'Nothing suspicious' in Fonterra trading
A Fonterra insider trading probe by the NZX following a complaint from a Kiwi fund manager in Canada has been closed despite ongoing concerns from shareholders.
Wellington-born, Toronto-based portfolio manager Darren Sissons, who invests money for rich Canadians, complained to the NZX on December 19 after noticing unusually high volumes of trading in Fonterrra Shareholders Fund units in the three trading days before the diary giants surprise dividend cut announcement on December 11 last year.
Sissons had clients invested in the Fonterra fund, which was set up in 2012 to allow institutions to invest in the cooperative, said after the dividend announcement was angered when the unit price, which had been just over $6.40 on December 6, fell to $5.64 on December 12. It has since rallied and closed at $6.15 yesterday, up 2c.
Sissons told NZX the average daily trading volume of the fund over the three trading days from Thursday December 5 to Monday December 9 was "abnormally high", averaging 507,889 units per day.
For the previous five trading days the average volume of units traded daily was just 163,528.
And in the previous 60 days the daily volume was only 60 per cent of the daily volume during the three days under inquiry.
In his official complaint to the NZX, Sissons said: "We are deeply concerned that information regarding the dividend cut was either leaked directly or otherwise, or that privileged information that should have been protected by confidentiality requirements was deliberately traded upon by insiders or by individuals/groups with access to inside or privileged information."
NZX responded that it had reviewed trading in the fund and found nothing suspicious.
Sissons lobbied politicians to act, arguing there was a threat to New Zealand's capital markets unless governance improved.
In an email to Labour MP DamienO'Connor, Sissons said: "We are thoroughly disappointed as [unit holders]. We have dumped the stock.
"Based on our experience with Fonterra we are unlikely to ever invest in New Zealand again as we don't trust governance, and we view regulatory oversight to be very weak.
"The current structure of Fonterra is deeply flawed and provides ample scope for exploitation of public shareholders.
"Institutional investors will recognise this flaw, will tell their friends in the business and ... the likelihood of foreign capital investing for the long term in the company is currently very slim," Sissons said.
And the pressure seemed to work, with NZX solicitor Hayley Baker later writing to Sissons on February 17 that his complaint "is being handled" by NZX Regulation, which investigates trading activity.
But NZX, which says it gets more than 100 trading alerts a week, told Fairfax Media that the investigation "is now closed", saying it had been closed at the end of January.
The Financial Markets Authority which is tasked with prosecuting insider trading cases said it had not been alerted about the case.
However, O'Connor wrote to the FMA's new head Rob Everett to express his concern, while under the impression that the investigation was ongoing saying: "It has taken the NZX some time to accept there may be an issue here and it is of real concern to me that the shareholder was initially brushed off by NZX. This, in turn, raises concerns about what it takes to get the regulator to act and the integrity of our capital markets."