Forsyth Barr, Credit Agricole settle with regulator over Credit Sails with $60M fund

Brokerage Forsyth Barr and firms associated with Credit Agricole Corporate and Investment Bank have agreed to establish a $60 million settlement fund to compensate investors and pay $500,000 in costs over the disastrous NZX-traded Credit Sails notes.

The settlement is part of a deal under which the Commerce Commission concludes its probe into the now-worthless notes and agrees not to take legal action against Forsyth Barr, Credit Agricole, Credit Sail and Calyon Hong Kong. Under the settlement, eligible investors will receive about $850 for every $1,000 invested.

Under the settlement, the four companies haven’t admitted liability and “do not accept the commission’s views on matters arising out of its investigation,” according to a statement. The regulator says the Credit Sails were marketed and sold in a way that was likely to have breached the Fair Trading Act.

The index-linked notes were promoted by Calyon Hong Kong and the sale managed by Forsyth Barr in 2006, raising $91.5 million at $1 apiece from 3,000 investors on the promise of 8.5 percent interest and capital protection. The notes failed in 2008.  The notes were backed by a portfolio of corporate debt from 125 firms, and came unstuck as the global financial crisis knocked out portfolio members including Lehman Brothers, Washington Mutual, three banks in Iceland and Idearc, the publisher of America’s Yellow Pages.

The securities were “highly complex and unsuitable for the average investor,” a fact that ought to have been known to those involved in their promotion and sale, the commission said. “In our view there were sufficient grounds to file legal proceedings under the Fair Trading Act against the companies who promoted and sold Credit Sails,” said commission chairman Mark Berry. Still, those proceedings “would likely have been lengthy, costly and with no absolute certainty of a successful outcome.” The settlement was “an excellent outcome.”

The settlement is available to investors who bought the notes before Nov. 1, 2008 and still hold them, or those that bought them before that time and sold them for less than 85 cents apiece. “We believe these mostly elderly investors bought Credit Sails because they were told that their capital was protected,” Berry said. “Consumers must be able to rely on representations made.”


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