Cathy Odgers: The FMA is playing a dirty game with Hanover

This piece was offered to the NZ Herald by Cathy Odgers and appeared on our Dialogue opinion page in April 2012. It was one of many pieces the Herald carried looking at the collapse of Hanover and finance companies. Herald editors knew nothing at the time of publication of any campaign to disparage the FMA or SFO or their leaders. We have left it here as part of the public record of the affair.
Sean Hughes. Photo / Mark Mitchell
Sean Hughes. Photo / Mark Mitchell

Authority would do better to look at Allied's role in stripping out value.

Fittingly on April Fools morning, it came down to Sean Hughes from the Financial Markets Authority chest-beating civil proceedings against six Hanover directors and loosely termed "promoters".

At least one individual claims to have not received the 69 pages of Statement of Claim at the time of Hughes' very public announcement.

Hanover was deliberately sensationalised by leaks, drip-fed to media and anti-big business bloggers as their conduit. Should you attempt blogging balance, within minutes hatemail hit the inbox invoking your deceased Grandmother's legacy.

It was billed as the FMA's show-stopper but sizzled like cold sausages on the Mad Butcher's gasless barbecue to just $35 million from a 7-month timeframe, an unknown tiny percentage of investors with civil proceedings involving alleged prospectus violations that unless a suitably vintaged professional, no one has a hope of comprehending.

I have questioned how many aggrieved investors obtained a prospectus let alone read one. Hanover always was a property finance company dependent on the continued success of the market. The men who borrowed Hanover monies are recommencing their careers.

Names like Kruikzeiner, Cooper and Gapes. The company would have been still standing had they repaid it. They didn't and it is not.

Sean Hughes complained that the investigation wasn't easy. I have little sympathy. He should try not just running a company but drafting a prospectus under his law. Every word and phrase checked by at least four sets of eyes, written to a sophisticated advisory audience yet in plain enough language for "Ma and Pa". Hughes should then sign one off after gaining hundreds of thousands of dollars of legal advice. He may then have an appreciation of that which he is prosecuting.

The FMA played a dirty game freezing whipping-boy Mark Hotchin's assets back in December 2010. They strategically stretched the truth and patience of Justice Winkelmann in a way the writers of Shortland Street could not beat with Christmas specials as tantalising. Last year more promises until Hughes paraded himself unquestioned by business media on morning television as a big game hunter back from a shoot with the equivalent of the head of an aged tame pet goat.

It is not uncommon for regulators to play with accused through media. They know conservative lawyers advise clients to keep silent. It may be legally sage but lacks commerciality as business is all about investor confidence and telling your story first.

The FMA know the battle that goes on between client and adviser and milked it for all it is worth, knowing the first wave of bad publicity Hotchin received was almost impossible to come back from.

The moment there are market rumours of an investigation your life is effectively stalled and close to ruin.

The family ask questions, friends shun you, bankers stop taking you out in public and even the kids' schoolteachers start gossip.

I have experienced an offshore client literally blow his head off with the adverse media attention only for his board to be later cleared completely of any wrongdoing. The FMA have toyed with the Hotchin asset freeze rule of law for 18 months before electing not to lay criminal charges but issue civil pleadings.

Kim Dotcom was actually charged and within weeks allowed 10 times more money to live off than Hotchin's $1000 a week and the US FBI want him on serious criminal matters. Hotchin's earning potential diminished to zero and Tipene O'Regan claims to have next to nothing like the monies he will need to even pay his legal bills.

At $485 million total funds with 16,500 investors at an average of just $29,000 each, it is utter hyperbole to say life savings were lost. The media hunted the few worst affected and ran delicious angles of woe.

In contrast to a billion-dollar taxpayer bill underwriting South Canterbury Finance, the Hanover directors did not enter the deposit guarantee scheme and the taxpayer paid nothing to bail it out.

Precisely what happened to investor value since is where a more worthy FMA investigation should lie. Allied professionally due diligenced Hanover, accepted the deal, cherry picked $100 million of value off the tree and oversaw the ultimate loss of value. Allied then conveniently blamed Hanover after stripping out assets directors wished to keep.

Sean Hughes has been clear that no criminal intent was present in Hanover and pumped these civil pleadings as the "easiest" for the FMA to prove.

A civil action on behalf of a select few investors for 7 per cent of total value of funds invested.

Why is it that a school cleaner in South Auckland is now funding a civil claim for a Hanover investor who at one stage had more money than they would ever save in a lifetime?

- NZ Herald

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