High-profile white-collar crime in New Zealand


Financier Worldwide Magazine

July 2018 Issue

The Financial Markets Authority (FMA) is the government agency in New Zealand responsible for financial regulation. The FMA enforces securities, financial reporting and company law as it applies to financial services and securities markets. Taking enforcement action where appropriate is an important mechanism by which the FMA aims to increase investor confidence in the market. In the last 18 months, the FMA has prosecuted two high-profile cases which were the first of their kind in New Zealand; one for market manipulation and one for an insider trading offence. This article will provide a brief overview of the regulatory environment in New Zealand in which those prosecutions arose, describe those cases, and consider emerging trends in New Zealand in the prosecution of white-collar crime by the FMA.

The FMA was established in 2011 and is primarily responsible for ensuring public confidence in New Zealand’s financial markets, and supporting New Zealand’s capital base by means of effective regulation. In 2014, the Financial Markets Conduct Act 2013 (FMCA) was enacted. The FMCA represented a comprehensive reform of New Zealand’s securities law, largely in response to failures of multiple finance companies and the effects of the global financial crisis. The FMCA provided the FMA with broader powers in its role as a conduct regulator in the New Zealand market, including extensive new responsibilities in licensing, supervision and enforcement.

The FMA has taken some recent high-profile prosecutions in which the increased focus on enforcement since its establishment and the enactment of the FMCA is demonstrated.

Financial Markets Authority v Warminger [2017] NZCCLR 8 was the first market manipulation case to go to trial in New Zealand. This case was brought under the Securities Market Act 1998 (SMA), as the relevant part of the FMCA was not in force at the time that the conduct giving rise to the prosecution took place. The SMA was replaced by the FMCA, and the relevant provisions of the SMA in this case are essentially the same as those now in the FMCA.

Mr Warminger was an experienced portfolio manager at Milford Asset Management Ltd. The FMA alleged that Mr Warminger manipulated the trading of stocks on the NZX Limited exchange on 10 occasions between January 2014 and September 2014, in breach of section 11B of the SMA. Section 11B seeks to prevent trading which has the effect of creating or causing the creation of a false or misleading appearance of trading. A person who contravenes the section with actual knowledge of the relevant effect commits an offence (Financial Markets Authority v Warminger at [35]). After a judge-alone trial, the court found that Mr Warminger manipulated the market in breach of section 11B of the SMA on two occasions.

In terms of penalty, the court granted the declarations sought by the FMA that Mr Warminger had contravened the SMA, and issued a pecuniary penalty of NZ$400,000 in total (imposed in a separate judgment, Financial Markets Authority v Warminger [2017] NZHC 1471).

In June 2017, the first sentencing for insider trading offences in New Zealand took place. Financial Markets Authority v Honey CRI-2017-004-002446 (13 June 2017) was the first criminal prosecution and penalty for insider trading in New Zealand. Mr Honey was charged under section 243(1)(a) and 244 of the FMCA that, as an information insider of a listed issuer, he advised or encouraged another person to trade Eroad shares, knowing that the information was not generally available to the market. The maximum penalty for the offence is five years’ imprisonment or a NZ$500,000 fine, or both. In this case, the FMA alleged that in 2015, Mr Honey sent a text message to his friend Mr Sansom which contained a photograph of Eroad’s performance in the United States market accompanied by the text “US sales not doing too well. Time to sell up, confidential obviously”. Mr Sansom subsequently sold a substantial number of his shares. Shortly afterwards, the share price for Eroad depreciated further, and Mr Honey sent another text to Mr Sansom, saying “I hope you sold”.

Mr Honey pleaded guilty to the charge, and was sentenced to six months’ home detention. In sentencing Mr Honey, the judge noted that any form of insider trading will affect public confidence in New Zealand’s financial markets, that following Australian, United Kingdom and Canadian case law the primary purpose in sentencing for insider trading in New Zealand will be deterrence, and that insider conduct will normally lead to a sentence of imprisonment (Financial Markets Authority v Honey at [33]-[34]).

