Financial Markets Authority warns Du Val for misleading, deceptive statements

Kenyon and Charlotte Clarke of Du Val when they decided to leave here for Singapore. Photo / supplied

Te Mana Tātai Hokohoko The Financial Markets Authority has warned residential developer Du Val Capital about misleading and deceptive statements to investors in a mortgage fund.

Du Val, run by Kenyon and Charlotte Clarke, may have breached the law by misleading or deceptive conduct to investors in the Du Val Mortgage fund.

“The FMA considers that investors have been given a misleading impression of the reasons for Du Val Capital Partners suspending cash distributions on the fund and proposing instead to convert cash distributions into units in the fund, pending a potential public listing. The FMA considers investors may also have been misled about their rights in relation to the suspension,” a statement today said.

Paul Gregory, executive director of response and enforcement, said: “Investors in Du Val’s Mortgage Fund have not had the information necessary to make properly informed decisions to accept or reject the proposal. In particular, investors were misled about the reason Du Val has suspended the prominently advertised cash distributions, which was because Du Val’s Board could not approve a cash distribution which would leave the fund unable to meet its other obligations. And, that the proposal to convert cash distributions into units in the fund is not permitted under the terms of the limited partnership agreement governing the investment, and investors are therefore not obliged to accept that decision.”

The warning is for communication in December when DVCP and Du Val Group contacted investors, telling them of plans to restructure the Du Val Mortgage Fund.

Paul Gregory of the Financial Markets Authority. Photo / Supplied

That would be wound up and investors’ units in the fund would be converted into shares in a new Du Val company. Du Val Group would then potentially seek to list this new company on the NZX, or another exchange.

Investors were then told in January that the board had resolved to suspend all cash distributions from units.

The board said its decision was made against the background of the proposed restructure, but didn’t provide any further information on the reason for the suspension. Investors were also informed that cash distributions would immediately be capitalised and added to investors’ unit holdings, up until the date that units are converted into shares in the new Du Val company.

The FMA is satisfied that making those statements may have constituted misleading or deceptive conduct, or conduct that is likely to mislead or deceive, because investors were not informed of the underlying reason for the Board’s resolution to suspend and capitalise distributions, or of their rights relating to the suspension.

The authority said the business should get a formal warning and that it is in the interest of fair and transparent financial markets that it be published.

“The warning means Du Val investors have more accurate information on the public record about the proposal which, if they wish, means they can better engage with Du Val and/or seek advice about their options,” Gregory said.

“Du Val should now reflect on its fair dealing obligations and whether it has provided accurate information to its investors. For the FMA’s part, we reserve the right to take further action in the matter.”

Du Val said in response: “Du Val Capital Partners is disappointed the FMA has issued a public warning against the company for direct communication made to a small group of investors. The fund is closed, and the communications have no relevance to the New Zealand public. Investors have received further communication to clarify statements that may have been misunderstood.”

Charlotte Clarke, chief executive, said this month the business was evaluating options for a growth strategy - specifically the delivery of 1000 homes per year into the Auckland housing market.

“Plans are yet to be finalised,” she said.

A listing on the NZX has been speculated on in other media lately.

BusinessDesk last month reported on a letter from Du Val chairman Owen Culliney, a Hamilton lawyer at iCLAW, to mortgage fund investors saying Du Val was yet to engage with the NZX or Financial Markets Authority ahead of any potential initial public offering (IPO). That article also said investors had found their funds were frozen.

Culliney didn’t respond to Herald questions about the situation.