Key Points:

The Commerce Commission has announced it is investigating Hanover Finance, which yesterday froze $554m of investors' money.

The Commission said the inquiry was into whether Hanover Finance has breached the Fair Trading Act by misleading prospective investors or the public generally.

The company, owned by high profile entrepreneur Eric Watson and Mark Hotchin, yesterday froze $554 million of funds owed to 16,500 investors because of bad loans, a run on investors wanting to quit the company and the drying up of new funds from investors.

Its ads sponsoring TV One's weather update had claimed it had "the size and strength to withstand any conditons".

The commission said its investigation is into whether Hanover Finance had breached the Fair Trading Act by making misleading representations to prospective investors and/or the public generally.

Last month, the Advertising Standards Authority's appeal board dismissed an appeal by the Hanover Group over a complaint about its sponsored ads.

The eight-second long ad, with a voiceover by former TV One news presenter Richard Long, said: "This One Weather Update is brought to you by Hanover, a New Zealand business with the size and strength to withstand any conditions."

D Percy complained in October last year that, given the sector Hanover operated in was facing the most adverse financial environment it had ever experienced, it was "grossly misleading" to make such comments.

The ASA's complaints board upheld the complaint, but Hanover appealed, saying it was of the strong view that the voiceover was "an accurate and factual statement of the Hanover Group of companies," when the advertisements screened - from August 19 to November 15 last year.

It said it had replaced the word "any" in October to say "withstand the conditions".

The appeals board said the ad did not observe the high standard of social responsibility required by a financial advertisement and breached the ASA's code.

It said the ad did not observe the basic tenets of truth and clarity and contained an exaggerated claim which would be likely to mislead consumers and so dismissed the appeal.

- NZ HERALD STAFF, NZPA