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Lawyer for company director facing charges brought by the FMA details client's determination to retain name suppression

Lawyer for company director facing charges brought by the FMA details client's determination to retain name suppression

By Gareth Vaughan

The lawyer acting for a company director in a case brought against them by the Financial Markets Authority (FMA) says their client will appeal to the High Court if a District Court judge declines to extend the director's interim name suppression.

The case stems from the FMA filing criminal charges against a company and its New Zealand-based director for allegedly breaching the Financial Service Providers (Registration and Dispute Resolution) Act.

The FMA alleges the company continued to maintain on two different websites that it was registered on NZ's Financial Service Providers Register (FSPR) after it had been deregistered and despite subsequent warnings from the Companies Office regarding misleading statements on its website as to FSPR registration.  It's the first case brought under the Act against a director for a company breach of Section 12 of the Act, having been announced by the FMA in February.

According to the FMA, the FSPR has been abused by businesses and individuals who use NZ's reputation as a well-regulated country to target overseas investors. The FMA says it invests significant time and resources in tackling this problem to protect the legitimacy of NZ's financial services firms. (See more on this at the foot of this article).

The director faces a potential fine of up to $200,000 and/or up to two years prison. The company, facing two charges, faces a potential maximum fine of $300,000 per charge. (The director says they have resigned from the directorship, however Companies Office records don't show this. All NZ companies require at least one NZ or Australian resident director).

In a North Shore District Court hearing on Tuesday the director pleaded not guilty to two counts of breaching sections 12 and 40 of the Act. The director, who is also applying to have the charges dismissed, was bailed to their home address. A deemed not guilty plea was entered for the company, which was unrepresented in court. The company is charged with two counts of breaching section 12 of the Act.

The director's lawyer argued both their client and the company should retain name suppression. Identifying the company would effectively out the director as well given they have served as the only NZ-based director of the accused company, the lawyer said. 

'Catastrophic consequences'

The director's lawyer argued their client would suffer "catastrophic consequences" to their business if name suppression is not granted, saying "no one will want to be associated with" them. As the director of dozens of companies, the lawyer said their clients' main source of income stems from directors' fees with the director having a family to support. They would lose this income if their name was made public, the lawyer argued, with emotional and psychological stress plus "extreme hardship" for the director and their family possible.

The publicity of this case would be "forever Googleable," and come to the attention of the director's overseas clients, the director's lawyer added, noting their client had a right to a presumption of innocence. 

The FMA's lawyer argued the only grounds to give the director name suppression were extreme hardship, with the burden on the director to prove such a scenario would follow publication of their name.

"A very high level of hardship needs to be proved by the applicant," the FMA's lawyer argued. 

Although some "natural effects" would flow from being named, "the evidence is not there to conclude the likelihood of extreme hardship," the FMA's lawyer said, with suggestions of financial loss "speculative."

The FMA's lawyer suggested the director faces allegations of "moderately serious" offending, with "regulatory type" offences being alleged rather than allegations of sexual or violent offending.

The FMA's lawyer noted that to prosecute the director the FMA first has to prove the company committed an offence.

Judge Andrea Manuel reserved her decision on name suppression, saying existing interim orders for name suppression would remain in place for the timebeing. The director's lawyer said her client will appeal to the High Court if Judge Manuel rules that name suppression can be lifted.

Meanwhile, the director's application to have the charges against them dismissed will be heard on August 31, which is also the defended hearing date for the company.

A problematic phone directory

The FSPR is like a phone directory for the financial services sector. Anyone providing a financial service such as insurers, banks, fund managers and financial advisers, must be registered on the FSPR, which is operated by the Ministry of Business, Innovation & Employment's Companies Office. The FSPR records the name, address and financial dispute resolution service membership of the provider, along with the services it's registered to provide and any licences it may have.

The FSPR has, however, been open to exploitation by overseas interests. That’s because a company can register on the FSPR if it has a place of business in NZ, regardless of where in the world its financial services are targeted or provided. Entities can, and do, set up superficial operations in NZ through virtual offices, or by leasing an office and perhaps employing a person to provide back-office services.

These firms register to provide financial services that don't require licensing in NZ, such as foreign exchange, or forex, and derivatives services. There's no pre-vetting by a NZ regulator, and they don't offer financial services within NZ. These entities can, however, use their NZ registration overseas to give a false impression that they are regulated in NZ and trade off this country's good name.

Since 2014, the FMA has had the power to direct the Companies Registrar, currently Ross van der Schyff, to deregister companies from the FSPR where they fail to provide a financial service to New Zealanders, or where it believes their only objective from registration is to give a false impression they are regulated in NZ. Since 2014 the FMA has had dozens of companies removed from the FSPR. In some cases, notably Vivier & Company, FMA directed removal from the FSPR was challenged in the courts and ultimately upheld.

The Ministry of Business, Innovation & Employment this month issued a discussion paper on proposals to address misuse of the FSPR. There's more on this here.

*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.

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