Mr Sansom, the recipient of the relevant text messages, was also prosecuted by the FMA. Mr Sansom was tried by a jury in March 2018. The trial resulted in a hung jury as the jury could not reach a verdict. In April 2018 a retrial was ordered, and the case is scheduled to go to trial again in September 2018.

There have been criminal as well as civil consequences for insider trading in New Zealand since 2008. This development reflected reforms in Australia, and the New Zealand government’s view that criminal sanctions should be available because insider misconduct undermines the efficiency and fairness of securities markets. However, until recently, there had been no criminal prosecutions.

These two cases are high-profile examples of what appears to be a trend towards more active enforcement by the FMA in recent years. This trend is borne out in the FMA’s own reporting. By way of example, in 2015, the FMA published its Strategic Risk Outlook which outlined the FMA’s key strategic priorities. Under the heading “Specific areas of focus”, that report stated that “our work with NZX seeks to achieve effective and timely responses to possible market misconduct, such as allegations of market manipulation and insider trading. We will prioritise enforcement responses to these cases so that our licensed markets are seen as fair and transparent places to do business, for both onshore and offshore participants” (Financial Markets Authority Strategic Risk Outlook 2015 at page 12).

By 2017, the focus on enforcement in these areas had strengthened further. In the FMA’s 2017 Conduct Outcomes Report, two sections were devoted to market manipulation and insider trading respectively. In relation to market manipulation, the FMA stated that “maintaining market integrity is at the core of our mandate”. In this regard, the FMA’s stated objectives in prosecuting market manipulators were to address the misconduct, illustrate the standard of conduct expected, and deter the trading sector from engaging in unethical conduct that erodes investor confidence and damages the reputation of New Zealand’s markets (Financial Markets Authority 2017 Conduct Outcomes Report at page 11).

In relation to insider trading, the report stated that “insider trading laws are one of the key mechanisms for ensuring licensed markets remain fair and transparent”. In this regard, the report noted that although the FMA recognises that insider trading prosecutions can take considerable time and resources, it believes that such actions help deter future misconduct and set clear expectations for those operating in the market, and it will continue to take enforcement action where it finds evidence of misconduct in this area (Financial Markets Authority 2017 Conduct Outcomes Report at page 15).

The FMA’s intentions in respect of enforcement are also borne out by other recent enforcement actions. For example, in October 2017, the FMA filed criminal charges against an individual alleging insider trading in contravention of the SMA. At the time, the head of enforcement at the FMA stated in a media release: “The integrity of New Zealand’s licensed markets is a key strategic priority for the FMA. The insider trading prohibitions are one of the key mechanisms for ensuring licensed markets remain fair and transparent. The FMA will take enforcement action where it finds evidence of insider conduct”.

In addition to market manipulation and insider trading, the FMA is also taking a proactive approach to enforcement in other areas. By way of example, in the last three months, the FMA has laid criminal charges in two separate instances against companies and directors for breaches of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPR). These charges relate to the companies and directors being, or holding themselves out as being, in the business of providing financial services in contravention of the FSPR. Karen Chang, head of enforcement at the FMA, said in a media release: “Last year we warned directors who encouraged or facilitated abuse of the FSPR that we would be stepping up enforcement action. We are now taking that action. This is the second proceeding the FMA has brought on this front and inquiries into further cases are ongoing.”

Given the trend toward proactive enforcement action demonstrated by the above, market participants in New Zealand should be increasingly aware that any wrongdoing will attract a high level of FMA scrutiny, and where appropriate enforcement, in the future.


Ian Gault is a partner and Kate Venning is a senior associate at Bell Gully. Mr Gault can be contacted on +64 9 916 8967 or by email: Ms Venning can be contacted on +64 9 916 8384 or by email:

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