FMA to sue Hanover directors and promoters

The Financial Markets Authority says it will file civil proceedings against directors and promoters of Hanover Finance, Hanover Capital, and United Finance next year.

The proceedings will relate to statements made in the December 2007 prospectuses and subsequent advertisements, the FMA said in a statement today.

The agency, which replaced the Securities Commission, says it will file a claim in 2012 against the signatories to the prospectuses, seeking pecuniary penalty orders and compensation for investors.

The Hanover companies were co-owned by Mark Hotchin and Eric Watson. Mr Watson was never a director of the companies.

Last December the Securities Commission froze some assets held in trusts associated with Mr Hotchin in advance of any proceedings.

According to Companies Office records, directors who signed the Hanover Finance December 2007 prospectus included then chairman Greg Muir, Sir Tipene O'Regan, Bruce Gordon and Mr Hotchin.

The promoters were Hanover Financial Services and Hanover Group.

FMA chief executive Sean Hughes says it has been a significant investigation focusing on a period in which investor deposits totaled approximately $35 million.

 “We have carefully considered a substantial volume of relevant material and we’ve had the benefit of independent advice,” says Mr Hughes.

“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.

“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,” Mr Hughes said. 

“Given the public interest in the investigation we want to keep the market as informed as we can.”

Hanover and United Finance froze $554 million of investor funds in August 2008. The assets and loans were later transferred to Allied Farmers with investors swapping their stricken fixed interest debentures with shares in the small Hawera-based firm.

Those shares have plummeted in value with Allied Farmers writing down the value of the assets acquired from $396 million to $93 million.