FMA lawsuit hurts Diligent
The Financial Markets Authority's first market manipulation case helped wipe as much as $15 million from the value of one-time stockmarket darling Diligent Board Member Services in yesterday's trading.
The authority has begun civil proceedings against Diligent founder Brian Henry over alleged market manipulation of shares in the NZX-listed company he created.
Henry was a founding member of the company, which provides corporate governance software, but left in March 2009.
Diligent shares reversed early gains on an otherwise buoyant market after the announcement yesterday, closing down 2.9 per cent at $6.31.
The market capitalisation of the rapidly growing tech stock slipped to $529m, down $15.9m.
The exact nature of Henry's alleged misbehaviour is unclear, with the authority and NZX both declining interviews while the matter is before the court.
The six claims against him allege certain orders and trades he made in 2010 breached the market manipulation provisions of the Securities Markets Act. The maximum fine for each breach of the provisions is $1m.
PR woman Michelle Boag said Henry was getting to grips with a "huge number of documents" sent by the FMA and was not ready for interviews.
In a statement, he vowed to respond vigorously to the proceedings through his New Zealand lawyers.
The New York-based venture capitalist claimed he had immediately raised the matter with the FMA's predecessor, the Securities Commission, when he realised he had made "errors" in trading.
He said the commission discussed the matter with him and took no action. "The trading I brought to the attention of the Securities Commission in 2010 had a minimal effect on the market, inadvertently lowering and then raising the price of the stock by a matter of cents," he said.
"The net effect of these trades at the time was about $1500."
Diligent shares were trading at about 55c at the time, a far cry from the dizzy heights above $8 reached in recent months.
Craigs Investment Partners' head of private wealth research, Mark Lister, said the announcement had likely moved the share price yesterday.
Diligent's reputation has been eroded by a series of embarrassing governance blips recently, including unapproved auditors, accidental share issues to senior executives, and delayed quarterly results.
"It doesn't go down well when you start seeing negative sort of things appear, even if they're historic and minor in the scheme of things," Lister said.
Henry made history during the Diligent float in 2007, after spending just 24 hours as chief executive before resigning from the role.
Controversy erupted over his failure to disclose past links to Energycorp, one of many companies that fell in the wake of the 1987 stockmarket crash.
Energycorp collapsed owing $20m, and Henry was bankrupted.
He also did not initially disclose that his brother, Energycorp director Gerald Henry, had been jailed for fraud in the United States in 1996.
On his website, brianhenry.net, Henry wrote that he was "stung" by the criticism.
"This stuff was so ancient that both myself and my legal advisers concluded that such a disclosure was irrelevant," the site reads.
FMA head of enforcement Belinda Moffat said that market manipulation interfered with the integrity of New Zealand's financial markets and harmed the function of open, transparent and efficient capital markets.
Brian Henry's website features an eclectic mix of writing about his achievements and passions. He says he becomes incredibly focused on things he cares about, including:
Flying: He became a certified pilot and now owns his own twin Cessna 421C. "I've flown a dozen different single and twin- engine aircraft - including jets."
Cycling: Won the Waikari Classic race in his 40s. "I trained with Olympic athletes, Tour de France athletes, national and international champions. At the same level."
Weight loss: After becoming overweight, brother Gerard gave him a fitness programme. "I got down to 169 pounds and 7 per cent body fat."
Skiing: He competes as an alpine ski racer in the masters category in New Zealand and Switzerland. "I enjoy the thrill of competing on the slopes, and I support my boys in their alpine ski-racing ambitions."