FMA calls Serious Fraud Office into Forestlands probe
The Financial Markets Authority has called in the Serious Fraud Office to look at some aspects of its ongoing probe of the Forestlands forestry investment group of companies.
The market watchdog is still investigating financial markets issues, including the group's failure to file financial statements, and has "referred some matters" to the SFO, it said in a statement. The FMA is tasked with maintaining the integrity of investment markets and it enforces certain securities, reporting and company laws, whereas the SFO investigates serious and complex fraud and financial crime.
The FMA launched its probe when it received a number of complaints by Forestland investors about the group, prompting a planned $18 million distribution to be parked in an interest-bearing trust account until the investigation was completed.
The regulator said each of the 18 Forestlands companies owns specific forests rather than a share of the pooled assets, totalling 1,934 hectares of forest land through a group of companies on the east coast of the North Island and in the south-west of the South Island. It wants to ensure the $18 million is distributed fairly, but that process is up to the director, Rowan Kearns, who lives near Motueka.
"To date, we have not received a satisfactory response from the director to our questions on these matters," the FMA said.
Companies Office record show there are 18 of the forestry investment companies, each given a number up to Forestlands (No 20) Ltd, along with related entities Forestlands Marketing Ltd and Forestlands NZ Ltd. Funds to be raised were typically about $2.5 million apiece through the issue of non-voting Class B forestry shares, although the amounts varied.
The numbered companies were incorporated from the late 1990s through until September 2011 (No 20) and have similar features, based on their prospectuses, including the appointment of Rowan Kearns as managing director of each for a 10-year term. They also provide for 10 percent of the issued capital to go to Forestlands Marketing, along with 10 percent of income from any carbon credit or carbon emission trading scheme and 10 percent of the net harvest from the sale of timber and proceeds of any sale of the underlying land.
Forestlands Marketing is owned by Rowan and Sharon Kearns, who live near Motueka. The prospectuses also provide for administration fees to be paid to Forestlands NZ, also owned by the Kearns. The outside investors typically subscribed for Class B non-voting shares, which entitled them to any dividends and other distributions and any surplus assets after winding up.
Voting securities in each company (the Class A shares) were held by the trustees of the Kearns Family Trust and weren't entitled to distributions. Rowan Kearns would subscribe to a third class of securities, Class C redeemable preference shares, in the event capital raising targets weren't met. The Class C shares were entitled to a preferential dividend plus the return of the subscription price on winding up.