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.