Milford's $1.5m settlement a 'commercial decision,' MD Quirk says

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Milford Asset Management agreed to pay $1.5 million to settle with the Financial Markets Authority over alleged market manipulation by one of its traders, rather than become embroiled in what could have been a prolonged legal battle, managing director Anthony Quirk says.

Quirk told BusinessDesk the settlement was "essentially a commercial decision." The Auckland-based fund manager denied claims it's liable for any breaches of the now-replaced Securities Act, though accepted its board didn't adequately oversee and control the trading under investigation. As a result of the deal, Milford will pay $1.1 million in lieu of a penalty and $400,000 to cover the FMA's costs.

"It was better to resolve the issue than let it drag on any further, bring it to an end, rule a line under it and then move on," Quirk said.

The regulator launched an investigation into trading activity between December 2013 and August 2014, which it considered created a false or misleading appearance through the extent of active trading in a particular security, or the supply of, demand for, price for trading in, or value of the securities. It considers Milford is liable for the trader's behaviour, something the fund manager rejects.

The settlement doesn't include the trader, who is still under investigation by the FMA, and Quirk said the person is on "extended leave" from today.

FMA chief executive Rob Everett told a media briefing the settlement sent a "clear signal to the market" that the regulator was prepared to take action.

"Compared to the delays and risk of a long drawn-out trial where the conduct in question wouldn't be given a chance to be reviewed probably for a couple of years this was the better option," Mr Everett said. "We felt going to court would postpone what we wanted to achieve in a way that probably didn't bring any benefit."

In an emailed statement, the FMA said the timing of the conduct fell under the old Securities Act, meaning a court decision wouldn't be as useful in setting out guidelines under the recently implemented Financial Markets Conduct Act.

The watchdog launched its first market manipulation claim against venture capitalist Brian Henry, who admitted breaches of the Securities Markets Act involving Diligent Board Member Services' shares in 2010. Henry paid a $130,000 fine imposed by the High Court in Auckland.

Milford accepted its board failed to ensure there was "the requisite degree of monitoring of the trader and his activity [including the use of the Direct Market Access system] so as to enable Milford to identify and intervene in the trading activity under investigation by the FMA," the settlement said. "Milford accepts responsibility for the inadequacy of oversight and controls of that trading conduct and its failure to identify and adequately monitor the trading activity and to assess the appropriateness of that trading."

Mr Quirk said Milford had already embarked on improving its systems before the FMA launched its investigation after a period of rapid growth, and it has appointed PwC to review its governance, risk and compliance capabilities. That review has led to a series of improvements in its trading activities, such as the introduction of centralised dealing, and the planned implementation of an investment management system.

Milford's expansion was a contributing factor to the shortfall, which was one of the reasons why the firm had already embarked on plans to improve its systems, he said. Mr Quirk expects to implement the new processes by December.

As part of the settlement, Milford's individual portfolio managers will no longer execute trades for their portfolios.

(BusinessDesk)

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