Hanover civil proceedings just the beginning - Hughes
Intended civil proceedings against the Hanover group of finance companies could be a test case for further compensation action, the Financial Markets Authority says.
Intended civil proceedings against the Hanover group of finance companies could be a test case for further compensation action, the Financial Markets Authority says.
Intended civil proceedings against the Hanover group of finance companies could be a test case for further compensation action, the Financial Markets Authority says.
The FMA announced today it will file civil proceedings against directors and promoters of Hanover Finance, Hanover Capital, and United Finance next year.
The proceedings relate to statements made in the December 2007 prospectuses and subsequent advertisements, focusing on a period in which investor deposits totaled approximately $35 million.
Those targeted could include Hanover co-founders Mark Hotchin and Eric Watson and former directors Greg Muir, Sir Tipene O'Regan and Bruce Gordon.
Mr Watson, who lives overseas, was a director of Hanover Group, and thereby a promoter of the securities offered in the subject prospectus.
FMA chief executive Sean Hughes said if successful the civil proceedings would establish liability for a breach of the truth in the prospectus and advertising provisions under the Securities Act.
Against that the FMA and/or any other party could subsequently rely on in pursuing compensation, including through the FMA’s new Section 34 powers, he said. Section 34 allows the FMA to bring legal action against individuals on behalf of investors.
“If anything these proceedings are a threshold for what may well be further compensation actions down the track,” Mr Hughes told NBR.
Too rosy a picture?
The FMA narrowed its investigation to focus on areas that it thought had the greatest chance of success in a short time frame, he said.
“Having looked at all the material and considered the evidence we obtained, both documentary and through witness interviews, we’ve come to the conclusion that the December 2007 prospectus, extensions to it and the advertising around those documents really offered up the best prospects for us in a successful action,” Mr Hughes said.
“The basis of this action is that the prospectus did not portray the true position to a non expert but prudential investor. That’s the test we have to satisfy.
“I don’t think we are saying there was intentional or reckless misconduct. What we are saying is that the prospectus and the advertising painted a much rosier picture for investors than was actually the true situation.”
Muir responds
Greg Muir, who resigned as a director of Hanover Finance in April 2009, released a statement this afternoon saying he was disappointed by the FMA announcement.
“The FMA investigators were given a substantial amount of evidence demonstrating that the directors conducted themselves responsibly, with appropriate rigour, and made judgements they believed were in the best interests of the company and its investors on the information available to them at the time,” he said.
“Reports from an expert forensic accountancy firm and the company’s lawyers concluded there was nothing materially untruthful in the prospectus and that there is no evidence of any misconduct by the Board,” Mr Muir said.
“The directors will be defending the claims when the FMA is in a position to provide further details.”
He said the directors would not be making any further public statement until after they have had the opportunity to review the FMA’s proceedings in the new year.
No names yet
Hanover Finance, United Finance and Hanover Capital froze $554 million of investor funds in 2008.
Hanover promoted its investments through heavy use of advertising, using television personality Richard Long to portray a message of strength.
Mr Hughes said he could not give the names of the defendants the FMA intend to take action against at this stage.
“We’ve only just notified those parties today. I don’t want to exclude anybody or unfairly name anyone who ultimately we may not take action against.
“We’re looking at people who were responsible for the issue of the prospectus on which the advertising was based.
“We’ve gone as hard and as fast as we can but unfortunately we’ll have to provide the details of the individuals in the new-year.”
Shareholders' Association chairman John Hawkins said the association was pleased at today’s announcement by the FMA.
Mr Hawkins noted that the FMA was also investigating if further action was possible under section 34 of the Act. This allows the FMA to institute or take over existing actions “in the public interest” he said.