The Financial Markets Authority has filed civil proceedings against Prince and Partners Trustee Co over its role as trustee of failed finance company Viaduct Capital, the first such case the FMA has taken against a trustee company.
Viaduct collapsed in 2009 owing 110 investors some $7.8 million.
The markets regulator alleges Prince breached its obligations to Viaduct investors and to the Treasury under the Retail Deposit Crown Guarantee. The claim alleges Viaduct's conduct "resulted in loss to individual investors and to the Treasury under the Crown Guarantee, to which Viaduct was a party."
"The FMA has serious concerns about the conduct of Prince as trustee in the case of Viaduct." it said in a statement.
"The FMA has determined that it is appropriate for the Court to consider the conduct in this case, and where appropriate to award compensation to investors who suffered loss as a result of Prince's failure to fulfil its obligations as Trustee."
"Trustees play a critical role in protecting the rights of investors and it is vital the public have confidence that a trustee's obligations will be discharged," said Belinda Moffat, the FMA's director of enforcement.
The law suit comes after the FMA filed charges in March against five directors of Viaduct Capital and of a related failed lender Mutual Finance, which had prior ranking over Viaduct's securities. Mutual failed two months after Viaduct.
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