The $18 million settlement reached between Hanover Finance’s directors and promoters and the Financial Markets Authority should be of some comfort to investors in what has become a “better regulated” market, Prime Minister John Key said.
The FMA settled for just under half its $35 million civil claim, which was due to go to court later this year alleging misleading and untrue statements were made in prospectuses and advertisements distributed by Hanover between December 2007 and July 2008 about the financial position of the companies in that period.
Mark Hotchin, Greg Muir, Tipene O’Regan, Bruce Gordon, and Dennis Broit, along with former shareholder Eric Watson, denied any admission of liability in the settlement. Watson isn’t contributing to the settlement, which will include payments from Hanover’s former insurer and broker.
“There will be some comfort, not a lot, for Hanover investors that at least those directors have been held accountable and it’s $18 million, so it’s not insignificant,” Key said at his weekly post-Cabinet press conference. “We’re much better regulated now, that’s the big difference. Those finance companies essentially sat outside the level of regulation that they currently have.”
Around 5,500 out of 16,500 investors in Hanover Finance, United Finance, and Hanover Capital, are expected to get a share of the settlement, with payouts ranging from an estimated 5 cents in the dollar up to 20 cents, depending on which company they invested in.
Key said he was reluctant to comment on the FMA’s decision to settle saying the regulator has full access to all of the information and could model the likelihood of success.
“I think it just reflects the practicality of what was available to them,” he said. “The big lesson for any investor is to take advice, and if something looks too good to be true it probably is.”
The FMA’s creation was part of a push by the government to rebuild confidence in New Zealand’s capital markets after its predecessor, the Securities Commission, came under fire for its handling of the collapse of the finance sector through the latter half of the past decade, facing accusations it didn’t do enough to protect investors.
In a written statement, Hanover’s Hotchin, Muir, O’Regan and Gordon said the settlement was the best outcome for investors and taxpayers, and that the regulator would have failed in court.
Earlier today, FMA head of enforcement Belinda Moffat said in discussions with affected investors, most said they wanted certainty now and given a court trial could have taken two years to complete, with appeals taken into consideration, a settlement was the quickest and most certain way of providing an outcome now.
Accountant Bruce Sheppard, a member of the Financial Markets Authority establishment board, said he’s a big fan of restorative rather than punitive justice so it made sense from that perspective for the FMA to reach a settlement that would see investors get some money back.
Still, Sheppard, who reached a confidential settlement with Hotchin and Watson last year in order to call off their defamation case against him, said the FMA has a regulatory function to oversee wrong-doers in the market and the lack of any admission of liability by those involved in this case sent the wrong signals. The FMA also recently made a $1.5 million settlement with Milford Asset Management over a market manipulation case without the firm making an admission of liability.
Sheppard said in helping set up the FMA he “wanted to have a regulator with a lion’s heart and belly full of food to chase prey, not to have a pussy cat sitting under a tree.”