Urgent Debates

Rt Hon WINSTON PETERS (Leader—NZ First) Link to this

I move, That the House take note of a matter of urgent public importance. We learnt the other day that the Securities Commission was able to get out of one David Richwhite $20 million, and, from a number of others, sums of up to $7 million in respect of a transaction in 2002 where insider trading took place. What is important about that is that this is the first time two gentlemen—Sir Michael Fay and David Richwhite—have ever been investigated in this country in terms of their commercial behaviour.

In fact, Michael Fay had the effrontery to put a case before Parliament, which the Parliament was happy to entertain, by way of a defence of his behaviour, and it is now part of the parliamentary record. For example, just 2 weeks ago I saw, at the back of the New Zealand Herald,an article totally exonerating Michael Fay. Now, how weak and insipid and corrupt can the newspapers of this country be when they set out to make a defence for a person who, even then, within 2 weeks, because of his associations would be found to be guilty of what is nothing but a fraud on his fellow investors.

DARREN HUGHES (Junior Whip—Labour) Link to this

It seems to me that Mr Peters has really only just skimmed the surface of this topic, and I seek leave for a further 5 minutes for the Rt Hon Winston Peters to continue to address this very important issue for the House.

Hon LIANNE DALZIEL (Minister of Commerce) Link to this

I am very happy to follow the Rt Hon Winston Peters, and I thank him for giving Parliament the opportunity to focus its attention on one of the most outstanding results that this country has ever seen from our Securities Commission. I want to place on record the congratulations of this House to the Securities Commission on not giving up the fight—and let me just say that it was a fight. There were interests out there who did not want these defendants to be pursued; at one point I felt that those interests did not want the defendants to be pursued at any cost. So I want to place on record my congratulations to Jane Diplock and the entire team at the Securities Commission on having the guts and the gumption to take on these very strong, powerful interests in our country.

This settlement not only represents the greatest settlement in New Zealand history—when we take into account the fact that other defendants have already made a contribution to the total, bringing it to $27.7 million—but also represents the greatest result in Australasian history. It really does put Australasia on the world map, in terms of hunting down those who take advantage of inside information. If there was any example of why this Government has been so determined to get the legislative framework right for our securities markets, then this would be the case that proves the point.

I make the point, too, that although no liability has been accepted on the part of these defendants, I think that Bruce Sheppard from the Shareholders Association summed up the public reaction with the words “Yeah, right!”; “Yeah, right!”—that is how the public have responded to the assertion that there is no liability in this particular case. The issue of $20 million coming from Midavia Holdings and from David Richwhite certainly poses that question very significantly.

I do not want to dwell very much on the particular details of this case; the Rt Hon Winston Peters has traversed them with great eloquence already in this House. I really just want to reinforce how important it is that investors know that people who have inside knowledge cannot use that knowledge for their personal gain or for the gain of their friends and associates. This is a very powerful conclusion that one can draw from this particular case.

I remind the House that when this Government took office in 1999, we said that four things needed to happen in respect of securing the kind of future that we wanted for our capital markets in this country. The first one was that we needed to have a Takeovers Code that had some teeth and was able to be implemented by the Takeovers Panel. The previous National Government had set up the Takeovers Panel and left it with nothing to do. Every year it reported a blank page—signed off a blank piece of paper—because it could do nothing. This Government brought in place the Takeovers Code. We were able to give the Takeovers Panel some teeth, and it has had some very successful results from the work that it has done after this Government gave it the teeth it needed.

The second area was, of course, reviewing our securities markets legislation. That was long overdue in this country, and it was implemented by this Government. The third area that this Government worked on was this very area of insider trading and market manipulation. Members on the other side of the House should look downwards in shame, as they recall their opposition to strengthening the laws around insider trading. I have to ask myself why they were so adamant that we should not strengthen the law in the area of insider trading. I think we have found the answer to that question in this House today.

The fourth area of work that we are undertaking is, in fact, the area of work that I am announcing this afternoon, and that is the review of financial products and providers, and the review of financial advisers—so, covering the whole area of non-bank deposit-takers. It is another area where the Government will be able to provide some assurance around the quality of our financial markets.

