Insider trading proceedings filed - Tranz Rail The Securities Commission filed insider trading proceedings relating to share trading in Tranz Rail Holdings Limited in the High Court in Wellington on 13 October 2004. Tranz Rail is now called Toll NZ Limited. The defendants named in the proceedings are: Midavia Rail Investments BVBA (previously known as Pacific Rail Limited NV), Berkshire Fund III A Limited Partnership, Michael Beard (former Managing Director of Tranz Rail), Mark Bloomer (former Chief Financial Officer of Tranz Rail), Carl Ferenbach (former Director of Tranz Rail), David Richwhite (former Director of Tranz Rail). This is the first time that the Commission has used its powers to take court action for insider trading. The Commission's inquiry focused on sales of shares in the first half of 2002, before the share price of the company began to deteriorate from about the middle of 2002. At the beginning of 2002 the share price was $4.00. By 16 April 2003 it had fallen to its lowest level ever ($0.30). The inquiry has involved obtaining documents both in New Zealand and overseas. It has involved a large number of interviews and the receipt of formal oral evidence from many witnesses. The basis for the proceedings is that the parties who sold their Tranz Rail shares had information about the company which was not publicly available and which would have affected materially, or would have been likely to affect materially, the price of the shares if it had been publicly available. An additional action for tipping is raised against Carl Ferenbach (representing Berkshire Fund III A Limited Partnership) and David Richwhite (representing Midavia/Pacific Rail, an investment vehicle controlled by Fay Richwhite interests). The proceedings seek compensation for the losses avoided by the traders. The proceedings also seek to have pecuniary penalties imposed. The inside information at issue relates to: the forecast financial performance of Tranz Rail, the forecast capital expenditure by Tranz Rail, a bid by Rail America for Tranz Rail (in the event not proceeded with), asset and investment write downs in Tranz Rail, and the financial obligations and credit worthiness of Tranz Rail. The proceedings are brought under section 18A of the Securities Markets Act 1988. This enables the Commission to exercise a public issuer's right of action against an insider (in accordance with section 18B) if it considers that it is in the public interest to do so. The Commission has decided that it is in the public interest to do so in the present case. The Commission has actively investigated the matter since February 2003, when the Market Surveillance Panel released its report on Tranz Rail. Fraud education campaign in Tauranga David Bradshaw, Director, Serious Fraud Office "Protect yourself from fraud" is the theme of an education campaign in Tauranga this month. Director of the Serious Fraud Office, David Bradshaw, and Commission Chairman, Jane Diplock, will launch the campaign on 19 October 2004. The campaign is supported by the Tauranga City Council. Tauranga has been selected for this pilot campaign because people in the area have been victims of recent frauds. This is the first joint education campaign by the Commission and the SFO. If successful it could be repeated in other parts of the country. The SFO will explain various types of fraud, particularly those relating to housing schemes. Dishonest brokers sometimes inflate the price of a house so that the financing bank lends the full value of the house, thinking this is only 80 or 90 percent of the (continued page 2) Access Brokerage inquiry The Securities Commission is to conduct an inquiry into events surrounding the collapse of Access Brokerage Limited. The focus of our inquiry will be on the regulatory and market issues arising from this situation, rather than on specific events at Access Brokerage. (continued page 2) ALSO IN THIS ISSUE: Disclosure by finance companies Update from IOSCO Securities law reform

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THE BULLETIN October 2004

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