attached to larger holdings and, with the addition of a luxury residence, would appeal to international investors.

He added that the time was right to get out of Auckland because the market was "toppy" and better returns were found elsewhere.

Fletcher could be right. Judging by Trans Tasman Properties' share performance in the past year as the group invested $265 million in Hong Kong, investors remain unconvinced.