Financial Markets Authority v Henry - [2014] NZHC 1853

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-003144 [2014] NZHC 1853

UNDER The Securities Markets Act 1988

BETWEEN

FINANCIAL MARKETS AUTHORITY Plaintiff

AND

BRIAN PETER HENRY Defendant

Hearing: 6 August 2014

Appearances:

N R Williams and S Symon for Plaintiff
J R Billington QC and A J Steel for Defendant

Judgment:

7 August 2014

JUDGMENT OF VENNING J

This judgment was delivered by me on 7 August 2014 at 4.00 pm, pursuant to Rule 11.5 of the High
Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors: Meredith Connell, Auckland
Wanaka Law, Wanaka

Copy to: J R Billington QC, Auckland

FMA v HENRY [2014] NZHC 1853 [7 August 2014]

Introduction

[1] The Financial Markets Authority (FMA) says Mr Henry engaged in market manipulation. The FMA seeks declarations that Mr Henry contravened the provisions of the Securities Markets Act 1988 (the Act) and a pecuniary penalty.

Background – parties

[2] Mr Henry was formerly the Chief Executive Officer and director of Diligent Board Member Services, Inc (Diligent). Prior to the transactions in issue Mr Henry resigned from both positions but he and his wife, Ms Borg, were trustees and beneficiaries of the B Henry & K Borg Living Trust (the Trust) which continued to hold shares in Diligent. Mr Henry and his wife were substantial security holders of Diligent shares as defined by s 21 of the Act.

[3] Diligent is a software company. It specialises in digital board books. On 12

December 2007 Diligent’s common stock listed on the New Zealand Stock Exchange (NZSX) and Diligent became a public issuer within the meaning of s 2 of the Act, with its stock included in the NZX SciTech and NZX All indices.

[4] From April 2009 Mr Henry bought and sold Diligent shares from time to time through McDouall Stuart Securities Limited (McDouall Stuart), ASB Securities Limited (ASB) and Direct Broking Limited (Direct Broking). Both ASB and Direct Broking provided online share trading platforms which enabled clients direct access to the NZX trading system.

Background – FMA claims

[5] The parties have agreed a summary of facts. The summary discloses the following trading by Mr Henry in breach of the Act.

Presumptive false or misleading appearance of trades – 14 April 2010

[6] On or about 14 April 2010 Mr Henry was a party to trading in shares of Diligent from which no change in beneficial ownership resulted (the 14 April trade) specifically:

(a) at or around 1.55 pm Mr Henry entered a new offer in the market to sell 10,000 Diligent shares at 55 cents each;

(b) at around 2.05 pm Mr Henry entered a bid in the market to buy 5,000

Diligent shares at 55 cents each;

(c) this resulted in the Trust buying 5,000 of its own Diligent shares at 55 cents;

(d) the trade restored the last traded price from 50 cents to 55 cents.

[7] As a result of the 14 April trade, which was the last trade of the day, Mr

Henry set the market…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] NZHC 1853
Decision Date: 7 August 2014

CaseChat Overview and Summary

The Financial Markets Authority (FMA) brought an action against Brian Peter Henry, alleging that he engaged in market manipulation by engaging in trading in Diligent Board Member Services, Inc shares that created a false or misleading appearance of trading. The FMA sought declarations that Mr Henry contravened the Securities Markets Act 1988 and a pecuniary penalty. The court had to decide whether Mr Henry engaged in market manipulation and, if so, whether a pecuniary penalty was appropriate and, if so, how much. The court found that Mr Henry did engage in market manipulation and that a pecuniary penalty was appropriate. The court accepted the submission of the parties that a penalty of $130,000 was appropriate and ordered that amount be paid by Mr Henry to the FMA.

Orders