FMA probes Xero share trading

The Financial Markets Authority is investigating suspect trading in the shares of cloud accounting firm Xero [NZX: XRO] that took place in February, ahead of a $147.2 million capital raising.

David Price, the head of institutional broking for Forsyth Barr, told media at the time the share price movement “reeks to high heaven”.

The NZX has confirmed it referred the trading to the FMA on June 8.

NZX spokeswoman Kate McLaughlin said the investigation was time consuming because of its overseas scope.

“Much of the trading activity during the relevant period was undertaken offshore, which impacted NZX Surveillance's review process and the ultimate timing of the referral.”

In a statement the FMA said: “NZX referred a matter to us on June 8 regarding trading activity in XRO prior to a placement on February 25.

“FMA still has an open inquiry into these matters and so we cannot make further comment until the inquiry is complete.”

On February 19 the NZX sent Xero a “please explain” notice, noting Xero shares rose from $16.40 to $19 between February 17 and February 19, a gain of 15.9%.

It sought confirmation from Xero that the company had nothing material to disclose that could explain the share price movement.

Xero wrote back saying it continued to comply with its disclosure obligations.

On February 25 it announced $147.2m equity injection from Accel Partners and Matrix Capital Management at $20 a share.

Xero chief executive Rod Drury said he had no concerns and the investigation was “old news”.

“I think it just relates to when we did our capital raise back in February. I don’t think it’s much to do with us,” he said.

The company had done its own investigation in February and concluded no staff were involved, he said.

“We had a pretty good look at it back in February. It’s not going to be anything to do with Xero staff because we checked all that out. There may be some overseas investors doing something I’m not sure. We don’t have any concerns and it’s not news to us.”

There would be no company announcement about the matter, said Mr Drury.

Mr Price told news agency BusinessDesk in February the share trading “smells like three week old fish”.

“They got the 'please explain' a couple of days ago and said they didn't know why the price was up, and then they go and do this deal. It reeks to high heaven.”

Fund manager Paul Glass of Devon Funds Management welcomed the proactive stance of the NZX and the FMA investigation.

“I think it’s great the FMA is looking into this because it sure looks as fishy as hell," he said. "These share price movements in advance of company announcements are exactly the things that undermine confidence in our financial markets.”

Xero shares were up 27c, or 2%, to $13.87 on the NZX today.

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