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Class action against Bridgecorp advisers unlikely

Friday, October 26th 2007, 8:13AM 7 Comments

by Philip Macalister

Yesterday I spent some time at the EUFA-organised public meeting of people who lost money in Bridgecorp. The aim of the meeting was to discuss what sort of action people who lost money in Bridgecorp (and other finance companies) could take against advisers. The answer to that question appears a little unclear at this stage. What was useful though was to get the feel for what is going on. There were about 70 people at the meeting. Mainly grey haired investors, along with a good contingent of media and one prominent financial planner from Tauranga was spotted down the back taking notes. Unfortunately for the meeting, and those in attendance, a couple of lawyers who spoke took over proceedings and spoke for far too long about generalities. It seemed to me they (at least one) were using it as an opportunity to tout for business. Another is pretty determined to prove that New Zealand has absolutely no investor protection and the people who should be fixing this situation (including the Minister of Commerce and the head of the Securities Commission) need replacing. Much of the talk has been about class action, however it seems this is unlikely. (Class action is where one mistake is made and many people are affected). Rather the talk is group action, where a bunch of people who have had similar experiences band together. An advantage for some in this is that people with more marginal claims maybe able to piggyback off those with more clear-cut claims. While the lawyers were keen for business there are no promises of success. Much of it hinges on what actually happened between the adviser and their client. No doubt any case will be a good test to see how well advisers have been keeping practice notes.
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Comments from our readers

On 26 October 2007 at 12:58 pm James Parker said:
What has come from all these finance companies in receivership is that some advisers have shown a very large lack of professionalism. The amount of advisers, and from very large multi national companies, who are out there attacking those advisers who had client money in the collapsed finance companies.
Being professional is also about growing your business in a clear and honest fashion. Slandering other companies and the advisers shows the public just why they cannot trust the financial adviser profession. We have advisers not only bagging the collapsed finance companies, but they bag viable finance companies under the guise of being informed. When in fact they are only putting the wind up people and causing them to question the profession these “professional” represent.
Since Bridgecorp went into receivership I have been astonished with the vitriol from some adviser including one who claimed to have a degree and then when noted this was not true announced he should have as he was good enough to have one. AND TV and newspapers continue to quote this chap as an “expert” Is it no wonder ‘Joe Public” is concerned about the adviser profession.
To those adviser to which this refers, Grow Up, act like your wish others to see you, Professional. If you have information that is correct about a company share it with everyone, don’t repeat hearsay! And most of all Don’t rubbish each other to grow your business, it won’t happen!!
On 27 October 2007 at 3:26 pm Geoff Birss said:
Your observations regarding the EUFA meeting on 25 th October cover some of the issues raised relating to Bridgecorp Ltd and also the other finance companies that have collapsed. As I attended the meeting as a member of EUFA along with many others it is fair to say that this meeting is just a starting point for concerned investors.
The proof of whether there is adequate consumer protection for the “mum and dad” investors or indeed experienced investors should be judged after a proper examination of the reasons why the respective finance companies have collapsed and what redress the investors have at the end of the day. It appears that an investor in a finance company in NZ, in reality, has less protection than someone buying a used car.
The investors obviously want their money back and I doubt if they will be overly concerned where that comes from. The investors will no doubt accept contributions from all or any of those who have responsibilities for the loss of funds whether that is the company director, manager, financial advisor, auditor and trustee etc. For any investor to be told by a receiver that they may only receive as little as 26% of their supposed secured debenture stock investment back has certainly started the alarm bells ringing. Public investors will want to know to what extent the losses are due to normal “risks” of finance company operations whether they be in NZ or similar overseas jurisdictions or whether they were due to other factors such as gross negligence, fraud or theft of investor funds. We therefore need an examination covering both criminal and civil liability to to satisfy the public investor’s concerns and hence assist the recovery of "lost" funds.

Geoff Birss
EUFA Member
On 28 October 2007 at 12:50 pm Nigel Tate said:
Hi All

I suspect that Phil is slightly out geographically when he stated that I was "a prominent adviser from Tauranga" when in fact I am from Hamilton and attended the EUFA meeting with the blessing of the organisers.

I attended as the Acting IFA President in lieu of Simon Hassan being overseas, to represent the interests of members of the IFA.

Many will be surprised to hear that I concur with most of Phil's comments regarding the speakers at this meeting, I felt the meeting which was specifically for Bridgecorp Investors, lacked clear direction and therefore became bogged down in the legal process of claiming and many of those that attended had left before they had a chance to ask questions that I can only imagine they came to ask. I also feel that this organisation is incorrectly named Exposing Unacceptable Financial Advice (EUFA) as the focus seems more to be on the Directors and Reciever of Bridgecorp than Advisers.

There was no clear outcome from the meeting as it was called to an end prematurely due to the room that had been booked being required for the next booking.

