Share trader tells of no-name deal

Auckland share trader "EF" told a court yesterday that he had an "unequivocal" agreement with the New Zealand Herald that it would not reveal his identity after he gave the paper a secret Fletcher Challenge e-mail and sparked an insider trading investigation.

The prominent company director is seeking an interim High Court injunction barring the Herald from naming him as the man who made $40,000 by trading Fletcher Paper shares on the information.

The Herald says it never agreed not to name the man.

EF identified by random letters assigned to him in a Securities Commission report on the incident gave the e-mail to Business Herald reporter Mark Reynolds on May 7 last year.

He had surreptitiously copied it on a home fax machine in his brother-in-law's study four days earlier while his brother-in-law was out of the room.

The brother-in-law ("CD" in the report) had received the e-mail from a relative ("AB"), who found it on an electronic noticeboard while doing contract work for Fletcher Challenge, said the Securities Commission report, presented in evidence at the hearing yesterday.

The report says that early last year, Fletcher Challenge was considering options for a possible merger of Fletcher Paper with Fletcher Challenge Canada. By late April, the plans were well advanced but remained confidential.

On April 30, a draft press release was accidentally posted on an electronic noticeboard in an internal Fletcher Challenge computer network. AB, an independent contractor who was doing work for the company, had access to the network.

It confirmed what she had heard six weeks earlier from a co-worker, who had learned it in confidence from a Fletcher employee.

She faxed the first page of the draft to her relative, CD, a Fletcher Paper shareholder, then called him 90 minutes later, as soon as she learned that the draft had been on the electronic noticeboard by mistake, and told him to destroy the fax and ignore its contents.

Instead, he left it on his desk, where EF found and copied it without CD's knowledge.

The report says EF traded several hundred thousand Fletcher Paper shares after leaking the e-mail, making a gross profit of about $40,000.

In court yesterday, EF said he passed the e-mail to the Herald, then to other media and brokers, with the intention of boosting Fletcher Paper's share price.

But he wanted to keep his identity a secret to protect AB and CD.

"I said to him [Reynolds] that if I gave him the document could he absolutely guarantee that my name would remain confidential ... He said 'yes' and was unequivocal about it."

The pair met outside the Herald in EF's car a short time later and EF said that before handing over a copy of the e-mail he again asked Reynolds for an assurance he would not be identified.

"He asked if I wanted him to jot something down. I said that would not be necessary, a handshake would suffice."

He did not tell Reynolds his name.

In an affidavit before the court, Reynolds, now a public affairs consultant for American Express, said he established EF's identity by noting the registration of his Mercedes.

"At no stage did I give any undertaking to [EF] that the Herald would not publish his identity as the person who had provided the document to the Herald - or any undertaking in relation to his identity.

"Nor was any undertaking sought by [EF]."

Cross-examining EF, Herald lawyer Bruce Gray suggested to him that he had not needed to copy the e-mail to get the value from it that he needed.

"I made a judgment at the time, that I will regret for the rest of my life, to copy it," EF said.

Mr Gray: "You decided to give the document to the press knowing that if the press published the document or its contents, the price of Fletchers was likely to increase?"

EF: "Especially if Fletchers confirmed it, yes."

Mr Gray: "You would not have wanted the press to know you were giving the document to them for the purpose of increasing the price in Fletcher Paper, would you?"

EF: "Probably not."

EF said he had been "stunned and surprised" when he rang Reynolds after the article appeared and was asked 'It's [EF's first name], isn't it?"'

Mr Gray asked: "Doesn't the fact that you were stunned and surprised [that Reynolds knew your name] suggest that you had not previously considered confidentiality?"

EF: "No ... I needed confirmation of our agreement. You don't tell a woman that you love her once a year; she needs to hear it at least once a month."

At the end of his 90 minutes in the witness box, EF asked Justice Robert Fisher if he could make a final statement to the court. "I'm not trying to come from the moral high ground ... I will regret it for ever. It was motivated by greed. It has ruined my relationship with my family."

But EF said that being "ambushed" by a Herald reporter and photographer at his home on Tuesday evening broke the agreement he had made with the newspaper in May last year.

Cross-examining Reynolds, EF's lawyer, Stuart Grieve, QC, said an article he wrote on May 12 last year referred to the source of the leaked information as speaking to the Herald "on condition of anonymity."

Asked if he agreed that this implied he and EF had reached certain understandings before the e-mail was handed over, Reynolds said it did not.

It simply meant EF would not go on the record with his comments.

"There was no agreement like that," he said.

At 4:35 pm yesterday, Justice Fisher asked lawyers whether the hearing should continue into the evening so a judgment could be delivered last night.

Mr Gray said the issue for the Herald was press freedom, and the paper was relaxed over whether it named EF on Thursday or Friday.

"For that reason, the quality of the decision is more compelling than the timing," Mr Gray said.

Mr Grieve said he also preferred an overnight adjournment.

The hearing will resume at 10 am today.