Archive | Financial Markets Authority

FMA lays charges alleging financial service register breaches

The Financial Markets Authority (FMA) has filed criminal charges in the North Shore District Court against an unnamed company & its NZ-based director for breaching the Financial Service Providers (Registration & Dispute Resolution) Act (FSP Act).

The FMA said it hadn’t named either the company or the New Zealand-based director in this release because the court hadn’t yet heard the issue of name suppression.

The company is charged with 2 counts of breaching section 12 of the act and the NZ-based director is charged with 2 counts of breaching sections 12 & 40.

Section 12 provides that no person, including a corporation, can hold out that it is in the business of providing a financial service unless it is registered on the Financial Service Providers Register & a member of an approved dispute resolution scheme. Section 40 covers a director’s liability if he knowingly authorises or knowingly fails to prevent a corporation committing an offence under the act.

Each charge for breaching section 12 carries a maximum fine of $300,000 for a company and a maximum penalty of either $100,000 fine &/or one-year jail term for an individual. The authority said these charges were the first of their kind under section 12.

The FMA alleges the company continued to hold out on 2 websites that it was registered on the Financial Service Providers Register after it had been deregistered and despite subsequent warnings from the Companies Office regarding misleading statements on its website as to registration.

FMA head of enforcement Karen Chang said: “The FMA will hold directors of companies to account where the company is in breach of the FSP Act and we’re concerned the register is being abused. Our intention to target directors who encourage or facilitate abuse of the register was set out in our report in September 2017, so a clear warning has been given.

“The register has been abused by businesses & individuals who use New Zealand’s reputation as a well regulated country to target overseas investors. The FMA invests significant time & resources in tackling this problem to protect the legitimacy of New Zealand’s financial services firms.”

Attribution: FMA release.

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FMA updates non-GAAP guidance

The Financial Markets Authority released updated guidance yesterday on disclosing non-GAAP (generally accepted accounting principles) financial information.

In the listed property sector, the main issues – for decades – have been the separation of revaluations from operating earnings and whether they have been highlighted consistently.

A third issue is how visible earnings/security are in listed entities’ results – important in assessing performance where capital has been raised.

The guidance note replaces one issued in 2012 and follows a review covering the last 5 years.

Garth Standish.

The authority’s capital markets director, Garth Stanish, said in yesterday’s release: “Capital markets only work properly if investors receive accurate and timely information. That information must also be understandable and engaging to investors. It should form an accurate, clear and compelling story about how a company is performing.

“Company financial statements are a vital part of the information investors receive. However, in the financial statements of many companies you’ll find phrases like ‘underlying earnings, ‘normalised profit’ or ‘cash earnings’. Information disclosed this way can sometimes confuse more than clarify. The information can be misleading if it is presented inconsistently, is not adequately defined, or used to hide bad news.”

Links: Consultation process
Guidance note: Disclosing non-GAAP financial information

Attribution: Authority release.

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FMA adds new investor guides

The Financial Markets Authority has published new resources focused on some of the more complex & potentially riskier products increasingly being seen on the market.

Among examples are foreign exchange trading & hybrid bonds. The authority has also updated existing content on getting financial advice, and general do’s & don’ts.

Among the guides:

  • Getting financial advice – services to expect and how to find an advisor
  • Warnings, alerts & scams, including an A-Z list of all current warnings
  • Property syndicates – a mid- to long-term investment that can be riskier than other forms of property investment
  • Product disclosure statements (PDS) – explaining new, concise information that replaces investment statements
  • Selected financial information – in a new share offer or PDS
  • Hybrid (capital) notes – often issued by banks, may not be suitable for many investors
  • Foreign exchange trading – highlighting the significant risks of forex trading for profit.

Link: FMA, Investment basics

Attribution: FMA release.

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FMA spots a loopy law to fix

We’ve just had a Government-inspired campaign mocking “loopy” local body rules and calling for a fix. Now the Financial Markets Authority is pointing the finger at a law that – with only a small shot at thinking – could have had a government fix at least a decade ago.

I wrote in 2004, and again in 2007, about property developers who built facilities for new residential developments, offered the new residents the opportunity to invest in the facilities manager, and were pinged for it because they didn’t issue a prospectus.

