The Commerce Commission is investigating several alleged breaches of the Fair Trading Act by Blue Chip, which may have broken a string of laws.
The Serious Fraud Office (SFO) is also looking into the property investment business and asking for investors to call a free-phone service with information.
The spotlight has turned on dozens of other companies using hard sell to shift off-the-plan properties, luring investors to pay for their purchases by mortgaging their homes. The sales process many of these companies use may breach the Fair Trading Act and other laws.
To act against Blue Chip or other companies, the Commerce Commission will need to prove there was misleading or deceptive conduct generally, or that false statements or representations were made in the sales process. Adrian Sparrow, the commission's director of fair trading, told the Herald on Sunday that areas being investigated include false or misleading valuations provided to investors, and the legal status of properties.
Many Blue Chip investors now claim the independent registered valuations they based their purchases on were inflated - some by tens of thousands of dollars. John Horner, convenor of the business and commercial law committee of the Law Society and a partner at Quigg Partners, says if it can be proved the valuations were misleading, that may lead to prosecution under the Fair Trading Act.
Some investors believe the valuations were based on other off-the-plan apartment sales and did not truly represent the values of comparable properties selling on the open market.
If Blue Chip or another company had claimed to be selling at wholesale prices, as many did, but sold at market value or even above market value, that could also be viewed as misleading, says Tony Steindle, a lawyer at Steindle Williams in Auckland and author of Property Law, A New Zealand Investor's Guide. For example, if they were based on other off-the-plan apartment sales, and clients weren't told this fact and assumed valuations were based on a wider pool of comparable sales, they could have been misleading.
As well as the Fair Trading Act, it's possible there may have been breaches of the Securities Act and Resource Management Act.
In the case of the Securities Act, there will be questions over some of Blue Chip's more complex products, such as the "Blue Chip Premium Income" product. Investors provided deposits for apartments to get the development off the ground, but Blue Chip held the option to buy back the property before settlement. In the meantime investors earned a "product fee".
Under the Resource Management Act, deposits made by investors on yet-to-be-constructed buildings should be refunded if there hasn't been reasonable progress within two years, says Steindle. Yet the properties of some Blue Chip clients, who paid deposits up to four years or more ago, haven't settled.
One Blue Chip customer paid a deposit of $168,000 more than two years ago for a property in St Martin's Lane, Grafton, which was never built.
When the out-of-town investor sent an Auckland relative to visit the site earlier this month, she was told that Blue Chip no longer owned the development and a company called Icon had bought it 18 months before.
Yet a former Blue Chip salesman, who spoke to the Herald on Sunday, was surprised when he looked at sale-and-purchase agreements he was handing to clients on behalf of Blue Chip to sign. They were for a development by a company called Icon, but appeared to be for the same development he had sold previously under the name St Martin's Lane.
While the directors of Icon and Blue Chip do not share any directorships, the constitution of Icon Apartments refers to a "joint venture agreement". This was the same terminology Blue Chip used in selling its St Martin's Lane apartments.
The salesman said that during the selling process, clients were told the rents being guaranteed by Blue Chip were "market rents".
This may be relevant to a Fair Trading Act prosecution if it can be proved that the guaranteed rent was higher than market rent and clients had been misled.
Sparrow says if it can be proved that Blue Chip rents weren't at market level, but clients were told their rents were being subsidised, this could not breach the law. It could breach the law if they were being misled about true market value of the rents.
Sparrow says it doesn't make sense for several Government agencies to work on the same investigation independently. He expects that eventually one will take over.
Prosecutions under the Fair Trading Act are held in a criminal court. Defendants can be fined and ordered to pay reparations, but they cannot be jailed. If, however, it transpires that a crime has been committed under the Crimes Act, defendants can be imprisoned.
Individual investors of Blue Chip and other hard-sell property companies can also lay complaints with professional organisations - such as the Law Society, Institute of Chartered Accountants and the Valuers Registration Board - if they were advised by members and are dissatisfied with that advice. And they can complain to the Advertising Standards Authority, but with most Blue Chip companies in liquidation and the company unlikely to continue in business, this may be a waste of time.
Although the authorities are concentrating on Blue Chip, there are many more companies selling off-the-plan property using hard-sell methods.
A Consumer magazine investigation last year named other companies that used questionable sales tactics in their seminars and marketing material.
They included LJ Hooker Developments and the Aldy Group. Others selling managed property investments include NZInvest, Key2, Catalyst2 and Circle Group.
"There is a lot of deceptive stuff going on in the sale of new property," says Steindle. "I think salespeople are getting better at knowing where the line is and not breaching the law."
Grant Liddell, the SFO's new director and chief executive, said staff had been investigating Blue Chip for more than a week. The investigations are based on complaints made to the office. Anyone with information they think will help should phone the SFO's call-free service on 0800 109 800.
Sparrow is inviting anyone who has concerns about Blue Chip and other companies selling off-the-plan property investments to contact the Commerce Commission so it can analyse trends that emerge.
Phone the commission on (04) 924 3600 or visit www.comcom.govt.nz.By Diana Clement Email Diana