Celebrities could be liable for endorsements

Celebrities could be liable to investors for untrue statements made when endorsing products, under changes Commerce Minister Simon Power is working on.

Mr Power yesterday announced a review of securities law that would see a re-write of the Securities Act, the Securities Markets Act, the Unit Trusts Act, the Superannuation Schemes Act, and the non-tax parts of the KiwiSaver Act.

"The new legislation will be better for mum and dad investors as well as for companies looking to raise capital. It will provide clearer, more consistent information for investors, and clarify for issuers the obligations they have to meet," Mr Power said.

The proposals came out of a comprehensive review of the laws taking into account work of the Capital Market Development Taskforce, the effects of the global financial crisis, and the failure of many New Zealand finance companies.

In a Cabinet paper on the changes Mr Power highlighted the issue of celebrity endorsements of financial products.

He did not name names but All Black great Sir Colin Meads was the face of Provincial Finance, which folded in 2006 owing investors $300 million.

Former One News presenter Richard Long was the face of Hanover Finance. That company left investors $554 million out of pocket.

"Finance company collapses in recent years have highlighted the role of celebrity endorsements of financial products," Mr Power said in the paper.

"In at least one case, a celebrity specifically endorsed the strength of a finance company, while in another instance the person may have been used because their primary employment created a sense of integrity."

Such ads were influential especially when talking about the safety of a product, he said.

"I consider that this has the potential to undermine the disclosure regime, which is designed to ensure that investors have the best possible and most relevant information before them when they make important decisions that may involve their life savings."

Mr Power said he asked officials to look into regulating the area.

"These options will include the possibility of celebrities being liable to investors for untrue statements that they make when endorsing products in a similar way to 'experts' in the existing in the existing regime."

He said he would report back to Cabinet on that issue by the end of May.

Other changes in the reform included a financial adviser regime, auditor regulation, the licensing of trustees and statutory supervisors, the prudential regulation of the non-bank deposit regime, finance company moratorium requirements, and the requirement for financial service providers to be registered and belong to a dispute resolution scheme.

The Government intended to introduce legislation to Parliament by the end of this year.