Both times, the developer had to give enforceable undertakings to the Securities Commission. Yes, it was an investment and would have been tradeable. But is that really what the prospectus was invented to monitor?

The Financial Markets Authority issued a consultation paper yesterday asking if corporate vehicles set up by property developers to manage the costs associated with communal facilities in real property – such as accessways, lifts or common garden areas – should fall under the Financial Markets Conduct Act (2013) regime. Submissions close on Friday 6 November.

The authority’s own answer was succinct: “Overall, the underlying economic substance & purpose of a company set up to manage costs in real property can be differentiated from other equity securities that are more appropriately regulated under the Financial Markets Conduct Act.”

The Financial Markets says in its consultation paper: “If a corporate vehicle is structured as a company and lot owners are issued shares in that company, those interests will fall under the Financial Markets Conduct Act’s definition of ‘equity securities’. Unless relief is given, the developer must comply with the obligations of a Financial Markets Conduct Act equity security issuer.

“However, if other corporate vehicles are used for the same purpose (eg, an incorporated society), then interests in the corporate vehicle will not be caught by the definition of ‘equity security’ (a subset of ‘financial product’) and will generally not fall under any limb of the definition of ‘financial product’, and thus will not be regulated under the new Financial Markets Conduct Act regime.

“Our preliminary view, taking into account submissions received on the 13 March consultation paper, Financial Markets Conduct Act exemptions, is that companies set up for managing costs in real property developments should not be regulated under financial market laws.

“This is because interests in these companies are not, in our view, ‘financial markets’ activities. There is also no objective reason for treating a company that is used to manage costs in real property differently from an incorporated society that is used to manage costs for the same purpose.

“We propose to designate shares in these companies to be outside the scope of the definition of a ‘financial product’ and will not be subject to the requirements of the Financial Markets Conduct Act. Further detail of the proposed designation is provided in this consultation paper.”

In 2004, Christchurch property developer Kevin Carlin & his company, Carlin Enterprises Ltd, fell foul of the Securities Commission for not issuing a prospectus for home buyers to participate in the Styx Mill subdivision’s common facilities owner.

Then, in 2007, the commission pinged 2 of Patrick Fontein’s resort development companies for offering securities for participation in the society that was to manage common facilities, without a prospectus.

Link: Consultation paper

Earlier stories:
9 March 2007: Fontein resort companies pinged for lack of common facilities management society prospectus
25 December 2004: Christchurch developer caught out by subdivision club membership requirement

Attribution: FMA release & paper.

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FMA ends proceedings against Capital + Merchant directors

The Financial Markets Authority said yesterday it had discontinued its civil proceedings against the directors of Capital + Merchant Finance Ltd.

The Financial Markets Authority’s predecessor, the Securities Commission, laid criminal charges in 2009 under the Securities Act against 5 directors of the company – Neal Nicholls, Owen Tallentire, Colin Ryan, Wayne Douglas & Robert Sutherland. These charges related to untrue statements in offer documents distributed in 2006.

At the same time, civil proceedings were filed against 4 of the directors – Messrs Nicholls, Tallentire, Ryan & Sutherland – seeking declarations of civil liability & civil pecuniary penalties. The civil proceedings were stayed pending the outcome of the criminal proceedings.

The Financial Markets Authority assumed responsibility for the criminal proceedings alongside the Crown Solicitor in 2011. In 2013, the 5 directors pleaded guilty to the criminal charges and received varying sentences of home detention, community work, and some directors made reparation payments of between $60-100,000.

Capital + Merchant Finance’s liquidators settled their claim this year against the company’s former auditors for $18.5 million. The Financial Markets Authority said this sum was subject to claims from a number of other parties and the balance would be available for distribution to investors. The receivers’ claim against the company’s former trustee & former solicitor is still before the courts. The receivers hope to write to investors in the next 2 months to start the distribution process.

The Financial Markets Authority said it had determined that, in light of the outcome of the criminal proceedings, the actions taken by the receivers & liquidators and the limited personal assets of the directors, there would be little prospect of any recovery for investors if it were to pursue its civil claim.

