KEY POINTS:
Commerce Minister Lianne Dalziel yesterday gave the green light to the Securities Commission to pursue criminal action against finance companies it believes misled investors.
While in theory the commission already had powers to take criminal action against these companies and their directors, it had been unable to use
its litigation fund to do so and this type of action was handled by the Registrar of Companies' National Enforcement Unit (NEU).
Dalziel yesterday said that after discussing the matter for several weeks with commission head Jane Diplock, she would amend the Securities Commission's Output Agreement to allow it to use the litigation fund in criminal proceedings. Until now it was only permitted to use the fund to pursue civil action.
"It is already doing investigations of various directors over civil matters, why wouldn't you allow the commission to take the criminal prosecution as well, given that they're arising in the course of the investigation?" she said.
"I want the regulator to have every support possible in order to allow it to take prompt and effective action that will help to rebuild public confidence in the finance market."
The NEU and the commission, already working with the receivers and liquidators of failed finance companies, will between themselves allocate responsibility for future criminal prosecutions.
Prosecutions could be taken against companies, their directors, or any promoters of investment products whose prospectuses or other offer documents were deemed misleading.
The maximum penalties under relevant Securities Act provisions include five years imprisonment and fines of up to $300,000. "It's clear the threat of criminal conviction is an effective deterrent to criminal behaviour. The Government is committed to making sure the Securities Commission has the money to do the job well," said Dalziel.
At present the commission is "in good shape for taking litigation" general counsel Liam Mason recently told the Business Herald. It has just been awarded costs from the TranzRail insider trading case which added $2 million to the fund.
Dalziel, along with the commission and the Serious Fraud Office, have copped criticism from angry investors over a perceived lack of action over recent finance company collapses.
Yesterday's announcement comes less than a week after the SFO confirmed it was investigating Bridgecorp and Blue Chip and a few weeks after Diplock said investigations into collapsed finance companies were "progressing well" and proceedings against several were likely.
WATCHDOG UNLEASHED
* The Securities Commission yesterday gained additional powers to take criminal proceedings against failed finance companies.
* If convicted of misleading investors, companies or their directors face up to five years in jail and fines of up to $300,000.
* The commission now has access to a substantial war chest to fund criminal action thanks to Sir Michael Fay and David Richwhite's $20 million TranzRail insider trading case settlement last year.
