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High Court issues judgment in first defended market manipulation case under the FMCA

Home Insights High Court issues judgment in first defended market manipulation case under the FMCA

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Contributed by: Marika Eastwick-Field, Will Irving, Camille Butters, and Aleisha Robertson

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Published on: April 19, 2023


Financial Markets Authority v Zhong [2023] NZHC 766 is the first decision in Aotearoa New Zealand under the market manipulation provisions of the Financial Markets Conduct Act 2013 (FMCA) resulting from defended proceedings.

The conduct addressed in the judgment included individuals associated with Oceania Natural Limited engaging in trading to influence the company's share price. In that context, the outcome of Zhong – declarations of contravention of the market manipulation provisions, with a decision as to penalty to come – is unremarkable. But s 265 of the FMCA has the potential to apply to much less obviously "manipulative" trading than that in Zhong, so a decision under s 265 of the FMCA is a welcome addition to New Zealand case law, even if it contains few surprises.

Zhong is also the first decision confirming the test for civil accessory liability under the FMCA, and confirms that accessory liability, ie "involvement in a contravention" under the FMCA, requires intentional participation in the contravention.


The FMA brought civil proceedings against four individuals in relation to trading in Oceania Natural Limited in April 2019. Two of those individuals, Messrs Meng and Qian, admitted a number of the causes of action against them and were ordered to pay pecuniary penalties in March 2022 (in FMA v Meng & Qian [2022] NZHC 480). This was the first ever case under s 265 of the FMCA. Venning J ordered Messrs Meng and Qian to pay penalties of $180,000 and $130,000 respectively.

Culminating in this month's High Court decision, the FMA proceeded with its case relating to market manipulation and non-disclosure against the remaining individuals, Mr Zhong and Ms Ding. Unlike other market manipulation cases to come before the courts, Mr Zhong and Ms Ding had not admitted the FMA's allegations and instead defended the allegations against them (although they did not retain legal representation for the trial and were instead self-represented).

The market manipulation causes of action against Mr Zhong and Ms Ding included:

  • orders and trades made by Ms Ding on her mother's securities account, pretending to be her;

  • offers and trades made by Mr Zhong on Ms Ding's father's securities account, pretending to be him; and

  • Mr Zhong's involvement as an accessory in contraventions by Ms Ding and Mr Qian, the company's accountant (one of the defendants who had admitted market manipulation and been ordered to pay a penalty in 2022).

Market manipulation

Section 265 of the FMCA concerns the false or misleading appearance of trading, generally referred to as market manipulation. It provides that:

A person must not do, or omit to do, anything if —

(a)     the act or omission will have, or is likely to have, the effect of creating, or causing the creation of, a false or misleading appearance —

       (i)       with respect to the extent of active trading in quoted financial products; or

      (ii)      with respect to the supply of, demand for, price for trading in, or value of those financial products; and

(b)     the person knows or ought reasonably to know that the person’s act or omission will, or is likely to have, that effect.

In Zhong, Robinson J confirmed that the approach to market manipulation under s 265 of the FMCA remains as set out in Warminger. That 2017 decision was under s 11B of the Securities Markets Act 1988, which Robinson J states "for present purposes is in essentially the same terms as s 265 of the FMCA".

The confirmation that the approach in Warminger can be applied under the FMCA will provide clarity for those concerned with how s 265 will be interpreted by the Court.

In Zhong, the High Court commented on the assessment of the defendant's purpose, noting that while the FMA is not required to prove intent or the purpose behind a defendant's trades, it may be relevant to determining:

  • whether particular actions were manipulative and whether it has caused a false or misleading appearance of demand, supply, price and/or trading; and

  • the trader's actual or constructive knowledge.

The concept of "purpose" is not an express element in s 265 of the FMCA or its predecessor, s 11B of the Securities Markets Act 1988. The concept is now expressly addressed in s 268 of the FMCA, which provides a defence for contravention of s 265 where the trading was "in conformity with accepted market practices and for a proper purpose". The decision in Zhong suggests that purpose will therefore be relevant at two stages:

  • whether the conduct breaches s 265; and

  • whether the s 268 defence is available – albeit in this context the defendant will also need to establish that the trading was "in conformity with accepted market practices".

Accessory liability

The FMCA imposes liability for a person who has contravened a civil liability provision, but also for a person who has been "involved in a contravention". Section 533 provides that a person is "involved in a contravention" if the person:

(a)    has aided, abetted, counselled, or procured the contravention; or
(b)    has induced, whether by threats or promises or otherwise, the contravention; or
(c)    has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d)    has conspired with others to effect the contravention.

The drafting of s 533 is essentially the same as the accessory liability provisions in the Commerce Act 1986 (s 83) and the Fair Trading Act 1986 (s 43). Case law in relation to those provisions generally confirm that they are to be applied consistently with the approach to accessory liability in criminal law. That is, there must have been some active participation in relation to the relevant contravention with knowledge of essential matters.

The Court has confirmed the same approach applies under s 533 of the FMCA, in particular that an accessory must "intentionally participate" in a contravention to be liable.

Here, it was clear that Mr Zhong intentionally participated in Ms Ding and Mr Qian's market manipulation. The FMA pointed to correspondence including telephone calls and WeChat messages between Mr Zhong, Ms Ding, and Mr Qian, that satisfied the Court that Mr Zhong was knowingly concerned in the transactions and conspired with the other individuals to effect the contraventions.

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.


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