FMA beats Perpetual court challenge

The High Court has allowed the Financial Markets Authority to retain documents relating to its investigation into Perpetual Trust, despite finding the FMA’s search notices were unlawful.

Monday, September 10th 2012, 11:40AM

by Niko Kloeten

Perpetual challenged the legality of the searches, which took place in late April, on the basis that the FMA’s section 25 search notices didn’t give the companies involved sufficient time to comply.

Justice Paul Heath ruled that the FMA’s notices were unlawful because they required documents to be provided “immediately”; however, he has allowed FMA to keep the documents on the basis there was no unfairness in the way it obtained the information.

FMA chief executive Sean Hughes said this is the first time a Court has ruled on a question about FMA’s ability to give a notice of this kind, since FMA was established in May last year.

“FMA accepts the judgment and welcomes the clarification from the Court on how it expects FMA to use this power going forward,” Hughes said.

“Significantly, the judgment confirms that FMA acted reasonably and fairly. The circumstances of this case required FMA to act urgently in the public interest, and that action has resulted in the repayment of a substantial loan which is in the best interests of investors.”

Justice Heath confirmed that on April 26, FMA had grounds to suspect a potential breach of Perpetual’s duties as trustee and a possible breach of s58 of the Securities Act 1978.

He ruled that it was necessary and desirable for FMA to embark upon collection of relevant evidence.

In April the FMA began making inquiries into issues regarding Perpetual Trust - a subsidiary of Pyne Gould Corporation (PGC) - and related entities.

Those enquiries focused on loans totaling $28 million made by the Perpetual Cash Management Fund to Torchlight Fund and the implications for the investors in the Cash Fund and the Perpetual Mortgage Fund.

Torchlight has since repaid the loan in full and Perpetual has opted to close down its Mortgage Fund and ‘internalise' its Cash Fund.
In a notice to the NZX today PGC said it and Perpetual Trust “will now consider the possible implications of the judgement.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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