The past of recently appointed Cellnet CFO, Mark Bloomer, reveals a rather unseemly incident involving insider trading proceedings in New Zealand.
In May this year, Bloomer struck a deal with the Securities Commission of New Zealand which allowed him to avoid prosecution for Insider Trading arising out of a share transaction following his tenure as CFO of New Zealand’s Tranz Rail. The proceedings he faced were brought under section 18A of the NZ Securities Markets Act 1988.
The executive’s close shave, first revealed by Peter Gosnell, Business Editor at the Courier Mail, is outlined in this Securities Commission press release
According to the release distributed as part of the court settlement, Bloomer borrowed about NZ$1.5m to buy a “substantial parcel of shares” as part of Tranz Rail’s Executive Share Plan. Under the plan he was allocated one redeemable share for each ordinary share that he bought. However, his deal went sour. Tranz Rail hit hard times. In August 2001 Tranz Rail decided to suspend the payment of dividends. In fact its share price fell from NZ$4 at the beginning of 2002 to just NZ0.30c by mid-April 2003.
Boomer told the NZ Securities Commission that the decision to cease dividend payments meant he could no longer support the NZ$1.5m loan (and other loans) he had entered into to buy the shares. This forced him to sell down his stock in the organisation. At this time Bloomer followed correct procedure and applied to the Company to sell the shares. The proceeds of sale were used to reduce his loans.
By March 2002 Boomer had sold nearly half the shares he was permitted to sell, leaving him with 646,654 shares which (had he sold them) would have realised a profit of $600,000. He also retained 800,000 other shares which had not at that time vested to him. However, shortly after Boomer left Tranz Rail he sold a parcel of 23,937 shares which vested in him on the termination of his employment. As he was not an employee at the time of the sale he was not entitled to obtain formal approval from the Company pursuant to its approved procedure. He nevertheless sought advice from the Company as to the sale of the shares and he followed the advice which he was given.
It was this transaction that got him into deep water. In his defence against the Security Commission’s charge of insider trading, Boomer acknowledges that when he sold the shares he “was or may have been in possession of inside information”, but he contends that his decision to sell was not related to this. So while acknowledging the Commission had a case against him, he considered he has a reasonable defence.
In turn, the Commission recognised “the risk that Mr Bloomer’s defence to that part of its claim against him might be successful”. And so a deal was done in the NZ High Court. Bloomer agreed to pay the Commission NZ$156,000. This was the “maximum sum” of compensatory damages and pecuniary penalties he would have faced if found guilty, plus a little extra as a contribution to the Commission’s costs. Bloomer agreed to make the payment without any admission of liability. He also agreed to provide Court evidence in the prosecution of other company directors also implicated in insider trading offences relating to the period he spent at Tranz Rail. However, this little episode, which concluded only two months prior to his appointment at Cellnet, was studiously avoided by Cellnet in announcing he was to join the company.
On announcing the appointment Cellnet revealed the 47 year old Bloomer was previously the Finance Director at Ingram Micro and was described by Cellnet as playing a roll as one of the “architects of the Tech Pacific acquisition”.
It also revealed his position as Finance Director of Blue Star Group and his role as a Senior Audit Manager with Coopers & Lybrand in Sydney. It did not mention his time at Tranz Rail.
Cellnet Managing Director, Adam Davenport, told The Courier Mail journalist that the insider trading allegations Boomer had extricated himself from by paying a voluntary penalty, “were disclosed” to Cellnet. Further, Davenport said the company “didn’t consider it appropriate or necessary” to inform shareholders of Bloomer’s brush with the NZ law. Cellnet Group shares are currently trading at $1.36, down from a 52-week high of $1.82. Perhaps Cellnet Group Shareholders would disagree.
Davenport was not available for comment.