Securities: FMA v. Warminger

The purpose of unusual trading patterns is relevant when determining stock market manipulation the High Court ruled; holding Milford Asset fund manager Mark Warminger liable on two charges of market manipulation, not liable on eight further counts.   

Mr Warminger was responsible for active management of $669 million, part of Milford Asset’s $3.5 billion managed for some 20,000 clients.  He was held in breach of the Securities Markets Act by manipulating stock market prices for Fisher & Paykel Healthcare (FPH) in May 2014 and a2 Milk (ATM) in July 2014.  Securities Markets fines have yet to be set.

The High Court was told NZX market surveillance staff were alerted to Mr Warminger’s trading in June 2014 in what appeared to be attempts to bolster Xero’s price by dominating trading with small volume orders.  It was alleged this was an attempt to reverse drifting price levels prior to the end of a trading quarter.  Charges of market manipulation for Xero shares were dismissed by the High Court. There was insufficient evidence of any purpose behind Mr Warminger’s unusual Xero trades.   He gained no immediate financial benefit.  He stood to receive no performance bonus for that June month regardless of any alleged manipulation of the Xero price.

The court was told indicators of potential market manipulation are: jumps in bid/ask prices; revision of prices at the next trading session; trading in small volumes especially at the end of a trading session and uneconomic trading.  Manipulative tactics include “wash sales” where contemporaneous buy and sell orders are placed to give a false impression of genuine market interest and “ramping” where low volume deals are done at successively higher prices to create an aura of demand.  By world standards, NZX is a very small relatively illiquid market.  Lack of liquidity makes it more susceptible to manipulation.    

Evidence was given that Mr Warminger placed a series of small volume buy orders for FPH shares on 27 May 2014 in just four minutes.  Justice Venning ruled that this was done in the knowledge that a buyer was about to enter the market looking for 450,000 FPH shares and the buy orders were intended to drive up the market price enabling Milford Asset to reduce its overweight position in FPH at a better price.

Mr Warminger was also held liable in respect of trades in ATM on 9 July 2014.  Milford Asset was heavily overweight in ATM stock which had been trading at $0.97 six months previously and was then down to $0.69.  There was evidence of Mr Warminger turning down off-market offers of substantial parcels in ATM at $0.68 while buying smaller volumes on market at $0.70.  Justice Venning ruled this uneconomic trading was market manipulation, an attempt to ramp ATM’s price.   

FMA v. Warminger – High Court (3.03.17)

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Land: Kohimaramara Trust v. Melanesian Trust

Auckland’s Melanesian Mission Trust was justified in cancelling a $3.74 million sale of subdividable land at Pamela Place in Auckland’s eastern suburbs to property developer Greg Olliver after his company failed to front with the cash and tried to push potential development costs back on to Melanesian Trust.

The High Court was told interests associated with Mr Olliver agreed in 2015 to buy 4.3 hectares of bare land in Pamela Place, Kohimaramara from the Melanesian Trust together with subdivision rights which extend over 21 neighbouring properties – giving a total area of 22.3 hectares.  Kohimaramara Trust Ltd, the purchaser nominated by Mr Olliver, refused to pay on due date arguing the Melanesian Trust was first required to assist in signing up the 21 neighbouring properties to a potential subdivision.  Associate judge Bell ruled Melanesian Trust was ready and willing to settle on due date; all it had to do was transfer its rights over the 21 properties – it was for Kohimaramara Trust to act on them.

A bush-clad gully borders Pamela Place, steep in parts with some remnants of native bush but mainly covered with invasive exotics.  Twenty-one neighbouring properties extend into the gully with encumbrances registered against titles giving the Melanesian Trust a right of resumption over defined parts of each property: the Trust can claim back the defined part and re-subdivide that portion of the land.  The $3.74 million price included a purchase of these neighbouring rights of resumption.

Judge Bell said any owner of these rights of resumption must pay all costs of getting subdivision consent, but is not required to pay compensation when taking back land from the affected 21 property owners.  There is no evidence that current owners are aware of any proposed sale to a property developer, he said.  Neighbours to a fresh residential development in an affluent suburb are likely to object.  This risk lies with the purchaser, he said.   

Kohimaramara Trust v. Melanesian Trust – High Court (1.03.17)

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Maori: Ngai Tai Ki Tamaki v. Minister of Conservation

A splinter group within Auckland Maori failed in its bid claiming sole rights to tourist concessions on Rangitoto and Motutapu islands in Auckland’s inner Hauraki Gulf.

Ngai Tai Ki Tamaki Tribal Trust challenged Conservation Department concessions granted to Fullers Group and the Motutapu Island Recreation Trust.  Fullers markets the Volcanic Explorer Operation, bundling together a ferry trip to Rangitoto with a tractor-drawn trailer ride on the island.  Motutapu Recreation offers walking tours on both Motutapu and Rangitoto.

Both Fullers and Motutapu Recreation faced objections to a renewal of their existing concessions before the Conservation Department pruned back requested ten year extensions to five years only.

The High Court was told Tamaki Tribal Trust objects in principle to the existing concessions.  It says a Treaty of Waitangi clause in the Conservation Act reserves tourist concessions on conservation land to local iwi only.  It alleges Motutapu Recreation lacks sufficient cultural and historical connection with the two islands to properly convey their significance.  It complains Fullers operates a monopoly on tourism to Rangitoto.  It says Fullers should be kept off the island allowing time for Tamaki Tribal Trust to build up its own tourist operation.    

Evidence was given that Tamaki Tribal Trust is a breakaway group within Tamaki Makaurau.  It does not form part of the Tamaki Collective recognised by 2014 legislation set up to facilitate conflicting Treaty of Waitangi claims across the Auckland isthmus.  Discussion between Fullers and Tamaki Collective prior to the five year extension saw Fullers agree to maintaining and repairing all roads on Rangitoto, avoiding adverse environmental effects and paying some $10,000.  Tamaki Tribal Trust was offered a partnership role within the Fullers concession but was not interested.

Justice Fogarty ruled the Conservation Act Treaty clause does allow preferential treatment for local iwi in exploiting the conservation estate, but this entitlement is not absolute; it depends on what is reasonable in the prevailing circumstances.  Allowing only a five year extension with the prospect of future involvement by local iwi after their Treaty claims had been settled was appropriate.

Government says there is room on both islands for multiple tourism concessions.

Ngai Tai Ki Tamaki Tribal Trust v. Minister of Conservation – High Court (1.03.17)

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