KEY POINTS:
According to its website, "investor confidence" is of prime importance to the Securities Commission.
It explicitly states that the fostering and strengthening of such confidence is a central part of its "vision", "purpose" and work.
But since Rod Petricevic's Bridgecorp failed nine months ago, springing the trapdoor beneath the feet of a further 10 finance companies, there is now precious little of that commodity left in the sector.
This lack of confidence means all but the biggest and best capitalised firms are facing a battle to secure enough cash for their survival and ultimately repayments for their remaining investors.
So what has the commission done to try to restore that confidence and in terms of another of the "outcomes" it contributes toward - that of "intervening on behalf of investors"?
"Virtually nothing," says Wellington barrister James McFarlane who is acting on behalf of investors against some financial planners who directed client funds into companies that subsequently went bust.
"Their response to a lot of this has been shocking," says Suzanne Edmonds who, via her organisation Exposing Unacceptable Financial Advice, is helping organise groups of investors who wish to take legal action against their financial advisers.
"There seems to be no accountability in the Securities Commission. They just want to blame someone else for it. We're sick to death of everybody blaming everybody else for it. When is someone going to put their hand up and say, "We've made a muck-up and let's fix it". We're very hot about this."
McFarlane's and Edmonds' strong views are unsurprising given they are dealing directly with large numbers of investors hurt badly by the failures.
But it's possible that those investors who feel the commission has let them down don't fully understand what the commission's role is. That's a view commission chairwoman Jane Diplock expressed to the Business Herald in 2006 after the first round of receiverships.
"They think we can get their money back," Diplock said.
"They've written to us and are mystified that there's not a lot we can do and I guess that's their frustration and in a sense ours too. There's nothing we can do to help them and that's the nature of the framework."
That must be galling for some investors, especially those that know the commission's counterpart on the other side of the Tasman, the Australian Securities and Investment Commission, stopped Bridgecorp from raising funds there a year before the group failed, and New Zealand investors' money was used to repay Australian investors in the interim.
Meanwhile, those financial planners to whom unsophisticated investors turned for advice have faced very little comeback. Neither have those companies' directors or managers, despite receivers flagging serious concerns about they way these businesses were run.
The commission's director of primary markets, Kathryn Rogers, this week told the Business Herald the commission's powers were "really limited to banning offer documents". That effectively means it can prevent companies from raising money where there are questions about the information contained in its prospectus, investment statement and advertising material.
Before there is any indication of trouble with a particular company, those responsible for making sure that information is not deceptive or misleading, are ultimately the directors of the company itself.
When the commission is concerned there may be issues with offer documents, for the most part it is unable to go public with those concerns.
That's because until the matter is resolved, the negative publicity generated if a suspension were made public would damage the firm's reputation, prospects, and the safety of existing investors' funds.
Similar constraints apply to other aspects of the commission's activities.
According to commission media spokeswoman Catherine Chapman, that leads to a situation "where something happens and we look all weak and strange, and yet we may have been very busy trying to sort this thing out".
While the commission may be constrained in what it can say in these situations, McFarlane believes it has failed to be sufficiently vocal in an area where it is not similarly gagged. He says it could have been far more active in educating investors about their rights when dealing with financial advisers.
Advisers have been under fire for the way some funnelled client funds into companies which in hindsight were poorly run, or were probably operating for some time outside the terms of their trust deed or whose prospectuses did not truthfully reflect their position or business.
This was often done because these companies paid advisers larger than normal commissions. Under legislation dating back to 1996 they were not required to disclose their commissions unless asked by investors.
The Securities Commission of course was aware of this "deficiency", as McFarlane calls it, and alerted the Government to the issue back in 2002.
It has now been fixed and from the end of this month advisers will be obliged to disclose to investors all commissions and a raft of other information as a matter of course.
But in the intervening period a lot of people who knew little about investments sought advice from financial planners and were unaware of the importance of asking what was in it for these "experts".
"One of the core problems for investors was that they were investing in high risk products with no indication of the real risk they were running, no indication of the commission or economic incentives for the advisers to promote those products to them," says McFarlane.
The commission insists that it does have an effective investor education programme, which clearly stated investors' right to this information. This programme largely consists of material on its website and leaflets distributed through the likes of the Citizens Advice Bureau and groups such as Grey Power and Probus.
The commission has an annual budget of about $600,000 for its to promote public understanding of the law and practice of securities.
"It's not big and we have a number of set projects," says Chapman.
