Published 11 December 2008
A district court judge has found property investment promoter Dan McEwan & 2 of his companies breached the Securities Act by offering securities to the public without issuing a prospectus or related document.
The case & decision revolved around the status of a couple, Peter & Susan Gale of Dunedin, who wanted to be counted as habitual investors so they could invest in McEwan schemes.
Initially their application to be regarded as habitual investors was declined, but that was reversed after they persisted.
Judge Philippa Cunningham heard the Ministry of Economic Development case against Mr McEwan & his companies, Agnes Water Acquisitions Ltd & Stakeholder Finance Ltd, in the Auckland District Court in July and issued her judgment on 9 December. The defendants have yet to be sentenced.
Judge Cunningham said the Securities Act didn’t define the term habitual investor and there were no cases to guide the court in terms of the habitual investor category. Mr McEwan gave evidence that applications to be considered as habitual investors were directed to the various investment companies’ legal advisors.
Sam Wimsett, for the ministry, said the dictionary definition of habitual as “constant or continually” was right and neither of the Gales’ investment history could be described as constant or continual investing. They also fell far short of being professional investors, as described by Justice John McGrath in an earlier case.
Judge Cunningham said in her ruling: “I am of the view that a company or a director of a company cannot simply delegate a task like this to legal advisors. In the end, the issuer & promoter must be satisfied that the individuals they are promoting or issuing a property investment to have a sufficient understanding of property investment if they are to be covered by any of the exceptions set out in section 3(2) of the act. This includes the habitual investor category.
“I would have thought that lawyers need to take advice from experienced property developers in order to appreciate the degree of knowledge & expertise necessary to make an assessment about who is and is not an habitual investor.
“If I am wrong about that, then at the very least the director of a property development company needs to be fully briefed by the legal advisors completing the assessment about the criteria to be applied when the ‘habitual investor’ assessment is made.
“Mr McEwan admitted he did not know what rules the lawyers applied when making the assessment and, in my view, he needed to know, understand & agree with the criteria before being in a position to offer a security to ‘habitual investors’. This must be a duty of a director of a company that promotes or issues securities to anyone coming within any of the exceptions in section 3(2) of the act.”
8 companies in the McEwan group have been wound up recently – Crystal Waters Ltd, Kate Sheppard Fitout Ltd, McEwan Group Ltd (now Ro-Ro Investments Ltd), Pauanui Properties Ltd, Pinpoint Trustees Ltd, Takapuna Procurement Ltd, Upper Queen Street Properties Ltd & West End Road Nominee Ltd.
Want to comment? Email [email protected].
Attribution: Judgment, story written by Bob Dey for the Bob Dey Property Report.