“The authority considers that the misconduct that was the subject of the civil proceedings has been adequately addressed through the criminal process, and the further time & cost of pursuing the civil proceeding would not be justified or in the public interest.”

Capital + Merchant Finance owed $167 million to 7500 investors when it was placed in receivership in November 2007.

Attribution: FMA release.

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Couple’s vow to stay out of finance business extends to NZ

The Financial Markets Authority agreed yesterday to accept enforceable undertakings from David & Jacqueline Hobbs of Nelson, limiting their activities in New Zealand’s financial markets.
Mr & Mrs Hobbs are New Zealand residents and directors & shareholders of companies including Tasman Business Consultants Ltd & Hobbs Trustee Ltd. The New South Wales Supreme Court found them liable for serious financial misconduct for the operation of 14 unregistered, offshore-managed investment funds administered in Australia. The penalties imposed by the court included banning orders against them.
The undertakings given to the Financial Markets Authority require that Mr Hobbs will not act as a director or promoter of a company in New Zealand permanently, and Mrs Hobbs for 4 years, and neither will provide financial advisor or broking services in New Zealand.

The undertakings are subject to an exception that allows the Hobbses to continue to operate their Nelson-based car dealership on the specific condition that their business will not seek to raise funds from or offer any securities or financial products to members of the public, or be involved in providing financial services (including borrowing or lending money) to customers buying or selling vehicles through their business.

Financial Markets Authority director of enforcement Belinda Moffat, said the Hobbses’ activities in Australia included false misrepresentations to the investing public, including New Zealand investors.
The Australian Securities & Investments Commission began civil penalty proceedings regarding the schemes in 2010 against various defendants, including Mr & Mrs Hobbs. ASIC alleged that the operators of the schemes targeted Australian investors and self-managed superannuation funds.

In 2012, the New South Wales Supreme Court held the Hobbses liable for financial misconduct relating to the operation of the schemes.  More than $A55 million was invested in investment funds in New Zealand, the US, Hong Kong, Vanuatu, the Bahamas and the Turks & Caicos Islands.

In 2013, the court permanently banned Mr Hobbs from providing financial services & managing corporations in Australia and was also ordered to pay $A500,000. Mrs Hobbs was banned from providing financial services for 8 years in Australia, banned from managing corporations for 6 years in Australia and ordered to pay $A20,000. The Hobbses were unsuccessful with an appeal in 2013.

Attribution: FMA release.

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Propbd on Q Th18Jun15 – 3 apartments sell, Fletcher housing target, Milford settles

3 apartments sell but site passed in
Fletcher targets 500 houses/year
Milford settles with FMA over trader manipulation

3 apartments sell but site passed in

3 apartments were sold after contests between multiple bidders at Ray White City Apartments’ auction today, and an Eden Terrace site with a small warehouse on it was passed in. Auction results:

Silo Apartments, 23 Emily Place, unit 2H, sold for $287,000, sales agent Victor Liu
Madison House, 145 Symonds St, unit 308, sold for $396,000, Adele Keane
The Chatham, 70 Pitt St, unit 501, sold for $598,000, Mitch Agnew & Ryan Bridgman
Eden Terrace, 26 Fleet St, warehouse with development potential, passed in at $1.135 million, Krister Samuel

Fletcher targets 500 houses/year

Fletcher Building Ltd’s chief operating officer for housing, Steve Evans, told an investment day in Brisbane today the company expected to sell 1390 houses over the next 3 years, all but 115 of them in Auckland. The balance, to be sold over the next 2 years, are in Christchurch.

It has a land development pipeline of 2893 lots – half of those at Three Kings and the balance on the Manukau & Peninsula (Red Beach) golfcourses, Eugenia Rise & Oruarangi Rd – and it expects to develop 1424 houses in partnerships, including 3 started in Christchurch and 1000 homes in new partnerships it hasn’t disclosed yet.

Mr Evans said that, after re-entering the land development market in 2013 when it bought the Manukau golfcourse, the company expected to attain a development level of 500 homes/year, including partnerships.

