Blue Chip directors haven’t yet escaped threat of criminal charges

The Financial Markets Authority says directors of the failed Blue Chip property investment group may yet face criminal charges as the regulator awaits the outcome of two lawsuits brought by investors.

The FMA has been reviewing the case after a Supreme Court decision last year agreed with a group of investors that Blue Chip's investment scheme marketing between 2005 and 2007 was an offering of securities to the public in terms of the Securities Act 1978 and required a prospectus.

The market watchdog is waiting to see if two representative actions against the group get off the ground after liquidator Meltzer Mason Heath signalled in February it did not have the funds to keep going and a separate action led by Auckland lawyers Paul Dale and Daniel Grove looks as though it will suffer the same fate.

Any settlement will feed into the FMA's decision on the case.

"Criminal proceedings against those who offered the securities without a prospectus expired in 2010, while civil penalties for false statements made in an advertisement expired in 2009," FMA spokesman Tony Reid says.

"However, there is no limitation period with respect to indictable criminal charges under s58 of the Securities Act in respect of any untrue statements in advertisements."

That means the promoters and directors could face criminal action if the FMA decides it would be in the public interest to do so, with section 58 of the act holding the heftiest penalties of up to five years in jail and a fine of up to $300,000, and up to a further $10,000 every day if the offence continues.

The Supreme Court ruling related to the purchase of apartments in the Barclay, Bianco and Icon apartment blocks in central Auckland which were funded by Blue Chip, and has been sent back to the High Court, where the FMA can make submissions to assist investors.

The FMA's predecessor organisation, the Securities Commission, did not chase Blue Chip at the time, saying property investment schemes were not covered by the Securities Act.

Blue Chip was probed by the Serious Fraud Office, though the white-collar crime investigator decided there was insufficient evidence to pursue a prosecution, even if it operated in a "moral vacuum".

Founder Mark Bryers escaped a prison sentence in 2010 when he pleaded guilty to 34 charges relating to the company's mismanagement and improper accounting, angering more than 2000 investors owed some $84 million when he received a $33,750 fine and 75 hours' community work.

(BusinessDesk)