Financial Markets Authority v Warminger [2017] NZHC 327 was NZ’s first court decision on market manipulation.  The Financial Markets Authority (FMA) had brought charges alleging breaches of section 11B of the Securities Markets Act 1988, now effectively replicated in section 265 of the Financial Markets Conduct Act 2013. The High Court found that Mark Warminger had manipulated the market, having acted in a way likely to give a false appearance of trading.

Market manipulation through trading generally relates to conduct intended to paint a misleading picture of market activity, such as “upticking”, encouraging bids through continued purchases at higher prices.

The High Court noted that any trade can impact on price or demand. The key question was to ask what was the purpose of the particular trade/trading, which may be inferred. The High Court did accept that there could be legitimate purposes for a trade other than just buying or selling at the best possible price. The High Court also held that the FMA had to prove that Mr Warminger knew, or should have known, of the likely effects of the trading in question.

The FMA had made 10 claims, but Mr Warminger was found guilty only in relation to two of those claims. Mr Warminger had manipulated the market, having created a misleading appearance of trading and knowing of that effect, through:

  • trading in Fisher & Paykel Healthcare stock with the purpose of increasing the share price, so that he could then sell at the higher price; and
  • trading in A2 Milk stock with the purpose of maintaining an elevated market price after a purchase. If Mr Warminger’s purpose had been legitimate, he might have bought a much greater quantity of the stock, but that would have been likely to lower the market price below the level he had previously bought at.

A general proposition one can take from the case is that trades must be carried out for genuine commercial purposes, and that traders would be wise to ensure they can prove the same, with a maximum penalty of $1M per trade. However, the actual penalty in this case has not been decided. The saga looks set to continue, with both parties having appealed elements of the High Court’s decision.