Meanwhile, the speed at which the disclosure issue was addressed is a question for the Commerce Minister, says Rogers, but her personal view is that the extensive industry consultation that took place in advance of the new regulations for advisers, of which the new disclosure requirement is a part, "must lead to a better outcome".
McFarlane disagrees, pointing out the industry itself got far more of a say than the investors who the legislation is intended to protect. Furthermore the outcome of that consultation appears to be largely a self-regulatory model of a type that has been rejected as unsuitable for the real estate industry.
Securities law expert and former Securities Commission member Stephen Franks also thinks the commission could have done a far better job of engaging with the public.
Last year in his blog he criticised the commission and other regulators for being "astonishingly silent in the face of avoidable panic" in the finance company sector. "There were things they could have been doing in terms of taking example cases and publicising them. They have a government shelter from liability for good faith action and they weren't using it."
Franks points to ASIC initiatives such as picking up on companies that put out "fatuous claims" and "shredding them publicly".
"They don't need new powers to do that."
He also believes the commission could be working better with the financial media in a "constructive symbiotic relationship".
Chapman is aware of the frustrations the media often feel when dealing with the commission but says that is also down to the need not to unfairly prejudice firms that are under preliminary investigation or, as Rogers says, the requirement to not undermine potential future court action.
But Franks doesn't buy those arguments or indeed Diplock's assertion that there's nothing legally the commission can do to help out-of-pocket investors.
"I think it's like so much else in New Zealand in that it's so much easier to look as if non-performance or poor performance is not your fault if you could pretend that there's been some legal or regulatory gap."
Indeed, he believes the commission has an attitude problem, a view shared by McFarlane.
"The core distinction between the commission and securities regulators elsewhere is really the enthusiasm that the overseas regulators apply in pursuing these types of cases. It has little appetite for rigorous enforcement. "The attitude really has been that it's the investor's own fault, they were seeking higher returns."
Another widely held view is that the commission lacks sufficient resources to fully perform its duties.
"I don't want to particularly make a monkey of our Securities Commission," says Lee, "but I don't think they have enough people to do the task that they're supposed to do."
While Franks agrees the commission is stretched too thin, he believes the answer lies in cutting back its responsibilities.
Asked if the commission has enough money and resources for its wider duties, Rogers says: "I don't want to get into that too much".
She hesitates, at last saying: "We have not gone without funds we have needed".
Fighting 'proverbial black hole problem'
As receivers go through the wreckage of last year's finance company collapses they have, in some instances, reported issues about the way companies were run that they believe amount to breaches of securities or even criminal law.
They have forwarded material to the relevant authorities, and in at least one instance have expressed surprise that those authorities have not commented publicly on it.
Wellington barrister James McFarlane describes it as "the proverbial black hole problem".
"Things disappear into there. There's a lot of rhetoric about how vigorous the Securities Commission is but the reality is that very little is done.
"For any inquiry that's undertaken there's no enforcement undertaken, there's no economic deterrent for breaching rules by way of severe penalty or reputational harm."
So what are the commission and other authorities doing with this material?
"We are working closely with other agencies, particularly the registrar of companies," says Securities Commission director of primary markets Kathryn Rogers.
She says the commission's duties with regards to failed finance companies involve ascertaining whether their offer documents were deceptive or misleading during the time they were accepting investor funds.
The Ministry of Economic Development's national enforcement office has responsibility for prosecuting any after-the-fact criminal offences under the Securities Act.
If there is evidence suggesting offences under the Crimes Act, such as fraud, the Serious Fraud Office is involved. Anything under the Fair Trading Act, which under current law would include issues around financial advisers, is handled by the Commerce Commission.
The fact that these different aspects are handled by different agencies contributes to a perception that the commission compares unfavourably to the Australian Securities and Investment Commission, which has a far wider role, including that of prudential supervision, which is handled by private sector trustee companies in New Zealand. But although Securities Commission chairwoman Jane Diplock last year said it could do nothing to help get investors' money back, that has now changed.
In October it gained powers to take civil action against company directors where it believes their prospectus offer documents or advertising were misleading or deceptive.
That can result in fines of up to $1 million and while that money would not go to investors, the commission can also obtain a declaration of civil liability from the court.
"That's effectively saying there's been a breach and it doesn't need to be proved again in any subsequent compensation proceedings," says Rogers.
"Investors could rely on that."
But the new powers apply only to companies that issued new prospectuses after October 26, 2006, which prevents the commission exercising them in most of the recent failures.
The commission has yet to exercise this option, but "we are certainly looking at using it".
