The New Zealand Markets Disciplinary Tribunal has fined
Fonterra $150,000 for breaching continuous disclosure
requirements to the NZX during the dairy manufacturer and
exporter's botulism false alarm last August.
Auckland-based Fonterra undertook a world wide recall after
it quarantined several batches of whey protein concentrate
last August on concern it was contaminated with a potentially
dangerous strain of clostridium bacteria, capable of causing
botulism. The strain was ultimately shown to be harmless.
The dairy company first knew of the potential contamination
on Wednesday July 31 but did not make the information public
or inform the market until just after midnight on Friday
August 2. Options in New Zealand's largest company trade on
the Fonterra Shareholders' Market and allow dairy farmers to
trade shares between themselves in a private market, while
units in the Fonterra Shareholders' Fund give ordinary
investors access to the dividend stream.
Fonterra Shareholders' Fund units closed at $7.12 on Friday
August 2, before the company announced the contamination.
When the market reopened on Monday August 5 the units traded
at an intraday low of $6.50 and closed at $6.86, the tribunal
said. A similar reaction was observed on the private dairy
farmers' share trading market.
NZX Regulation, the regulatory arm of the stock market
operator, said Fonterra breached continuous disclosure rules
and should have told the market of the whey protein concerns
as soon as possible.
The settlement will see Fonterra pay the NZX Discipline Fund
$150,000, as well as the costs of the tribunal and contribute
to costs incurred by NZX in relation to the matter, the
tribunal said. The settlement also recorded that Fonterra did
not agree with the NZXR view there had been breach.
In determining the settlement the tribunal said it considered
several mitigating factors, including the "significant
reputational consequences" the company had already suffered
and its willingness to cooperate with the tribunal and
resolve it quickly. Aggravating factors included Fonterra's
knowledge of market regulations, and as a large company it
had an "obligation to uphold high public standards and any
breaches of continuous disclosure have the potential to
affect a significant number of people."
Units in the Fonterra Shareholders' Fund recently gained 0.3
per cent to $5.95, extending their gain so far this year to
2.2 per cent.