Investors who felt misled by ANZ and its fund management business ING over two funds have won a record payout of $45 million in a Commerce Commission brokered, out-of-court settlement.
The deal is by far the biggest the watchdog has achieved on cases involving the Fair Trading Act.
Yesterday's settlement
followed months of talks between the commission and the bank after a 15-month investigation over the way ANZ National Bank and ING New Zealand marketed two investment funds.
The ING Regular Income Fund and Diversified Yield Fund were frozen in March 2008, stopping 15,000 investors from withdrawing their money.
The funds were valued at $533.51 million when frozen, but slumped by more than half when their investments were hit by the global financial crisis.
Investors, many of them elderly, claim they were misled about the risks involved in investing in the funds.
Some said they were told the investments were as safe as keeping their money in the bank.
In July last year a settlement to pay back more than $400 million was reached.
But to get the money, investors had to agree to waive any rights to take legal action against anyone involved in the funds.
About 2700 investors, who came directly through the ANZ bank, were able to apply for additional compensation directly with the bank or by going to the Banking Ombudsman.
ANZ says it has made about $500 million available to investors, but has previously refused to give a break-down of what investors have received.
Yesterday, commission chairman Mark Berry said representations made by the bank and ING about the risks involved in the funds were "likely to be misleading" because the risk was understated.
Dr Berry said there was sufficient evidence to take ANZ and ING to court for breaches of the Fair Trading Act, but it had decided a settlement agreement was in the best interests of investors.
"The commission believes that this settlement serves the best interests of consumers, and the affected investors in particular, who, in many cases, stood to lose part of their life-savings."
Dr Berry said any court proceedings would likely have involved delay, cost and risk with no certainty of an outcome that would benefit the investors.
"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."
ANZ and ING will also pay the commission $1 million in costs.
Andrew Davidson, of the Frozen Funds Group, said the settlement did not go far enough.
While $45 million would seem like a lot of money to the average person, in the context of what the bank made, it was nothing.
"It's not even going to make a blip on its profits," he said.
"We see this as a moral victory not a financial one."
The settlement last year equated to about 60c in the dollar for Diversified Yield Fund investors and 62c in the dollar for Regular Income Fund investors.
Mr Davidson said the commission's deal could add 10c in the dollar.
"I think the honourable thing would have been to settle this dollar for dollar."
Mr Davidson believed the companies had got off lightly.
"If this was the US somebody would be dragged into courts and held accountable. We seem to take a soft approach on all of these matters and the innocent investor is left hurting."
ANZ National Bank acting chief executive Steven Fyfe said the bank did not agree with all of the commission's views but believed it was in the best interests of investors to avoid a lengthy court process.
"We apologise to those investors who felt we have misinformed them."
ING has also agreed to have an external review of its processes and procedures for investment products. In exchange, the Securities Commission has said it will not take any further action on the matter.
But the Banking Ombudsman is to continue investigations into individual cases.
Investors who pulled out of the funds before they were frozen are not eligible to receive money from the new deal.
Investors are expected to receive their money by late November.
BIG PAYOUTS
$24 million - nine financial institutions for undisclosed and inadequately disclosed overseas transaction fees.
$9.5 million - Telecom and Xtra for misleading customers about the price they had to pay for internet services.
$8.4 million - Telecom for claims made in 2006 about Xtra's Go Large broadband plan.
$3 million - GE Finance and Insurance after customers who bought items on "interest free" were incorrectly charged interest.
Note: Commission does not act on behalf of individuals but investigates issues of public interest.
See the Commerce Commission's release plus Questions and Answers for investors here.