Link: Fletcher Residential Ltd investor day, Brisbane

Milford settles with FMA over trader manipulation

Milford Asset Management Ltd has agreed to pay the Financial Markets Authority $1.5 million following an investigation into market manipulation by a trader.

Milford has agreed to pay $1.1 million in place of a financial penalty after denying liability for any alleged breaches, and a $400,000 contribution to the authority’s costs.

The authority said today it considered the trader’s conduct between December 2013 & August 2014 breached the market manipulation provisions of the Securities Markets Act, and it concluded that Milford’s board failed to ensure the trading activity was monitored to the requisite degree.

Milford acknowledged inadequate oversight & control, has reviewed its systems & processes and has improved them.

The settlement doesn’t include the trader. The authority said it was continuing its enforcement process and wouldn’t comment further.

Attribution: Auction, Fletcher Building, FMA.

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FMA rids financials services register of 43 offshore entities

The Financial Markets Authority said today it had removed 23 entities from the Financial Services Provider Register and prevented another 20 from completing registration.

The Registrar of Companies maintains this register, but the Financial Markets Authority has powers to direct the registrar to remove companies from it where it’s likely a company is giving a false or misleading impression about the extent to which it is regulated in New Zealand.

FMA general counsel Liam Mason said the authority had been reviewing referrals from the registrar where there were concerns about whether the substantive business activities of a firm required it to be registered on the New Zealand register.
“The FMA has concerns that some offshore companies have registered on the Financial Services Provider Register primarily to take advantage of New Zealand’s reputation as a well regulated jurisdiction. The FMA has received complaints from offshore investors who have lost their money to forex companies, or other types of service providers operating abroad that are registered on the register.

“We are aware of instances where the register is not being used for its intended purpose. This is taking advantage of New Zealand’s good reputation for being a well regulated jurisdiction and a good place to do business.”

Mr Mason said the authority was concerned that local registration agents were facilitating the registrations of these entities, including by taking a role as a director and by providing local registered office facilities to these offshore companies “These activities give the appearance of offering a financial service from New Zealand, when in fact the substantive business, where there is any, takes place offshore.

“The authority will look closely at the ability of such directors to carry out their duties under the Companies Act, especially where multiple directorships are held.”

The process allows firms to submit reasons they should stay on the register.

As part of the ongoing statutory review of the Financial Advisers Act and the Financial Service Providers Dispute Resolution Act, the authority will release an issues paper for feedback shortly.

Link: FMA, warnings & alerts

Attribution: FMA release.

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Convention centre preliminary design deadline set

The Government & SkyCity Entertainment Group Ltd have agreed to a 31 May deadline for a revised preliminary design for the international convention centre proposed for the block between Hobson & Nelson Sts.

Economic Development Minister Steven Joyce said yesterday the 2 parties had made good progress after the Government turned down the design proposal last October, when the total construction cost exceeded the costs set out in the convention centre agreement.

Mr Joyce said: “This is a large and complex project. There are some matters that need resolution before the revised proposal is submitted for approval by ministers & the SkyCity board.”

Attribution: Ministerial release.

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Syndicators Alcock & Knight fined for breaches

The 2 directors of SPI Property Fund Ltd, Murray Alcock & Allister Knight, were fined $25,312 each in the Auckland District Court yesterday for breaches of the Financial Reporting Act.

The Financial Markets Authority brought 3 charges against each director for failing to file audited financial statements for the syndication company to the Registrar of Companies for the years ending 2011, 2012 & 2013. The directors pleaded guilty.

The authority’s enforcement & investigations director, Belinda Moffat, said: “We expect companies that offer securities to file their financial statements in a timely way to enable investors to make informed decisions about their investments. The court’s decision sends a further strong signal to companies raising funds from the public that the FMA will take enforcement action when companies persistently fail to meet their obligations.”

Mr Alcock & Mr Knight gave the authority enforceable undertakings last November that they wouldn’t participate in seeking or holding investment funds from the public for 5 years, and to repay SPI Property Fund investors.

Earlier story:
11 November 2014: SPI directors Alcock & Knight give undertakings to FMA, including repayment

Attribution: FMA release.

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