Watchdog raps reckless adviser

By ELLEN READ

The Securities Commission has labelled a Masterton investment advisory firm "incompetent and irresponsible" as it continues a tough campaign against malpractice.

The firm, Morison Guildford, drew the ire of commission chairwoman Jane Diplock for its role as adviser for an offer made by the now-defunct Gideon Investments.

Releasing a report into the offer, Diplock said the situation highlighted the need for tighter laws relating to investment advisers.

Gideon was put into liquidation after the death of managing director Michael Bastion in Hong Kong in March 2000.

Gideon purported to be a shares, bonds, currency and futures trading fund and claimed returns of up to 51.5 per cent a year.

The liquidator concluded there had been fraud and that most of the investors' funds were used to buy property, racehorses and to pay for Bastion's lifestyle.

The scheme had no prospectus or investment statement, as required under New Zealand law.

The commission's report found that Morison Guildford actively solicited funds for Gideon, raising about A$5 million ($6 million) through its office.

"Investment advisers have certain obligations to those who invest on their advice and with their assistance," said Diplock.

"We consider that Morison Guildford's conduct was incompetent and irresponsible. [It] should have been more careful."

Morison Guildford did not question the lack of offer documents and its evaluation and monitoring of Gideon was close to non-existent, she said.

This fell short of what might reasonably be expected of a firm offering services to the public.

The case might also be an example of churning - advising excessive turnover of policies to bring in commissions, said Diplock.

Andrew Morison, of Morison Guildford, said because "some matters in the report are still open" the firm would not comment at this stage.

Diplock said if the matter had been brought to the commission's attention during the offer the advertisements promoting it could have been stopped and the securities prohibited.

The matter had now been referred to the Companies Office, as it was not the commission's role to impose punishment.

She said the commission had recently recommended changes to investment adviser law and this case was an example of the type of matters its recommendations were intended to help address.

In particular, the events illustrated the value of rules about mandatory investment adviser disclosure and recommending illegal offers of securities.

"We want to lift the levels of disclosure - and we've made a report to the Government about that - and we want to make sure that investment advisers understand there is a certain level of professionalism which is expected and they've got to live up to that," Diplock said.

"This case is a very clear example of what not to do."