Kenyon Clarke of Du Val Group. Photo / supplied
The Financial Markets Authority Te Mana Tātai Hokohoko has told Auckland property developer and investor Du Val Group, headed by Kenyon Clarke, to remove advertising likely to mislead or deceive investors.
Du Val's statements about its mortgage fund breached fair dealing provisions because they gave the impression that the investment was low risk, it said.
"In fact, property development including associated finance is inherently risky," the FMA said today.
Kenyon Clarke told the Herald the action was over the mortgage fund which had raised around $20 million from wholesale investors: "We have not had a single concern," Clarke said of people in that fund.
But the FMA said Du Val's statements said the fund had "the best of both worlds", with high security and high return and comparing it favourably to bank term deposits but without a balanced view of the risks.
Du Val also claimed there were "no fees" associated with the mortgage fund, despite the company retaining any profit on projects above the return to investors.
The FMA concluded Du Val receiving 100 per cent of all profits above the 10 per cent fixed return to investors was effectively a performance-based fee and Du Val was not transparent about this.
The statements appeared at various times on Du Val's website and social media channels. The FMA initially raised concerns with Du Val and the firm took some steps to amend or remove its advertising materials. However, the regulator considered its concerns were only partially addressed and continued to see Du Val marketing materials as likely to be misleading.
Du Val must cease publishing the materials and ensure future materials are not likely to mislead or deceive about the inherent risks of financing property development projects.
Paul Gregory, authority investment management director, said the FMA assessed the seriousness of Du Val's contraventions and decided a direction order was the appropriate and proportionate regulatory response.
"The direction order requires Du Val to demonstrate how it is rectifying its advertising practices. Importantly, we expect Du Val to make changes across all its financial product offers, not just the mortgage fund," he said.
The FMA has not ruled out further action but the direction order is focused on addressing an existing and ongoing risk of harm to investors from advertising materials.
Du Val must report its compliance with the direction order to the FMA within 10 working days. Within 20 working days Du Val must confirm how it has reviewed its advertising process to ensure future compliance.
The direction order was issued under section 468 of the FMC Act, which allows the FMA to make a direction order if it is satisfied an entity has contravened, or is likely to contravene, a range of provisions in the FMC Act, including the fair dealing provisions.
The FMA has been advised that Du Val intends to appeal certain aspects of the FMA decision, its statement said.
Owen Culliney, a Du Val Capital Partners director, said today: "The FMA has determined that some of Du Val Group's historic social media advertising relating to wholesale investment products, which invited potential investors to simply make an enquiry, did not comply with Section 19 of the FMC Act."
Culliney said the business was "disappointed by the FMA's approach to the use of social media advertising, saying it is out of step with other jurisdictions and modern communication and marketing channels.
"We are respectful of the role the FMA plays as a financial market regulator and we take our compliance obligations very seriously. However, we fundamentally do not agree with the FMA's analysis of how wholesale investment funds can be marketed, in particular through social media and other digital channels for advertising. We will be challenging those findings through the courts," Culliney said.
Du Val complied with the FMA's direction in the interim and removed the social media content and have made the required changes across our financial product offers.
But Culliney said in this digital world, people source information through a wide variety of channels. We believe social media has a significant role to play in supporting organisations to speak to their customers.
The FMA's action was over wholesale experienced investors.
Du Val's mortgage fund advertised 10 per cent fixed return per annum for minimum investments of $250,000. Distributions are quarterly and those interested have to register their interest to get the information memorandum. That fund is aimed at wholesale investors.
The business was established by the discharged bankrupt Clarke who says the company's web site: "I lost my $120m business, my home, my cars and all my possessions 12 years ago." He referred to loans from an overseas bank and said "the phone stopped ringing and no one wanted to take my calls. My wife and I lived on Government assistance, she washed her hair with soap and we ate 50 cent lunches."
But he also tells how he then founded the successful residential developer and said: "I'm made of iron and leather because I've built myself that way. You can too."
Clarke is the chief executive of the business whose website says it has a gross domestic value of $750m.
"The Du Val Group is one of New Zealand's largest full-service property groups spanning, acquisition and development through to construction, marketing and post-completion management. Outside of leading the Du Val Group alongside his wife Charlotte, Kenyon is a passionate entrepreneur who enjoys sharing his knowledge and helping others navigate business."
In January, the Herald reported Du Val seeking $17.5 million from qualified wholesale investors in New Zealand, Hong Kong and Singapore to buy two Auckland residential complexes it owns to establish build-to-rent offerings.
According to an information memorandum, the Du Val Build-to-Rent Fund LP is forecasting returns of more than 8 per cent annually.
That offer closed on January 31.
Du Val said then it had a $750m pipeline of new work and cited CBRE research last year saying it was New Zealand's largest private suburban apartment developer.
In July, the Herald's Spy column reported how Kenyon and Charlotte Clarke had created a new doco/reality show called The Property Developers.
British-born Kenyon is the CEO of Du Val Group and his Kiwi wife, Charlotte, is the COO.
Spy understands filming is underway being shot over the next few months in luxury locations around the country, following the couple's glamorous lives, and synced in with their major business and property developments.
The show will take a peek behind the scenes at what it takes to succeed in the development game, along with giving real solutions for the current New Zealand housing crisis.
Spy by Ricardo Sumich said the couple "live in a Remuera clifftop mansion and have the opulent toys that go with living a life of luxury, including a million-dollar Rolls-Royce Phantom which rocks a Du Val number plate".
House prices will be 20% lower in real terms by the mid-2030s than in 2021.