An interesting stoush is developing between the Securities Commission and the promoters of an investment scheme which is pushing the boundaries of online investing.
Endeavor Plan is an online investment programme which promotes drip feed investments into a Hong Kong based absolute return fund offered by Charles Schmitt and Associates. Investors who refer other people to the scheme are paid “a trail commission”, Endeavour Plan’s founder Victor Cattermole says.
He describes it as “an Amway-type process.”
The Securities Commission, in March, “banned advertising for the scheme because it does not comply with the law. To be offered in New Zealand the scheme must have a registered prospectus and an investment statement. These documents are not available,” it says.
However, Cattermole doesn’t believe the commission is correct. He says the scheme isn’t based in New Zealand, therefore it doesn’t need a prospectus registered here.
He says that under the commission’s interpretation any investment in the world which can be seen on the Internet should have New Zealand documentation. Securities Commission director of enforcement Norman Miller agrees with this view, but acknowledges it isn’t practical.
“It’s just one of the phenomena of the Internet,” Miller says.
So why pick on Endeavour Plan?
Simple. Although the company is registered in the British Virgin Island (where it apparently has a registered prospectus) and the site sits on a server in Asia, uses a fund manager in Hong Kong, Cattermole lives in Wellington.
Miller confirms this is one of the reasons why the commission has singled Endeavor Plan out. Cattermole says the Securities Commission has written to him about the prohibition order, and he is essentially ignoring it.
“I have not responded which means get knotted to be honest.”
Cattermole says the real promotion of the scheme won’t start until sometime next month and hasn’t raised any money in New Zealand yet.
However, the company did email out a media release earlier this week promoting the fund with the introduction: “The fund they tried to ban set to make almost 12% per annum as investors flock in!”
The release goes on to talk about performance and says “if (the current) quarterly rate can be sustained it would be equivalent to an annual rate of almost 12%.”
Miller describes the email as “cheeky” and believes it could be interpreted as an advertisement. If so Endeavour has breached the commission’s prohibition order.
What’s going to happen now?
“We’re considering further action,” Miller says.
He reckons the laws are suffificient to police the sale of financial services over the Internet. Would the commission take it further? “It’s possible.
We’re up to the challenge,” Miller warns.
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