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Brian Peter Henry admits market manipulation charges, fined $130,000

Brian Peter Henry, a venture capitalist who helped found Diligent Board Member Services [NZX: DIL], has admitted breaches of the Securities Markets Act by manipulating the company's shares in early 2010.

At the Auckland High Court, Henry admitted his trading in Diligent shares contravened the law. He was fined $130,000.

Henry admitted that on two occasions he executed what are known as "wash trades," where he was both buyer and seller, moving the stock price without any change of ownership.

On four other occasions gave "a false or misleading appearance of trading in Diligent shares" by "layering," where multiple buy and sell orders are placed without being completed to give the impression of more activity and forcing up the price.

"The conduct that Mr Henry engaged in undermines the development of a fair, efficient, and transparent financial market," Justice Geoffrey Venning said in his judgment.

"Such market manipulation is likely to undermine the integrity of the NZX and jeopardise the confidence of both overseas and domestic investors in the NZ security markets. A pecuniary penalty is appropriate."

The Financial Markets Authority said it was the first case of market manipulation brought in New Zealand.

US-based Henry had said last year that the FMA's case had no merit, while confirming he had made "errors" in trading the shares in early 2010. He was a former chief executive of Diligent, leaving the company in 2009.

Today he released a statement saying he is pleased to have settled the claim.

He says the FMA decided it had a valid point to make about the integrity of the market; he respects that.

“It is disappointing that it has taken four years and extensive legal fees for both parties to get to this point,” his statement says. 

In a separate statement, the NZX welcomed the High Court decision, saying the successful prosecution "reflects the importance NZX places on upholding the integrity of the markets it operates."

The decision comes a day before Diligent is due to report its first-half results and expected to post reported net profit of $5 million, up from $3.3 million a year earlier, according to analysts at First NZ Capital.

Diligent shares rose 2.4% to $4.20 and have gained 7.9% this year.

Editor's note: Brian Peter Henry is not to be confused with lawyer and fund manager Brian Phillip Henry of Goldman Henry. 

Comments and questions

Hey Mr Henry

I still remember this little piece from a while back. Keen to modify your position now?

Diligent the firm is doing a great job - and the stock is still undervalued. Get over it.

Talk about integrity of Markets and fairness of prosecution and regulators, one surely hopes that there isn't bias against some and towards others preventing the FMA pursuing cases.

Adjusting (manipulating) the share price a few days prior to the conversion of securities is a serious offense.

A nothing...small fry...consider why FMA does not pursue the big time "inside traders" who call their offshore foreign brokers in Singapore to place trades for them under anonymous offshore entities. Or the professional accountants in large accounting firms that conduct audits and other services for their listed company clients, and so receive insider information, then trade the client shares in the names of other entities and friends/family to conceal the trades. NZ is riddled with complex inappropriate market practices that the regulatory cannot deal to either because of funding, or competency issues, or lack of know-how. So they shout the news of a single trader. What happened to the large parcels of trades by some of the more well-known wealthy share market players who seem inextricably able to repeatedly and constantly make enormous profits (tax free) while professional fund managers come no where close to them despite having higher competency. The red flags in NZ are fly from high in the air, yet regulators look down at the ground.

Looks like the government was out of time on this one and obviously Henry did not want to waste any more money fighting them given, by the looks of it, he'd already discussed his errors with the FMA's precursor, the Securities Commission. This looks like a good outcome to me and no different to Henry's original stance--that he never denied his trading patterns or errors.

When will the NZ marketplace get that Henry created a software company that puts software (created in New Zealand by a company listed on the New Zealand stock exchange) into the minds and lives of many of the most influential business people in the world. His software is "Used by over 3,500 boards and 77,000 individual directors, executives and board teams worldwide. 37 of the FTSE 100 listed companies and 326 of Fortune 1000 companies use the Diligent Boardbooks solution globally."

I would think that the FMA did more damage to the market with it's grandstanding over this matter than did Henry's actions which he has openly discussed from the beginning.

With all the talk about $6 million in penalties, they settled a civil action for $130,000 which would not even cover the legal fees incurred by either party. The FMA acted like a school yard bully, focusing the power of the state and taxpayer monies to advance individual careers and an agenda. What a shallow and hollow victory.

Absolute nonsense. Henry might have been an early investor in Diligent, but he resigned as CEO on day one of Diligent being listed due to hiding his (and his brother's) previous involvements in the dodgy 1980s beast called Energycorp. If anyone did more to hurt Diligent's reputation as it stepped out onto a global platform, it was Henry with his coverups and market manipulation. Well done the FMA for acting, I say...

Dear Anonymous, Henry founded Diligent and stepped down as CEO to give this great technology company, Diligent, a chance to succeed, after the media frenzy over his first entrepreneurial public company 20 years earlier. It's misinformed armchair critics that create no wealth for our country, that force investment overseas. The NZ government, through the ACC, has no doubt made huge sums off Henry's entrepreneurial spirit. The FMA taking up this valid but tiny issue is not one of the key issues facing NZ's capital markets, given both the much bigger professional market manipulation potential cases out there and also the billions lost to NZ investors during the finance co. fiasco--where is/was the FMA then.

It is always the same. The mud slingers are anonymous. Brian Henry wasn't merely an early investor in Diligent. He was the founder and the architect of the software and responsible for Diligent's global aspirations from day one. The current CEO, Alex Sodi was hired by Henry and his wife in 1994 and was trained by them. They have created over $400 million of shareholder value. I wined what anonymous has ever done?

On the contrary EG this outcome seems to suggest the FMAs claims were without much merit. They were chasing a $6 million rainbow and look what they came up with.Nix.

Agree with Tumbler 100%.
But what can they do when the file has been lost?

Market manipulation - I would say there are bigger, more systemic NZ examples such as selective briefings to analysts and lack of continuous disclosure - often two sides of the same coin. In OZ - refer to recent Newcrest Mining. Analysts in that case face max 10 years in jail. ASIC stepping up.