By Bernard Hickey
The Financial Markets Authority (FMA) has announced it will file civil claims next year against the directors and promoters of Hanover Finance, Hanover Capital and United Finance, seeking penalties and compensation for investors.
The proceedings will relate to the 2007 prospectuses and subsequent advertisements, after which about NZ$35 million worth of investments were made in Hanover Finance, the FMA said.
“This has been a significant investigation for FMA, focusing on a period in which investor deposits totalled approximately NZ$35 million," said FMA CEO Sean Hughes.
“We have carefully considered a substantial volume of relevant material and we’ve had the benefit of independent advice. We have now reached a point in the investigation where we are confident that we have good grounds to commence civil proceedings. We believe this is the most effective regulatory response and we’re confident it offers the greatest opportunity for success," Hughes said.
“If successful, FMA’s action may assist other parties in bringing related claims. We are also examining avenues under section 34 to seek compensation from other parties on behalf of aggrieved investors,” he said. (See more on the FMA's so-called section 34 power, under which it can potentially take action against the likes of auditors and trustees here).
“Given the public interest in the investigation we want to keep the market as informed as we can.”
Hughes later told Interest.co.nz that criminal charges from the FMA were unlikely given the evidence currently seen, but that he couldn't speak for the Serious Fraud Office, which has said it is investigating Hanover.
He said he expected to lay civil charges in the first couple of months of 2012 that would look at whether the directors and promoters misled investors by 'painting a very rosy picture' of the company's affairs in the prospectus.
Hughes also said further civil action could see claims for amounts beyond the NZ$35 million referred to so far, which involve potential penalties of up to NZ$500,000 for each of the promoters.
"I don't want to say that that's some sort of lid on what's being sought."
'Disappointing move' former chairman Muir says
In a statement former Hanover Finance chairman Greg Muir said the FMA's move to file civil proceedings against Hanover directors was disappointing and the directors would defend themselves against the FMA's claims.
“The FMA investigators were given a substantial amount of evidence demonstrating that the directors conducted themselves responsibly, with appropriate rigour, and made judgments they believed were in the best interests of the company and its investors on the information available to them at the time," Muir said.
“Reports from an expert forensic accountancy firm and the company’s lawyers concluded there was nothing materially untruthful in the prospectus and that there is no evidence of any misconduct by the Board. The directors will be defending the claims when the FMA is in a position to provide further details.”
An FMA spokesman said the authority had decided not to name those directors and promoters facing civil claims until the claims had actually been laid.
The owners of Hanover Finance and Hanover Capital were Eric Watson and Mark Hotchin.
Directors of the Hanover companies included Mark Hotchin, Muir, David Henry and Tipene O'Regan, but not Watson.
See Gareth Vaughan's article from November 19 last year about the Securities Commission (the predecessor to the FMA) announcing it was considering laying criminal charges against Hanover directors in the new year of 2011.
(Updated with Greg Muir's statement, link to story about section 34 powers, background, detail, and non comment from FMA on criminal charges aspect; Comments from FMA CEO on criminal charges).