The Financial Markets Authority (FMA) has filed criminal proceedings against a former Heartland Bank employee for alleged insider trading. 

The FMA alleges the individual traded and encouraged others to trade or hold shares in Heartland Group Holdings on several occasions between July 2020 and February 2021 while holding material information that was not generally available to the public. 

The individual also disclosed material information that was not generally available to the public and others, the regulator alleges. 

The individual was a junior Heartland Bank employee at the time of the alleged offending. The matter was referred to the FMA by NZ RegCo – the NZX’s regulator in December 2020. 

Neither Heartland Group Holdings or Heartland Bank Limited have been the subject of the FMA’s investigation and are not party to the FMA proceeding. 

In a statement to the NZX this morning, Heartland said it had cooperated with the FMA during its investigation and is supportive of the FMA’s commitment to fair and transparent capital markets. 

“We take our responsibilities as a listed company very seriously. That includes having policies and procedures in place to ensure directors and employees at all levels understand their obligations under insider trading laws,” Heartland said. 

Heartland’s share price was $1.20 on July 1, 2020, and the stock didn’t move much until the company announced its full-year result on September 17, showing a net profit of $72 million for the 2020 financial year. 

Net operating income was $235.3m, up 13.2%. Heartland forecast continued growth in motor, business and reverse mortgages and said it expected full-year 2021 profit of between $83m to $85m. 

The shares climbed 5.88% that day, according to NZX data, and then rose higher over the coming months, hitting a high of $1.95 in mid February 2021, for a 62.5% gain during the period of the alleged insider trading. 

The biggest trading days during that period in 2020 were August 11 (3.23 million shares traded), September 7 (3.27 million) and November 5 (4.25 million). 

The individual allegedly involved appeared in the Auckland District Court today. 

Heartland Group Holdings’ share price was trading at $1.05 by late morning. 

The Financial Markets Conduct Act prohibits people who hold material information not generally available to the market from trading with that information, disclosing it in certain circumstances, and advising or encouraging other individuals to trade the issuer’s shares. 

“Unethical trading activity can undermine market integrity and erode investor confidence at a fundamental level. Participants in financial markets must operate on the basis that all trades are legitimate and based on equally available information,” the FMA said. 

“The FMA considers it critical to uphold the law in this area to maintain investor confidence, but also to maintain credibility for those market participants who are willing compliers.” 

Criminal insider trading is punishable with a prison term of up to five years, a fine not exceeding $500,000, or both for individuals. 

Insider trading cases are rare in New Zealand. Last year a person was found guilty of insider conduct in relation to the sale of shares in Pushpay Holdings. The person was sentenced to six months’ community detention and fined $100,000.