The attendees that spoke with me after the meeting were clear in the main they felt that the main target for them was Bridgecorp itself rather than their advisers, at least in the first instance. One investor that spoke stated that he had just missed loosing his money with Bridgecorp in Sept 06 simply to reinvest the maturity proceeds in three other Finance Companies, one of which has subsequently failed, all this without an adviser being involved. Another couple spoke of their Adviser as a "trusted friend" and were clear that they did not blame him for their losses, he is a member of the IFA.

I was able to speak to the meeting to tell them of the Institutes objectives along with our Complaints and Disciplinary process, most were pleased to know we were represented at the meeting and I felt that most of the speakers were reasonably balanced in their views of Advisers saying that there are a lot of very good Advisers out there doing great jobs for their clients', but as with any profession there is the odd % there are not, as with the Renshaw Edwards case of 1992.

An interesting by line was that I noted the organiser, Suzanne Edmonds had both her brother, Grey Eatwell and their cousin Chris Lee speaking at the meeting, neither of them focused on what the investors concerns were but simply the path forward towards either any possible group actions or the lack of established controls in the finance company sector.

The organizers had a second meeting to establish an incorporated society after the main meeting which was attended by about a dozen individuals. The next step for the new entity is to meet with the Minister of the MED to discuss their recommendations, that could prove to be a far more interesting meeting.

The Institute will continue to monitor and speak with the EUFA to maintain a balanced approach to investor concerns and the roll of good advisers in the advice process.

Nigel Tate CFP, CLU
IFA (acting) President
On 28 October 2007 at 10:08 pm Alun Fosta said:

I too attended the EUFA meeting but only as an "interested observer." I am also now a member.

I have to agree with the comment about the lawyers. I thought there were three, not two and the last one was determined to be heard fully despite polite requests to him to shut up and sit down. I felt that Chris Lee was by far "the best of the bunch."

My chief interest in attending was that the main thrust of EUFA was against the financial advisers and very little, if any, against the finance company(ies)

My own feeling is that a two pronged attack should be considered. I have seen deals done by finance companies that should never have been done in a million years. Car loans where the amount of the loan for the actual vehicle was increased by about 50% as a result of the addition of "broker fees", "establishment fees", LRI (Loan Repayment Insurance) in some cases sold to beneficiaries who could never ever make a claim (talk about insuring pig iron under water against fire!) and, of course, vehicle insurance. All these extras were, of course, charged for at the same high (25-30%) interest rate as the loan on the security. So, you have the financial advisers shovelling the money in through the front door and finance companies shovelling it out through the back door on some highly suspect, at best, and fraudulent, at worst, loans. I personally know of one finance company branch manager who worked for one of the finance companies that went broke (not Bridgecorp) and some of whose deals I have seen, walked literally across the road and got a job with another finance company and is probably continuing with the new one where he left off with the old one. Surely the directors and, perhaps, ex-employees of the bankrupt finance companies should be called to account.

EUFA stands for "Exposing Unacceptable Financial Advice." I submit that it is not just the advisers who have given "unacceptable financial advice," it is also the finance company employees that have given it and the finance company directors have condoned it by allowing high risk loans to be made on a "carte blanche" basis.

The finance companies are the tip of the iceberg. I read where KiwiBank had NZ$6 Million in Northern Rock paper, makes you wonder how much the big banks had and how many high risk loans to high risk borrowers they have made. The article from Finsec about BNZ on the EUFA website gives an interesting insight into what goes on. If any reader really wants to know "where the money comes from" that banks lend, I suggest they do a Google search of "Money as Debt" It is a 47 minute movie, admitted in cartoon format, but which really shows how banks create money literally out of nothing. Only two entities seem to have the ability to create something out of nothing; God and banks!

On 29 October 2007 at 11:02 am admin said:
Sorry Nigel, my geography is good. The adviser I referred to is indeed both prominent and is based in Tauranga.
I did look around the room at the sea of grey hair and balding pates, but didn't pick you up. Sorry about that.
On 11 May 2008 at 3:31 pm Ken Gilmour said:
I have just placed an ad. in NZ Herald public notices seeking interest from any B/Corp investor to contact me re "class action". This ad was placed only last Saturday 10th. May. I would be very much interested in having more info from you rather than pursue my own an and I would very much like to pursued fragment further any group that is already in existence. I would be very pleased to contribute to the very substantial fees that will arise in having the B/Corp directors on. I would be very keen to get these guys because of their very unethical and perhaps illegal activities. Why should they get off scot free having stuffed thousands of trusting folk.
On 11 May 2008 at 3:33 pm Ken Gilmour said:
Having read through my original comment I realise that I have cocked it up I meant to say that I do not wish to fragment any intended action by carrying on with my own ad.
Commenting is closed



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