So this Government really has the track record that shows we are prepared to put appropriate rules and regulations in place. We have a relatively light-handed regulatory regime in this country, and nothing about that will change with the announcements that I am making this afternoon. But it is important, particularly as we go into our KiwiSaver environment from 1 July this year, that the public know that they will be protected from this sort of behaviour. They need to know that our regulators will ruthlessly track down those who breach the rules. We would like to think that all conduct in our capital markets was conducted on an ethical basis, but we actually cannot rely, as we have found out in many cases, on everyone operating at that ethical level. Those who cross that line will be tracked down, they will be prosecuted, and where under the circumstances it becomes reasonable to accept a full and final settlement without the acceptance of liability, then so be it. The only thing we have really missed out here is in respect of the penalties. That was in relation to an earlier decision of the court that penalties could not be pursued because of the court’s interpretation as to the timing under the legislation. That matter is being resolved.

I think that the Securities Commission came under a lot of fire for taking on these individuals and companies, and again I pay tribute to its willingness to continue down that track. The vast majority of the $27.7 million settlement that has been reached, with the exception of about $2 million, which will be going towards legal costs and other expert reports, or in other words over 80 percent of what is claimed—well, in fact, most of what is claimed; the balance of the $27.7 million after deducting the costs—will go back to reimburse the shareholders. So it will go back to the people who lost out because of the behaviour of the individuals concerned. I just make the point—and it is probably a relatively strong point to make—that the vast majority of this settlement will go towards reimbursing the shareholders, who essentially took a bath while others had the equivalent of a hot shower. I think that is a fair enough description of what has happened in this particular case. The shareholders were the ones who missed out, and they are the ones who will benefit from the Securities Commission’s dogged determination to get to the bottom of this matter.

So again, I place on record my congratulations to the members of the Securities Commission. It must be very pleasing to them to have achieved a settlement in this case. There were those who simply were not prepared to come to the party at any stage, until essentially the eleventh hour. I am glad that we have this result and that we can now move on to ensure that the lesson is learnt. The lesson is that those who trade on inside information will be hunted down, will be caught, and will be held to account.

Hon BILL ENGLISH (Deputy Leader—National) Link to this

The events referred to in this debate, and the payment of the fine by a number of people in addition to Mr Richwhite, show the importance of having a strong regulator, and the importance of having a strong regulator that maintains its independence from the Government at all times and in all cases. In this case, it is easy to back the regulator for nailing some people to pay back a very large sum of money for something they should not have done, and of course we should back the regulator. There are also any number of other circumstances where regulators have been set up and given a job to do. Unfortunately, the Government is often less inclined to back other regulators when the result does not suit it politically, and that has the effect of creating uncertainty and confusion. So when the Minister waxes lyrical, as she has done, I hope she will advise her colleagues in the fields of energy—in particular, in the field of electricity—and telecommunications that this case underpins the importance of having a strong, independent regulator.

The Securities Commission has done a good job. It is too much part of the culture of business in New Zealand that people who are in business believe they can intimidate the regulator, either by dragging out a case, or by threatening to bypass the regulator by political means—by going to the Minister to get a different result. But it is very clear that there has been too much of a culture in that kind—as, for instance, in the Commerce Commission case against Carter Holt Harvey over that company’s misrepresentations on stress-tested timber. No one should be immune from scrutiny, and business should take the ability of the regulator very seriously. I would offer a caution to my colleagues that when people from various industries wander into our offices, criticising a regulator and saying how tough and unreasonable it is being, that should be taken as a compliment. The response should not be to say yes to those people and to tell them that we will do something about it. That is not the answer.

And where the Government has stood over a regulator, such as the Electricity Commission, that has led to confusion and uncertainty, and to the need for considerable change. The Government kept saying to the Electricity Commission that it should do what it wanted, and now the Government cannot replace anyone on the commission except with a Labour Party toady. Toadies are the only people who are willing to submit themselves to the political pressure on that industry that comes from the Labour Government.

