The New Zealand Markets Disciplinary Tribunal has fined Fonterra Cooperative Group [NZX:FCG] $150,000 for breaching continuous disclosure requirements to the NZX during the dairy manufacturer and exporter's botulism false alarm last August.
Auckland-based Fonterra undertook a world wide recall after it quarantined several batches of whey protein concentrate last August on concern it was contaminated with a potentially dangerous strain of clostridium bacteria, capable of causing botulism. The strain was ultimately shown to be harmless.
The dairy company first knew of the potential contamination on Wednesday July 31 but did not make the information public or inform the market until just after midnight on Friday August 2. Options in New Zealand's largest company trade on the Fonterra Shareholders' Market and allow dairy farmers to trade shares between themselves in a private market, while units in the Fonterra Shareholders' Fund give ordinary investors access to the dividend stream.
Fonterra Shareholders' Fund units closed at $7.12 on Friday August 2, before the company announced the contamination. When the market reopened on Monday August 5 the units traded at an intraday low of $6.50 and closed at $6.86, the tribunal said. A similar reaction was observed on the private dairy farmers' share trading market.
NZX Regulation, the regulatory arm of the stock market operator, said Fonterra breached continuous disclosure rules and should have told the market of the whey protein concerns as soon as possible.
The settlement will see Fonterra pay the NZX Discipline Fund $150,000, as well as the costs of the tribunal and contribute to costs incurred by NZX in relation to the matter, the tribunal said. The settlement also recorded that Fonterra did not agree with the NZXR view there had been breach.
In determining the settlement the tribunal said it considered several mitigating factors, including the "significant reputational consequences" the company had already suffered and its willingness to cooperate with the tribunal and resolve it quickly. Aggravating factors included Fonterra's knowledge of market regulations, and as a large company it had an "obligation to uphold high public standards and any breaches of continuous disclosure have the potential to affect a significant number of people."
Units in the Fonterra Shareholders' Fund recently gained 0.3 percent to $5.95, extending their gain so far this year to 2.2 percent.