New Securities Law for
Investment Advisers and Market Participants
2008
Market Manipulation
General Dealing Misconduct
The law prohibits any conduct relating to dealings in securities that is misleading or deceptive or likely to mislead or deceive.
The prohibition is a general prohibition against misleading or deceptive conduct in relation to securities and the Securities Commission is the principal agency responsible for enforcing it.
This ban is in addition to the general prohibition on misleading or deceptive conduct in trade in the Fair Trading Act 1986. If court action is taken against a person under the Fair Trading Act 1986 for conduct that is regulated under the market manipulation law, and the person is not liable under the market manipulation law for that conduct, then the person cannot be found liable for that conduct under the Fair Trading Act.
This ban applies more widely than the bans on false or misleading statements and information. It applies:
- to any type of security, whether or not it can be traded on a registered securities exchange or an authorised futures exchange; and
- to all dealings, not only trading. It could apply to a new issue of securities as well as the sale or transfer of previously allotted securities, and also to underwriting securities or taking steps in preparation for any dealings in securities, such as giving investment advice.
The prohibition is effect-based. That means it applies to conduct that is likely to mislead people who are affected by it. It doesn't matter whether the purpose was to mislead or deceive, or whether the person knew that the conduct was misleading or deceptive.
The ban applies to conduct in New Zealand. It also applies to conduct outside New Zealand by a person who lives in, or is incorporated in, or carries on business in New Zealand and the conduct relates to securities dealings that occur (in part or otherwise) in New Zealand.
Exceptions for Conduct Covered By Other Laws
Parts of the market manipulation law do not apply to some conduct that might be prohibited under this law if other laws also regulate the conduct.
None of the market manipulation law described in this guide applies to conduct regulated by the Takeovers Code or the Takeovers Act 1993.
The general dealing misconduct prohibition does not apply to conduct regulated by:
- the law about repurchase of shares under the Companies Act 1993;
- the law about offers of securities to the public for subscription under the Securities Act 1978; and
- the law that applies to disclosure by investment advisers or investment brokers under Part 4 of the Securities Markets Act.
Enforcement and Remedies
The Securities Commission has powers to enforce themarketmanipulation law.
A person who breaches the requirements:
- could be charged with a criminal offence; and
- could be sued in a court by a person who suffered loss as a result of the breach; and
- could be subjected to a banning order.
The Securities Commission can also go to court for a pecuniary penalty and it can make prohibition and corrective orders.
Prohibition orders
The Commission can make a prohibition order if it is satisfied that a person has contravened or would contravene a market manipulation prohibition or exemption or the general dealing misconduct prohibition. A prohibition order may prohibit or restrict any statement or distribution of any document in order to prevent contravention or further contravention of the obligation.
Corrective orders
The Commission can make a corrective order if it is satisfied that someone has contravened or would contravene a market manipulation prohibition or exemption or the general dealing misconduct prohibition. A corrective order may direct a person who has breached the law to publish a statement to correct the breach. The order can set out what statement must be published, and how and when the corrective statement must be published. The Commission can require a person to publish a corrective statement at their own cost.
Procedure for making orders
Before making an order the Securities Commission must give the person the
order is directed at:
- notice of the nature of the alleged breach;
- the terms of the order the Commission intends to make; and
- the reasons why the Commission intends to make the order.
The law requires the Commission to give a person 24 hours written notice before it makes a prohibition order or a corrective order directed at him or her. The Commission must give a person the opportunity to make written submissions within the time frame set out in the law. The Commission can give less than 24 hours notice in urgent cases when it thinks it needs to act quickly in the public interest.
If the Commission makes an order directed at a person, the Commission must tell the person that the order has been made. The Commission can also tell others about the order.
Criminal offences
It is a criminal offence to contravene an order made by the Securities
Commission under market manipulation law. A person who contravenes an
order commits an offence and can be fined up to $30,000.
A person convicted who knowingly breaches the market manipulation law
commits a criminal offence. An individual convicted of this can be sentenced
to imprisonment for up to 5 years, and can be ordered to pay a fine of up to
$300,000. A body corporate convicted of market manipulation can be
ordered to pay a fine of up to $1 million.
Court orders and injunctions
Any person (including the Securities Commission) can go to court to get an injunction to stop a person from doing something that would contravene the market manipulation law. Any person (including the Securities Commission) can go to court to get a corrective order.
Civil remedies
The Securities Commission can go to court to get a pecuniary penalty order for a breach of a market manipulation prohibition or exemption. The maximum amount of a pecuniary penalty is the greater of:
- the consideration for the transaction that constituted the breach (if any);
- 3 times the amount of any gain made or loss avoided by the person committing the breach; or
- $1,000,000.
A pecuniary penalty is payable to the Crown.
Anyone can go to court to get a compensatory order if they have suffered loss because of a contravention of a market manipulation prohibition or exemption or the general dealing misconduct prohibition.
Anyone can go to court to get a range of other orders if the court is satisfied that a person has breached, or intends to breach, a market manipulation prohibition or exemption or the general dealing misconduct prohibition. The range of orders includes orders:
- stopping a person exercising a vote attached to securities;
- stopping the issue or allotment, or the sale, purchase or transfer of securities; and
- directing that securities be forfeited or cancelled.
Banning orders
A person convicted of an offence against a market manipulation prohibition, or fined for contravening a market manipulation prohibition, will be automatically banned for 5 years from:
- being a director or promoter of a company or other incorporated or unincorporated body; or
- being concerned with or taking part in the management of an incorporated or unincorporated body.
A court can also make a banning order against such a person for any period up to 10 years. It is a criminal offence to contravene a banning order.
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