I conclude by saying that Winston Peters, my colleague from New Zealand First, made a number of allegations around the activities of these people and others through the 1990s. All of those activities were subject to the scrutiny of the law, and at all times—

SHANE JONES (Labour) Link to this

It is with a great deal of pleasure that I take this opportunity for a 5-minute call, to be followed by a speaker from New Zealand First. I stand and support Winston Peters in highlighting the issue about two individuals, Michael Fay and David Richwhite, whom I regard as having done a great deal of damage to New Zealand’s business. Let us just think back to the 1980s and the 1990s, when members of the media and members of the Government in the 1990s enabled Fay and Richwhite to think that they walked on water. Let us just focus on how they destroyed our rail transport industry. Once they gained access to the rail company, they asset-stripped it. Not only did they pursue a strategy of having special dividends but they left it as a hovel. They left it hollow, resonating with the name of the book that describes the actions of members of the other side of the House. The company was gutted, and it took the State to then recapitalise it—and we can see how important that company is proving to be today in meeting our needs and our desire to transform the economy.

Those two men, having enjoyed the plundering of the public treasury, then decamped overseas. One thing really grates with me is to hear that characters of their ilk have come back to Aotearoa—back to New Zealand—and have spoken and given lectures on how we need to improve the culture of business and our political culture, when there have been no greater corporate vandals, in my view, than they were at their zenith. They had freedom—carte blanche. Not only did they pinch from shareholders when they went in but they robbed them when they went out. They were advising on certain deals, so no doubt they had an opportunity to identify where the particularly rich pluckings were. They were able to jump on to the other side of the deal, end up owning it, and then pretend they had invented capitalism here in New Zealand.

R DOUG WOOLERTON (NZ First) Link to this

This debate is about a time in New Zealand’s history when we were described by other people from countries around the world—and some pretty big countries at that—as the Wild West of the new-rightist regime that was sweeping the world at that stage. New Zealand, with Roger Douglas and Ruth Richardson, embraced all of the craziness of that time and allowed the sort of thing we are talking about here today to go absolutely unfettered and unchallenged. One man, Winston Peters, stood up against that and said that what was happening was not right, and his colleagues in New Zealand First—all of whom are here today, and others who were here at that time—stood shoulder to shoulder with him during those times. This is something we are passionate about; it is not an academic exercise for us.

I am proud to follow in the debate the chairman of the Finance and Expenditure Committee, of which I am a member, because in that committee even today we see the remnants of that time in the people who sit around that table—people from the National Party side—who hark back, saying that those were the days that set New Zealand up for the future we are heading into now. That is simply not the case.

These people did not create wealth. They were robber barons. They took money from other people. They did not put money into the economy. They did nothing to support the economy or to add to it in any way, shape, or form. These people took from the economy. These people took from parents and from grandparents. They were people who should not be admired, yet one of them is running around with a “Sir” in front of his name. What are these people doing now? They have taken other people from that period in New Zealand’s history overseas and they have designed tax avoidance schemes for them so that they can enjoy residency in several countries at once, never spending long enough in each of those countries to pay their full amount of tax—or any at all, for all I know. From far-distant shores, they still have the audacity to comment on New Zealand, on its politics, and on the person in question who held them to account. Sadly—and this is the worst part—they are listened to. They should not be listened to, and they should not in any way be respected in this country.

I can tell members something that my leader will not tell them. It is that he was not welcome in a country that we share close bonds with—a protectorate of New Zealand. That country is the Cook Islands, and our leader was not welcomed there during those days. The power and influence of these people spread so far—and I am being careful with my words—that they almost corrupted that small group of islands. Nowadays, of course, people have come to see the error of their ways. Now when my leader goes to the Cook Islands, I am proud to say that he is treated as a friend, as family, and as a respected New Zealander. But that was not always the case. He had to look people in the eye and suffer a whole lot of opprobrium before we came to that point. So this is just not right.

These people have gone about their business in a most unsatisfactory manner. They have stolen from people in this country, and they have been proud of it. They have tried to say that they were at the cutting edge of what is now called the new economy. I think it is a sad indictment on this country that we allowed that to happen. I am told—and I hear Bill English say, somewhat apologetically, that the law is not always administered as it should be—that the Serious Fraud Office under Charles Sturt gave only 32 hours’ consideration to this case. By comparison—if you want a comparison, Madam Assistant Speaker—he spent exactly twice that on public relations, defending himself and his office throughout the ensuing days.

