Goldman Sachs rebuked over trades
WELLINGTON: The Financial Markets Authority has rebuked Goldman Sachs New Zealand for its role in disgraced fund manager Mark Warminger’s market manipulation, but stopped short of taking the investment bank to court, saying it fell more in the realm of NZX’s disciplinary tribunal.
The regulator yesterday published a report outlining its concerns about Goldman’s conduct in carrying out the two trades for Mr Warminger that were ultimately deemed by the courts to have manipulated the market, which it hopes will educate traders and investors about its expectations for trading by brokers. The watchdog was concerned the trading may have been in breach of the Securities Market Act by creating a false of misleading appearance to the price and supply of securities, and felt a proportionate response to the potential misconduct was a referral to NZX’s market disciplinary tribunal.
The FMA said it made that recommendation to NZX staff several times, but the stock market operator chose not to take that action. Among the regulator’s plans following the release of the report is to consult the Ministry for Business, Innovation and Employment on considering legislative change empowering the watchdog to refer matters directly to the stock market’s disciplinary tribunal.
‘‘Even though the power of a direct referral to the NZDMT would raise some difficulties, we are disappointed with NZX’s lack of use of the NZDMT given the extensive market expertise of its panel members,’’ the report said.
‘‘We do feel that there’s potentially a piece missing because court’s very slow, it’s very expensive, it can be a process, particularly for something like this, that significantly delays your ability to educate and put out your deterrent message,’’ chief executive Rob Everett said. ‘‘We do hope that by publishing the report it both educates the market as to what is and is not acceptable and also enables us to go out and talk to it more openly.’’
The 18page report ends the FMA’s investigation into the issue, which was the country’s first contested market manipulation case and featured former Milford Asset Management portfolio manager Mark Warminger.
The FMA said Mr Warminger differed from Goldman Sachs in that because he was a fund manager and not a market participant he could not have been hauled in front of the stock market tribunal.
Among other reasons cited for not pursuing litigation, FMA said Goldman Sachs as a broker had an extra defence not available to Mr Warminger, and that litigation attracted significant costs especially when there was not any further advancement of regulatory goals.
‘‘In this case, we consider any wider educative benefit to be gained from this investigation, beyond that already provided by the Warminger decision, can equally be obtained through this written report outlining our concerns and through the further nonenforcement actions we propose to take,’’ it said.
Since the end of the Warminger case, the FMA has been engaging with fund managers to explain its concerns and Mr Everett said the release of this report meant it could have similar talks with brokers. It is also going to work with the NZX to review the facilitation practices of trading participants, and is lobbying for the use of voice recording by traders.
‘‘While we acknowledge the FMA’s guidance to the market, we disagree with their views in relation to these trades,’’ a Goldman Sachs spokeswoman said. —BusinessDesk