FPH trading under trial spotlight

The spotlight in the Mark Warminger case swung on to two of New Zealand’s investment sector heavyweights in day four of the trial at the Auckland High Court.

Friday, September 30th 2016, 8:30AM

by Miriam Bell

Representatives of Goldman Sachs NZ and Forsyth Barr took their turns on the stand yesterday in the country’s first market manipulation trial.

Warminger, a Milford Asset Management portfolio manager, is accused of trading behaviour which breached securities law on 10 occasions in 2014.

The Financial Markets Authority (FMA) alleges Warminger made use of cross-trading to move the price of stocks so that he could later shift significant off-market sales at a greater profit.

It also alleges that Warminger made trades to set artificial prices.

To date, trial proceedings have revolved around setting the scene for what is alleged to have occurred but, on Thursday, the focus of the trial shifted to the details of the trading Warminger is in court for.

In particular, the trading of Fisher & Paykel Healthcare shares on May 27, 2014 came under close scrutiny with examination of witnesses from both Goldman Sachs and Forsyth Barr.

The FMA alleges that Warminger made several small buys of FHP shares to push up the price from $4.32 to $4.35 and then sold 500,000 FHP shares at the higher price.

Goldman Sachs director Duncan Rutherford said his firm had been looking to buy 500,000 FPH shares that day and had indicated this to Warminger via email before the market opened.

While the closing prices for FPH shares were $4.35 the day before, Goldman Sachs wanted to buy the shares at $4.32.

However, when the market opened several trades meant the prices of FPH shares started to go up – which prompted Goldman Sachs to buy.

Rutherford said the firm ended up buying 300,000 FPH shares at $4.35 in the morning. Later in the day it bought another 200,000, also at $4.35.

“We were willing to pay more for the shares because the price had moved up and we thought the price could be running away from us.

“Seeing the price go to $4.34 was instrumental in making the decision to buy 300,000 at $4.35 and to then see where the price went from there.”

Most of the day’s activity did not strike Rutherford as unusual.

But one thing he did consider unusual was that the stock price started moving up after he sent the email to Warminger.

Under cross-examination, Warminger’s defence lawyer, Marc Corlett QC, put it to Rutherford that the previous day’s trading had left Goldman Sachs short of a significant amount of shares in its facilitation account.

Corlett suggested this meant that Goldman Sachs would have wanted to buy stock at low prices and that was the real reason they wanted to buy FHP shares at $4.32.

In response, Rutherford said the facilitation account wasn’t run simply in terms of profit and loss.

“There is a bigger picture than that. The book is run to facilitate trading for clients and to provide them with liquidity.”

Rutherford confirmed that, although Goldman Sachs thought Devon Funds Management was also a possible seller, ultimately Warminger was the only seller prepared to sell 500,000 FHP shares at $4.35.

Cowlett also questioned Rutherford over an exchange of emails relating to trading of A2 Milk shares on July 8 and 9.

Shares in A2 milk had dropped substantially, which caused a decline in the performance of the fund Warminger was responsible for, and is said to have put him under a certain amount of pressure.

Rutherford’s run-down of the exchange indicated that Warminger was not left happy with the way a potential trade played out.

Later in the day, Forsyth Barr head of institutional broking David Price provided testimony.

His firm also bought FPH shares at $4.35 from Warminger on May 27, 2014 – although Price said they too had wanted to buy the shares at $4.32.

“We didn’t think $4.35 was an appropriate price. But then we saw the cross and that changed our view of buying at that price, so we crossed the line.”

Cowlett pressed Price on why they had thought $4.35 wasn’t a good price for the FPH shares, suggesting Forsyth Barr was simply after good buying.

He said it seemed a reasonable price given the shares had closed at that price the day before and there had been no price sensitive announcements overnight.

However, Price said they took a number of different factors into account when assessing what the prevailing price for stock was.

Any decisions they made were judged on their discretion and based on the flow of the share activity, he said.

*The trial is set to continue for a month.

Tags: FMA Forsyth Barr goldman sachs investment Market Manipulation Milford Asset Management