The Australian Securities & Investments Commission will make spot checks on company briefings and communications with analysts in the current half of the year, the regulator said yesterday in a statement.
Newcrest shares fell 12 percent in the two days before the company announced a possible A$6 billion ($5.5 billion) writedown, raising concern of selective briefing. Australia requires companies to disclose all market-sensitive information to the Australian Stock Exchange. Newcrest has said it didn’t selectively brief analysts ahead of the announcement.
Newcrest, the country’s biggest gold producer, and the analysts who cover it may face sanctions, with ASIC reviewing whether executives provided analysts with non-public information ahead of their disclosure. The shares slumped 7.7 percent to A$9.90 in Sydney trading, the most since June 24. Australia’s benchmark index declined 0.7 percent.
If it’s determined that material information was provided to analysts, who passed it on to their clients, that’s a “classic tipping offense,” Craig Andrade, a partner at Baker & McKenzie LLP in Sydney, said in a phone interview.
Tipping is considered part of insider trading, which carries a maximum fine of A$765,000, or three times the total benefit derived and/or as much as 10 years in jail.
Newcrest named former Australian Securities Exchange Chairman Maurice Newman to head an internal inquiry into the company’s disclosure and investor-relations policies, the producer said on a June 25 conference call. The Melbourne-based company has fallen 26 percent since the announcement on June 7, to a market value of A$7.6 billion today.
“We do not think we have done anything wrong,” Chairman Don Mercer told reporters on the call. “If we have, we want to know about it and I can assure you we will hold people accountable from top to bottom.”
Newcrest Chief Executive Officer Greg Robinson said investor relations staff had held meetings prior to the company’s announcement and insisted that they acted in accordance with regulations.
“It beggars belief that Newcrest knew nothing of the catastrophic impact that the gold price slump would have on the value of its assets until the day it announced the writedown,” Andrew Watson, head of class action lawsuits at Maurice Blackburn in Melbourne, said in a June 12 statement. The law firm is considering suing Newcrest on behalf of shareholders who lost money.
Bank of America Merrill Lynch, Citigroup Inc., UBS AG (UBSN) and Credit Suisse Group AG (CSGN) were among firms who downgraded Newcrest stock between June 4 and June 6, ahead of the company’s statement. Evans & Partners analyst Cathy Moises cut her recommendation on the stock May 20 and said she had met with Newcrest before changing the rating.
The downgrades had probably been made as analysts began to understand implications of Newcrest’s production statement in April and a speech Robinson made to institutional investors at a May meeting in Barcelona, the CEO said.
“We don’t believe our message changed,” Robinson told reporters on the June 25 conference call. “It takes time for people to review information and make recommendations.”
UBS spokeswoman Erica Borgelt, Credit Suisse spokeswoman Noel Cheung, Citi Australia spokesman Steven Blaney and Bank of America Merrill Lynch spokesman Mark Sang all declined to comment on whether the banks were cooperating with ASIC’s inquiry, or carrying out their own internal investigations into changes to their ratings on Newcrest.
Retail shareholders aren’t concerned over the inquiry into Newcrest’s handling of its disclosure, said Gavin Morton, who monitors the company for the Australian Shareholders’ Association. The association voted on behalf of 277 investors holding 388,288 shares at Newcrest’s 2012 annual general meeting, according to its website.
“It’s a very odd event, because if you look at the track record of Newcrest, it’s very, very good and they have very good people,” said Morton.
Under Australian law, since 1991, anyone in possession of non-public information material to a company’s financial performance is considered an insider, and doesn’t require to be connected to the corporation.
ASIC is stepping up monitoring of the stock market, which it gained responsibility for in August 2010, and prosecutions of insider trading. The agency has prosecuted 28 cases of insider trading since 2010, triple the number over the previous 15 years. It has won convictions in some high-profile cases including a 27-month jail term for Calvin Zhu, former vice president at Hanlong Mining Investment Pty, in February. Zhu’s sentence may be reduced to 15 months with good behavior.
ASIC will also implement a new surveillance system later this year, giving it more capability to mine data and see trends, Andre Khoury, a spokesman for the regulator, said in a June 25 interview. The system has tools similar to those used by high-frequency traders, according to a December ASIC statement.
The regulator received 19,430 trade surveillance alerts in the six months ended Dec. 31, according to an ASIC report, a marginal decline from the corresponding period a year earlier when it received 20,029 alerts. In the 2012 period, 27 of the alerts were referred to the enforcement team for investigation, an increase from 23 cases in the year-earlier period.
The objective of the new system will be to reduce the number of alerts, eliminating the false positives, Greg Yanco, market supervisor, said in a June 25 phone interview.