FMA still after finance companies

FMA chief executive Sean Hughes said if it had launched a court case the directors could well have argued against the allegations and been successful. Photo / Mark Mitchell

FMA warns former directors of one company and lines others up for possible action.

Directors of failed finance companies are not off the hook yet and the Financial Markets Authority says it is likely to launch criminal proceedings in at least one of the cases still being probed.

The regulator said yesterday it had wrapped up its investigations into four failed companies - Allied Nationwide Finance, Equitable Mortgages, LDC Finance, Irongate Property - and said it would not be taking court action in these cases.

It did however issue a warning letter to Allied's former directors, saying the FMA believed better disclosure should have been made so investors were aware of the risks involved.

FMA chief executive Sean Hughes said if it had launched a court case the directors could well have argued against the allegations and been successful. "We wanted to send a really strong message about our concerns but we had the choice about not taking those sort of matters to court," he said.

The FMA still has five live probes of finance companies - OPI Pacific Finance, Mutual Finance, South Canterbury Finance, St Laurence and Viaduct Capital - and an announcement on these are due by the end of this year.

Hughes said yesterday's announcement shouldn't be taken as an indication of what the FMA would do in those cases and said the authority was likely to launch criminal proceedings in at least one of them.

To date the FMA had secured 32 directors' convictions inside a three-year period. "That's a pretty good strike rate," he said.

Explaining why the authority chose its approach in Allied's case, Hughes said: "Firstly, the relatively short period during which we say those ... statements were being distributed. Secondly, it was quite evident to us that there was no real personal gain which the directors obtained through those [statements]. Thirdly we think there actually has been quite a high rate of return on a comparative basis achieved for investors since receivership."

Allied collapsed in 2010 owing $128 million to 7200 secured investors, who were covered by the Crown Retail Deposit Guarantee Scheme and so got their money back. Nearly 750 investors who held bonds with the company, owed $15.5 million, were not covered by this scheme.

Hughes said the FMA was not in the business of running "speculative litigation", which is taken at taxpayers' expense.

"In the case of Allied Nationwide we thought the better, more responsible use of funds was to express our concerns, send a sanctioning message to the directors and, of course, the directors of all of these companies are on notice that they're on watch and we would expect them to disclose their past involvement in these finance companies ... "