FMA Warning – Pacific Edge Limited

The Financial Markets Authority (FMA) has issued a warning to Pacific Edge Limited (Pacific Edge) in relation to alleged breaches of continuous disclosure obligations. Following an investigation by the FMA, it is the FMA’s view that it is likely Pacific Edge contravened NZX Main Board Listing Rule 10.1.1(a) (the Listing Rule) and, accordingly, section 19B of the Securities Markets Act 1988 (the Act).  The relevant facts are as follows:

  • In October 2013, Pacific Edge Diagnostics USA, a subsidiary of Pacific Edge, entered into agreements with two organisations based in the United States of America, FedMed and American’s Choice Provider Network (ACPN) under which those organisations agreed to provide access to their respective national provider network in the United States of America for PEB’s CxBladder product.
  • PEB disclosed to NZX Limited (NZX) the signing of each agreement some days after the relevant agreement was signed. In the period between signing and disclosure to NZX, PEB was seeking approval from the contractual counterparty to announce the signing of the agreement.
  • Following the announcement of each agreement the price in PEB’s shares increased.

The FMA considers that the execution of the ACPN and FedMed agreements amounted to material information and that consequently Pacific Edge ought to have disclosed the signing of each agreement to the NZX immediately upon execution of the agreements.

The FMA considers that the failure to immediately disclose to the NZX the signing of the agreements with FedMed and ACPN is likely to have contravened the Listing Rule and s19B of the Act.  Failure to make the disclosure in a timely way means that shareholders who traded in shares may have done so without having available to them all material information regarding the company and without the market price of the shares when sold reflecting that price impact of that material information.

FMA further considers that any investor that sold Pacific Edge shares after the agreements were signed but before the announcements were made may be eligible for compensation pursuant to the compensation provisions in the Act.

Following engagement with the FMA with respect to the matter PEB has:

  • undertaken a compliance audit and has implemented the audit recommendations;
  • agreed to make a compensation payment of $500,000 to be distributed to shareholders who sold PEB shares during the period of delay between signing of the agreements and the announcement to the NZX.  The process for payment of compensation is set out in a Settlement Deed which has been agreed between the FMA and PEB.  PEB has indicated that it may offer eligible shareholders the option of a cash payment or for those who may be entitled to a payment of $500 or more, to receive new PEB shares, in lieu of cash.  The FMA does not endorse the share offer and expressly encourages any eligible shareholder to seek independent financial and legal advice with respect to the PEB offer.   A copy of the Settlement Deed can be found here.

Having assessed the conduct involved and notwithstanding its conclusion that the Listing Rule and the Act have likely been breached, the FMA has determined that the appropriate and proportionate enforcement response is to accept PEB’s offer to make compensation to affected shareholders and to issue this warning.

Compliance with secondary markets disclosure obligations is a key strategic priority for the FMA and is critical for ensuring that investors are able to participate in a fully informed market.