Individual Pleads Guilty To Insider Trading Charges

Kevin Young, a former accountant with Heartland Bank Limited, has pleaded guilty to insider trading charges brought against him by the Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko.

In July 2024, the FMA filed criminal proceedings against Mr Young for alleged insider trading relating to the buying and selling of shares in Heartland Group Holdings Limited (HGH). The FMA brought four charges against Mr Young. He has today pleaded guilty to three charges, with the FMA agreeing to withdraw one charge.

Mr Young traded, and encouraged another to hold, HGH shares between July 2020 and February 2021, while holding material information that was not generally available to the public. He also disclosed material information in relation to HGH that was not generally available to the public to a former colleague, Pritesh Patel, who subsequently purchased HGH shares.

Mr Young will be sentenced on 17 April 2025.

The FMA has also entered into an enforceable undertaking with Mr Patel, where he has agreed to pay the Crown a total of $30,000 in lieu of a pecuniary penalty.

FMA Head of Enforcement, Margot Gatland, said: “Insider trading is a serious offence that undermines investor confidence in the New Zealand markets and gives individuals an unfair advantage. The FMA takes all insider conduct cases seriously and will take enforcement action where it considers misconduct has occurred. Taking such cases assists in the promotion of confident and informed participation of the financial markets and promotes fairness, efficiency, and transparency in those markets.”

Background

Mr Young was a treasury accountant and a member of the finance team at Heartland. His role meant he had available to him, and was required to access, financial records which showed Heartland’s financial results before they were announced to the market.

The first two charges relate to the information Mr Young accessed in July and August 2020 which showed the level of Heartland’s full-year net profit after tax (NPAT) before it was announced to the market. The information indicated Heartland had increased its underlying NPAT from the previous year despite the negative impacts of Covid-19.

On 31 July 2020, Mr Young disclosed to a former colleague, Pritesh Patel, that Heartland had “increase [sic] profit this year”. That day Mr Patel placed an order for 4,000 HGH shares.

On 21 August 2020, Mr Young instructed his sister to purchase HGH shares on his behalf and gave her the money to do so. She purchased 241,238 HGH shares for a total of $284,661.

On 17 September 2020 at 9:50am, Heartland released its full-year 2020 financial results to the market. The announcement contained the fact HGH had achieved a NPAT of $72 million, which contained a before-tax provision of $9.6 million as an economic overlay in response to the ongoing uncertainties relating to Covid-19, and an adjusted NPAT of $78.9 million.

Between 10:12am and 10:25am, Mr Young’s sister sold all 241,238 HGH shares for a total of $297,808. Mr Young made a gain of $11,241 on the trading (excluding costs and commissions).

The third charge relates to information Mr Young accessed in January and February 2021 which showed the level of Heartland’s half-year NPAT and level of dividend payment before they were announced to the market. On 4 February 2021, Mr Young encouraged another individual to hold HGH shares disclosing “good half year profit and 4c dividend half year … don’t tell anyone”. On 22 February 2021, Heartland released its half-year financial results announcing a NPAT of $44.1m and an interim dividend of 4 cents per share.

About insider trading

Sections 240 - 243 of the Financial Markets Conduct (FMC) Act prohibit people who hold material information about an issuer that is not generally available to the market (inside information) 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 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 can be punishable with up to a term of imprisonment not exceeding five years, a fine not exceeding $500,000, or both for individuals.

Civil penalties can include a pecuniary penalty not exceeding the greatest of the consideration for the relevant transaction, three times the amount of the gain made or the loss avoided, and $1 million in the case of an individual or $5 million in any other case.

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