Why the secrecy?

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[UPDATED] Questions are being raised about why the identity of Milford Asset Management, the fund manager at the centre of an FMA inquiry into alleged market manipulation, was concealed for so long.

Tuesday, February 10th 2015, 6:00AM 2 Comments

by Susan Edmunds

Milford issued a press release yesterday to say that it was the subject of the inquiry.

“The investigation concerns an individual trader employed by the firm and certain specific trades. Milford and the trader concerned are co-operating fully with the FMA. The investigation does not have any implications for client funds and has no impact on the day-to-day operations of Milford,” the statement said.

Rumours had been circulating about the inquiry since last year.

The trades in question are believed to have happened about a year ago. The inquiry is reportedly related to the actions of one trader.

Chairman Brian Gaynor said the firm had to negotiate with FMA to issue a release because it had signed a confidentiality agreement.

Before Milford was confirmed as the subject of the investigation, there was a lot of speculation in the industry.

Advisers were phoning and emailing managers wanting to find out what was going on and whether their client money was with a manager under investigation.

Jordi Garcia, of NZ Financial Planning, said if he were an adviser he would be concerned about clients being caught up. “Your primary duty and responsibility is to your clients, to look after their welfare. But I also recognised the duty the adviser has to the industry and the overall confidence in the market so I wouldn’t jump up and down and blare it about.”

Adviser Murray Weatherston said while the firm was anonymous, everyone was under suspicion.

But he said naming the firm need not been its death knell.

He said if it was just one individual in question at Milford, that was less of a concern than if the board of directors of a business had adopted a particular approach.

“If it was found to be individual x and firm y, firm y would take a hit. Then it depends how closely the individual is publicly associated with firm y…. If it was just someone in the engine room it would cast a bit of doubt on their compliance function but if was a rogue individual the firm would survive.”

He said the investigation should not be drawn out. “I would stress that it ought to be relatively simple to get the factual situation. The most important thing is to get it dealt with quickly.”

FMA spokesman Andrew Park said: "The FMA maintains a general principle - that is shared by many other regulators in other jurisdictions - that we do not comment on current investigations. This is for a number of reasons: To protect the name of firm or professional, and not cloud their name unnecessarily, until a satisfactory conclusion to the investigation is reached. To protect the legal privilege of an ongoing investigation and not to prejudice its outcome. To ensure the lowest possible level of intervention in the orderly operation of the markets while an investigation runs its course."

But he said where there was a public interest consideration of confidence in the markets overall then the FMA must carefully weigh up the interests of all investors, all market participants and the orderly operation of the markets before deciding whether to comment on the investigation.

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