Turns out that was right. There was a fire and it burnt up $1.5 million of Milford money and no doubt a hell of a lot more when lawyers’ fees and management time are added to the bill.

Mind you that is small change when you see that Milford has pocketed $31.90 million in performance fees over the past two years.

Milford have agreed to a settlement with the FMA, and accepted its systems weren’t up to scratch. The FMA, though, is still considering action against Milford’s “trader” at the centre of the manipulation claims. As an aside the odd thing here is that Milford have never labeled any staff as “traders”.   Portfolio managers yes. Traders no.

I can’t help thinking that the FMA has dropped the ball on this one. It seems totally fixated on other areas of the market, such as AFA monitoring, where it has gathered no scalps. (I’ll leave the Ross ponzi scheme out of this programme).

Or put it this way it seems to make much more noise about parts of the market other than teh big-end of town.

Yet, arguably, one of the much bigger risks in the market is what trading organisations, like sharebrokers and fund managers, get up to.

Milford is one example. Another recent one was Craigs Investment Partners. Craigs got whacked $30,000 and censured by the NZ Markets Disciplinary Tribunal for not recording retail client orders correctly in the NZX trading system for two years.

Surely the FMA should be spending far more time on monitoring these big organisations that play significant roles in the market place, rather than the little guys.

One of questions I wanted to pose to the FMA yesterday was what it is now doing in the area of monitoring trading firms. Unfortunately the conference call system didn’t work for me and my request wasn’t added to the message queue.

However, FMA chief executive Rob Everett did make the comment that he would not discuss any other conversations going on in the market. Reading between the lines there probably are some going on.

My other question (each journalist was only allowed two questions) was about what Milford’s actions meant for investors.

Thankfully Rob Stock from the Sunday Star Times took this line.

The answer is the FMA doesn’t know and had decided not to find out.

Rather it was more interested in what market manipulation meant for “impact of confidence in (New Zealand’s capital) markets.”

When it comes to Milford’s actions in this case one can only marvel at the irony of a firm that holds itself out to be whiter-than-white, is actually a bit grey.

The truth is it’s a company hell-bent on growth ($3 billion in FUM) and its controls and systems haven’t kept up with this rapid growth.

Milford executive director Brian Gaynor regularly castigates other firms for their less-than-desirable behavior.  The FMA was clear that Milford’s systems and processes weren’t up to scratch. Milford acknowledged this and was already working to fix them.

I hope Mr Gaynor has a mirror. We all look forward to reading his article in the NZ Herald on Saturday.

Earlier this year I wrote that this “incident” throws the spotlight on the major Achilles heel of funds management.

It’s the constant search to be a top performer against your peers and it is brought about through handsome incentives to people like portfolio managers (or are they traders?)

There is something rotten about this set up. Investors are not the main beneficiaries of these arrangements. It’s the fund management companies and some employees.

Everett is right to call it a “wake up call” to the industry.