Sharebrokers Fined For Exchange Breaches

Press, Volume CVII, Issue 31440, 5 August 1967, Page 38

Sharebrokers Fined For Exchange Breaches

(New Zealand Pre,, Association? AUCKLAND, August 4. Four partners in an Auckland sharebroking firm were fined $l2OO each, and a fifth $2OO, when they appeared before Mr N. M. Izard, SAI., today, charged with breaches of the Exchange Control Regulations, 1965.

Kenneth McKenzie Wilson, John Spencer Rutherford, Roger William Haworth and Richard Denver Olde jointly pleaded guilty to 20 charges involving illegal dealings in overseas securities and the illegal sending of money out of New Zealand.

On one charge of sending money out of New Zealand, Cyril Samuel Turner pleaded guilty.

Mr E. R. Winkel prosecuted for the Crown and Mr D. S. Beattie, Q.C., with him Mr D A. R. Williams, appeared for the sharebrokers.

The Magistrate said he accepted that the defendants were public-spirited citizens with otherwise unblemished characters but he must bear in mind that they were experienced sharebrokers. The question of mens rea —their intention to break the law er not—did not apply. The charges were ones of strict liability. “A Responsibility”

It might be that some blame could be attached to others but sharebrokers had a responsibility to take proper precautions to see that they did not break the law.

“I accept that the defendants have made no profit other than their usual commissions out of these transactions,” he said.

“The fact remains that without their assistance the transactions might not have been able to be carried out at all and that their clients made very substantial profits.”

The Magistrate said the heavy penalty provided for the offences meant they must be regarded as serious. “In the case of an ignorant unprofessional person the offences might be regarded as technical ones only committed in Ignorance of the law, but I cannot accept that submission in the present case,” he said. Three Groups The charges fell into the three groups as outlined by Mr Winkel and he would impose a penalty on one information in each group. On a charge of paying £lO,OOO in New Zealand currency to Colegrove, Smythe and Company, of Auckland, sharebrokers, whereby Otto Emil Roethenmund, of New York, became the holder of a right to receive £stgB949 in British stock or the proceeds of its sale, on February 7, 1967, he fined Wilson, Rutherford, Haworth and Olde each $3OO. On a charge of transferring to Hamilton and Hamilton, of Christchurch, sharebrokers, British Exchequer 4 per cent 1968 stock to the nominal value of £stg4s,ooo whereby the Australian Reinsurance Company, Ltd., became the holder of a right to receive £N.Z.49,487 10s he fined the four $7OO each. For sending a cheque for $U.5.6700 supplied by C. A. Staples from New Zealand by posting it to the Bank of New Zealand, in London, without consent of the Minister of Finance, he fined all five sharebrokers $2OO each. “Only Agents” Mr Beattie said that in all the cases before the Court his clients were not principals but agents on a very limited brokerage rate. “It is unthinkable that they would knowingly jeopardise their status and reputation or permit their integrity to be put in question,” he said. Mr Winkel said he felt bound in fairness to the partners to tell the Court they were not the only firm against which proceedings were contemplated. The 20 charges were laid for breaches of regulation 3 of the control regulations, committed between October, 1965, and April, 1966, said Mr Winkel. Altogether, $184,000 was involved. Sterling Area During the period covered by the offences an exemption was in force permitting such dealings concerning sterling area securities, provided both parties were New Zealand residents. But dealings in sterling area securities with a nonresident were illegal and it was this kind of dealing which was the subject of 16 of the charges. The remaining four related to sending money or cheques from New Zealand which was forbidden, unless done with the consent of the Minister of Finance or the Reserve Bank.

Mr Winkel said in respect of dealings in securities the pattern was for non-resident to arrange with the defendants either to exchange overseas currency for New Zealand currency at a rate sub-

stantially higher than the official exchange rate by dealings in securities, or to obtain overseas currency for a non-resident by similar means. This would at the time have been legal if done on behalf of a New Zealand resident

Three informations were laid under regulation 3 (b) (I) In each case the nonresident wished to convert New Zealand money into sterling. The method adopted was for the client to provide New Zealand currency with which the defendants purchased British Government stocks thereby providing their client with sterling funds. Thirteen informations were laid under Regulation 3 (B) (II) One of these related to the transfer to New Zealand of £stg4s,ooo. The Australian Reinsurance Company, Ltd. an overseas company proposed to begin insurance business in New Zealand. To comply with the Insurance Companies Deposits Act, 1953, it was required to lodge £50,000 in approved securities with the Public Trustee. The correct procedure would have been for the company to remit sufficient overseas money to New Zealand though the banking system at the ruling rate of exchange thereby augmenting this country’s overseas funds. “Instead, by arrangement with the defendants it lodged sufficient sterling to the defendants’ London account. The defendants used these funds to buy sterling securities on the London market and sold them at a premium on the New Zealand market,” said Mr Winkel.

“In this way £stg4s,ooo yielded £NZ49,490, a difference of £4490 compared with the official rate of approximately 1 per cent which would have yielded only £450. Benefit Lost “The customer made a substantial profit and our banking system lost the benefit of £45,000 in sterling,” said Mr Winkei. The remaining 12 informations in this category related to funds exchanged for Otto Emil Roethenmund, of New York, whereby sterling or Australian funds were similarly dealt with. “Certain persons are named in these 16 informations as the New Zealand residents from whom stock was bought or to whom it was sold. They are named only for the purpose of identifying the transactions and no suspicion attaches to any of them in respect of these informations,” said Mr Winkel. The final four informations were related to dollar funds owned by New Zealand residents who wished to exchange them for New Zealand currency at a much higher rate than would be obtained by paying the funds in a New Zealand bank as required by law. “The firm’s transactions were openly recorded in their books and all the defendants gave every assistance to the investigating officers in clearing up a somewhat complicated business,” said Mr Winkel. Charged Jointly

The partners, recognising that the offences were ones of strict liability, wanted to share responsibility for the actions of their associates and had been jointly charged. Mr Beattie said that Roethenmund was introduced personally to the defendants by their bankers in Auckland and his address with the defendants was care of that bank in Auckland. No other address was ever given for him. This was not an uncommon procedure for that bank. “It is strongly contended that no question ever arose in any of the defendants’ minds as to whether or not be was a New Zealand resident No More

“From the day the Reserve Bank official drew my clients’ attention to Roethenmund’s domicile, no further transactions on his behalf took place,” said Mr Beattie. There was no question of excessive gain, said counsel. The brokerage charged was the 1 per cent normally charged on such transactions. All the transactions went through the normal banking systems and at no time was there any suggestion by the banks that there was a breach of the regulations, said Mr Beattie.