I think that people need to know that we saw in those days the selling off of railways to business friends in what are called sweetheart deals. We saw the propping up of the Bank of New Zealand, which Fay and Richwhite owned at that point, to the degree of $600 million - odd. It was broke before that. They were net beneficiaries of that deal, as well. So it is not right to say that the Government did not have any role to play in this. It is clearly something that the Government of the day chose to overlook because it suited it to do so. The required pressure that Governments should bring to bear on matters that do not smell right was not brought to bear in the deals that went on in those days.

It was appropriate for the previous speaker to talk about Mercury Island in the Bay of Islands because, as my colleague Ron Mark has said to me, it is absolutely de rigueur, if you like, for pirates to live on an island—and, in this case, a treasure island it may well be. When people speak of the $20 million that they have had to shell out to make things right, I do not see that as a punishment. I see that as being these people buying their way out of yet another problem. They are buying their way out of a difficulty. This is what they did back in the days when these things went wrong and, sadly, they are still doing it today. We should not accept $20 million as repatriation from these people. We should thank them for the $20 million and say that it will go some way towards the court costs that we will bring to bear on them over whatever period it takes to bring them to justice. That is what would happen to a normal citizen. That is what would happen to me and that is what would happen to my family and friends, yet these people, again, are able to buy themselves out of trouble, and it just does not sit right with us.

My colleagues and I know personally what it has cost our leader in cold, hard cash. He is not a wealthy man; with his family upbringing, skill, and previous occupation, he should be. Who has ever heard of a poor lawyer? Yet, we have one here. That is because he has pursued cases like this one, to his own detriment.

We are thankful to have this short opportunity to speak about these issues, but I do not think we should accept that this case rests easily with us. We should not accept that this case is at rest now, because we will continue to pursue it in whatever ways we can. We say that if they were any other citizens, they would not get away with a $20 million repatriation, but they would still be pursued to make justice right. Thank you.

Dr PITA SHARPLES (Co-Leader—Māori Party) Link to this

Kia ora, Madam Assistant Speaker. The Māori Party welcomes the initiative of Mr Peters in bringing this issue of insider trading to Parliament. We see it within the greater context of justice, fairness, and transparency—values we would expect to see right across the Government sector. Alongside the Minister of Commerce’s praise for the Securities Commission, I believe it is important that this House also acknowledge the leadership that Mr Peters has demonstrated and also record our commendation to Bruce Sheppard of the Shareholders Association for his action in driving this case forward.

We will support any moves that combat corruption and that ensure that standards of accountability and transparency apply. We are interested in the comments of the Shareholders Association, which were, inevitably, very positive, describing the final settlement in the Tranz Rail insider-trading case as a good result for the shareholders in the sharemarket. The Shareholders Association went further to note that the settlement shows regulations will be rigorously policed in larger cases. In this respect we in the Māori Party believe that the issue of accountability, of following due process, and, indeed, of ensuring that the process that is followed is an honourable one, is timely in the context of the recent damning reports from the Waitangi Tribunal about the flaws and unprofessional conduct of officials in the context of the Treaty settlement process.

This whole issue is about the devaluing of shares; an event that the Securities Commission has condemned in the way in which it suggested that the directors, executives, and the major shareholders of Tranz Rail had knowingly entered into a project that quickly headed into trouble. The millions of dollars that the investors have agreed to pay as compensation to shareholders brings justice for the shareholders who have lost money in this deal. We were interested in the comments of the Securities Commission chairperson, Jane Diplock, who noted that it is important that the sharemarket is transparent and fair, especially when thousands of New Zealanders will be investing in it through KiwiSaver. She also said that it shows to the world that insider trading is being policed in this country.

It reminds us of another investment venture that this Government has pioneered in terms of the context of superannuation funding. A couple of months ago, in March this year, the Auckland University Students for Justice in Palestine organised a march down Queen Street in Auckland to protest against the Government’s alleged unethical investment in companies producing nuclear weapons and cluster bombs. Demonstrators explained their action against the New Zealand Superannuation Fund because it funds investments in corporations that produce weapons like cluster bombs, which have been used in Lebanon. But this protest also served to remind us all how absolutely hypocritical a Government would be to promote a non-nuclear policy, yet, at the same time, invest in companies that produced nuclear weapons.

