FMA lays charges against Hanover directors

Its decision comes a year after the FMA's predecessor, the Securities Commission, gained a court order freezing the New Zealand assets of Hanover founder Mark Hotchin pending it laying charges against him. It is the first and only such order.

The Serious Fraud Office has also been investigating Hanover's affairs since September 2010 but hasn't laid any charges yet.

The FMA says it expects to file a claim in 2012 – no more precise date was provided – against those who signed the prospectuses issued by Hanover Finance, Hanover Capital and United Finance “seeking pecuniary penalty orders and compensation for investors.”

“This has been a significant investigation for FMA, focusing on a period in which investor deposits totalled approximately $35 million,” says FMA chief executive Sean Hughes.

“We have now reached a point in the investigation where we are confident that we have good grounds to commence civil proceedings. We believe this is the most effective regulatory response and we’re confident it offers the greatest opportunity for success,” Hughes says.

If the FMA's succeeds in making its charges stick, it may help other parties to bring related claims and is examining avenues to seek compensation from other parties on behalf of aggrieved investors, he says.

“Given the public interest in the investigation we want to keep the market as informed as we can. The decision is also in line with FMA’s Enforcement Policy, allowing it to bring proceedings promptly and cost effectively and to go beyond directors when considering liability.”

The Securities Commission had said it would lay charges relating to Hanover before the end of 2010.

Hanover froze more than $550 million owed about 16,000 debenture holders in July 2008 and then engineered a debt-for-equity swap in December 2009 which saw those investors become shareholders of Allied Farmers. The latter's market capitalisation is now just $3.2 million.

Comments from our readers

On 15 December 2011 at 1:06 pm June said:

If this is the way for the victims of Hanover Finance to at least get something back before hell freezes over, then great!!!

On 16 December 2011 at 8:13 pm Michael Donovan said:

Let me know if I am of a reasonably good understanding of matters re Finance companies (NZ).

> They grew to rather large numbers during the recent decades of "financial hay-days" after NZ de-regulated in the mid 1980's.

> that this growth was more or less as a result of the continuing phenomenon that it is virtually remaining impossible to obtain a banking licence.

> that thousands of mum and dad kiwi investors enjoyed double-digit interest returns off these finance companies when banks were most times only offering barely 3%.

> that both banks and finance company investment deposits were and are UNSECURED deposits.

> that banks are rather unique (in what has been referred to as the ultimate [accepted] "PONZI SCHEME" as the banks have enjoyed the fractional -reserve 'perk' that the finance companies have not....which has continued to allow the banks to lend out many times more amounts of money than they actually have on deposit..!?

> that kiwi investors have demonstrated a clear pattern of using the "pass the monkey" attitude to their investments in general...and that in relation to their investments over the years into finance companies this attitude has revealed that those investors were so gloating to their colleagues down at the club about how great it was to be getting around 12% interest from their finance company investments, while their "dumb" colleagues left theirs in the bank at only 2% or maybe a whopping 3%...!!!

So, is everyone out there really quite clear on what these accusations (charges) are based on?
And subsequently, do the directors of most of these companies really deserve to have the "monkey" dumped on their shoulders, just because the "greed" of those past investors is not being satisfied any more, mainly as a result of a GFC which most people did not really even foresee the magnitude of....back then?

Talk about that old saying "picking winners when they are past the post.!"

Now...we are being RE-regulated.
But I had always understood that finance companies had always been "regulated" by a thing called a prospectus...which in turn was overseen and 'ok'd' by people called Trustees.
And a high percentage of those Trustees were apparently lawyers and accountants!

Oh gosh....where has good old Trust gone?
Michael Donovan

On 12 January 2012 at 7:54 am anne freeman said:

It is my belief that all you have said is true. How many of those investors would be blaming the finance company if they had put their investment rates up. No one saw what could happen. Crystal balls are not yet available. I for one, was hoping for money from an investment and intended to invest it in a loan company paying 11%. My instinct was telling me no, but the chance of such a return would have won over. As it happens, this company is still going.
Saying all that however, people only have the information they are given (and ask for) to base their investment decision on, so if any company breaches what it promises then I suppose they could be held responsible. Don't offer if you cannot guarantee 100% to deliver.

FMA lays charges against Hanover directors

The Financial Markets Authority has at long last decided to file civil proceedings against directors of Hanover Finance and related companies relating to statements in December 2007 prospectuses and subsequent advertisements.

Thursday, December 15th 2011, 12:19PM 3 Comments

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