$45m ANZ settlement a landmark

Photo / Dean Purcell

The Commerce Commission has reached a record settlement of $45 million for thousands of investors in two failed funds marketed by ING (NZ) Ltd and ANZ National Bank Ltd, deciding against taking a risky and potentially lengthy court case.

The bank has also agreed to reimburse the consumer watchdog for the $1m cost of the complex investigation.

However, as ANZN and ING did not accept all the commission's findings, the amount would not necessarily cover all the money owed to investors.

The commission investigated alleged breaches of the Fair Trading Act relating to the marketing and promotion of the funds by ING and ANZN. The funds were frozen in March 2008, affecting around 15,000 investors.

ANZN and ING had said ING's diversified yield and regular income funds were a safe investment and collected around $700 million from investors.

Almost all the investors have accepted an offer from ING for 60 cents in the dollar for funds invested in the diversified yield fund, and 62 cents in the regular income fund, or about $500m in total.

The commission said today ANZN and ING accepted some of the claims made in marketing material and by ANZN advisers may have breached the Fair Trading Act.

"In addition to compensating investors, this settlement also sends a clear message that a failure to provide accurate information to consumers can lead to significant financial consequences," said commission chairman Mark Berry.

"Throughout our investigation, investors have told us that they would not have invested in these funds if the actual risk had been represented accurately," he said.

The 15,000 people whose investments were frozen were eligible for reimbursement under the settlement, but it would take a further 20 working days to decide how the $45m would be divided up.

Investors were likely to receive the money within five months.

The commission would take no further action.

Of the 2800 ANZN customers who invested in the funds, about 100 investors had already received all their money back after the banking ombudsman became involved.

The rest of the affected investors were introduced by financial planners.

After the bank approached the commission about settling out of court, the commission decided that a settlement was preferable to potentially risky and lengthy court action.

The maximum fine for a business convicted of breaching the Fair Trading Act is $200,000, and the maximum fine for an individual is $60,000.

"After careful consideration, the commission believes that this settlement serves the best interests of New Zealand consumers, and the affected investors in particular, who in many cases, stood to lose part of their life savings," Dr Berry said.

The commission had been prepared to challenge the validity of a waiver forced on investors who accepted payment from ANZN and ING.

ANZN, which had also agreed to pay the commission's investigation costs of about $1m, said it was adequately provisioned to meet the payment.

"While we do not agree with all of the commission's views, we do agree that it is in the best interests of investors to avoid a lengthy court process," said ANZN acting chief executive Steven Fyfe.

"We apologise to those investors who felt we had misinformed them."

The impact of the global financial crisis had been greater than predicted, he said.

The Securities Commission said that while the settlement was appropriate, it still had the power to take future action against ANZN and ING.

Under a separate arrangement between the Securities Commission and ANZN and ING, ING would review its relevant processes and procedures, and both parties acknowledged the commission's concerns about the funds.

They would also ensure ongoing compliance with securities laws.

- NZPA