The values behind this debate, therefore, of transparency, accountability, and justice must be the values that are applied to every sector of our Government. They must be applied in the operations of Government investments such as superannuation. They must be applied in the case of policies such as KiwiSaver and Working for Families, which we know that New Zealanders do not benefit from in a consistent or fair way. It is a question of wealth and of how it can corrupt democracies. We must forever be alert to the possibilities and to those people who, in the interests of accumulating more, will use their economic influence to ensure a gain for themselves.

The Māori Party acknowledges the advice of the Securities Commission that investors can be assured the sharemarket is a level playing field, following the final settlement. We would only hope that that same fair, level playing field is the concept across Aotearoa that we would hope to have meaning for, for all citizens of this land.

The Waitangi Tribunal has shown us this past week that the concept of a fair, level playing field is not being played out between the Crown, as controller, and iwi. There is no regulator in the context of Treaty settlements. There is no Securities Commission that can bring a prosecution against an entity that unfairly disadvantages its own citizens—in this instance, the Māori citizens of Aotearoa. The Māori Party looks, therefore, to the precedent of this case as another example that we can learn from in establishing an independent settlement authority or commission to truly achieve justice and, perhaps, even have the powers to prosecute. Thank you, Madam Assistant Speaker.

NANDOR TANCZOS (Green) Link to this

This settlement I think will be greeted enthusiastically by New Zealanders all over the country. Many of us are still shell-shocked by the events of that time, and we look back in wonder at the way that the New Zealand public and New Zealanders were ripped off by yuppy wide boys, aided and abetted by the Governments of the day. We look back in amazement that that kind of thing went on, and that it happened with the total connivance of the Government. So this development is welcomed as an indication that people cannot continue to get away with the kind of corruption—and I think we have to call it that—that we saw at that time, with absolute impunity. They cannot get away with it scot-free.

Nevertheless, we have a fairly limited victory I guess, because this is not a judgment of the court; it is an out-of-court settlement, recognised by the court. The protagonists do not accept liability, although we have to say that most New Zealanders think it is pretty obvious that there was insider trading. It is pretty obvious that we are talking about corrupt practice. As Mr Peters said, if the protagonists were not guilty, why are they giving the money? It is not because they have had a sudden change of heart and are stricken by an overwhelming concern for the well-being of those shareholders who lost out so badly.

Why are they doing it? Actually, it is quite interesting to look at the report in the media today. We see Mr Richwhite and Midavia’s lawyer, Bell Gully partner Roger Partridge, said: “It had been a commercial decision to settle the case. The case wasn’t set down to go to trial until the middle of next year. With the prospect of appeals on either side they could have been fighting it for another three years.” That is curious, because appealing, spinning the case out, and keeping the court process going in order to avoid having to deal with the case has been the tactic used in the past. We have to look at the reasons now given and wonder, in awe. We have to look in awe and in admiration at the sheer audacity of the kind of rationale that is being given.

So this is not a judgment of the court; it is a settlement of $27.5 million - odd. Even though that is a limited victory, I think we have to give our congratulations to the Securities Commission. We have to congratulate the commission, because in the past there have been some stunning defeats of the Serious Fraud Office—and that has been referred to by members—and a reluctance to get into this kind of litigation. In a way, that is with reason, because there have been some real difficulties in the past. We have to give our congratulations to the Securities Commission on this settlement, and on what is, according to the media, the biggest settlement in a case of this kind in Australasia. It is good stuff. I understand that this is the first time that the Securities Commission has taken court action against alleged insider trading. Although the penalties it sought were quite a lot higher than the settlement finally came out at, it is still an important signal, as I said, that people cannot get away with this kind of outrageous rip-off, with impunity.

Nevertheless, we cannot help but wonder a little about a couple of things. The first one arises from a comparison of the settlement with the estimated half a billion dollars that Fay and Richwhite made—personally gained—from a range of transactions, as they ram-raided the New Zealand economy. It was estimated at half a billion dollars—and there was an estimated $277 million loss by the minority shareholders. So although this settlement is a victory, I think we have to keep it—