Credit Sails $60m settlement reached

Commerce Commission chairman Mark Berry said Credit SaILS was marketed and sold in a way that is likely to have breached the Fair Trading Act. Photo / Mark Mitchell

More than 3000 investors are to receive some of their money back after the Commerce Commission reached a $60 million settlement agreement with five companies over failed investment product Credit SaILs.

Credit SaILs was a complicated debt security sold to the public in 2006 with the prospect of 8.5 per cent return and capital protection.

But it failed in 2008 and is now virtually worthless.

New Zealand brokers Forsyth Barr Limited, Forsyth Barr Group Limited as well as investment bank Credit Agricole Corporate, Credit Sail Limited and Calyon Hong Kong Limited have agreed to set up a fund to compensate investors.

The Commerce Commission said it had reached the view that Credit SaILS was marketed and sold in a way that is likely to have breached the Fair Trading Act.

"In our view there were sufficient grounds to file legal proceedings under the Fair Trading Act against the companies who promoted and sold Credit SaILS," said Dr Mark Berry, chair of the Commerce Commission.

But he said the legal action would likely have been lengthy and costly with no absolute certainty of a successful outcome.

Under the settlement, investors will now receive about $850 for every $1,000 they invested in Credit SaILS.

Without it investors could expect to get about $20 from their $1,000, the commission said.

Forsyth Barr managing director Neil Paviour-Smith said the firm had always believed it had complied with the Fair Trading Act.

Paviour-Smith said since the failure of Credit SaILS in 2009, the company had worked with the trustee, Calyon and Credit Agricole CIB, the Commerce Commission and other regulatory authorities to examine why the product failed and also whether anything could be done to restore investors' capital.

"We have worked hard to achieve a really positive outcome for investors, many of whom we believe would have written off this investment."

Eligible investors are defined in the settlement agreement as including anyone who purchased Credit SaILS before 1 November 2008 and who still hold those notes, and anyone who purchased Credit SaILS before 1 November 2008 who has sold the notes at any time for less than 85 cents per note.

A trustee will be appointed to distribute the settlement fund to eligible investors.

Investors do not need to contact the Commerce Commission or the companies, the trustee will write to all investors shortly.