This week felt a lot like any week in March 2006 or March 1986.

The frenzy of preregistration for the Mighty River Power float spoke volumes about the mood of stock market investors. So, too, did the NZX50 index, which hit a record high despite unemployment being near a 13-year high.

There's a whiff of greed and intoxication in the air. The theory, which is yet to be tested by a prospectus, is that Mighty River Power is the surest of sure things. How could anyone possibly lose money when you have a dominant position in a network monopoly providing an essential service to a captive market?

The best dose of smelling salts came on Thursday from the Commerce Commission. It was a time capsule from 2006.


The commission's report into the way brokerage firm Forsyth Barr and French investment bank Calyon foisted $91.5 million of bonds on regular investors is a neat warning from the past.

The commission said it considered both Forsyth Barr and Calyon were "misleading and deceptive" in the way they accentuated the positive of these bonds and tried very hard to eliminate the negative. There wasn't much messing with "Mr Inbetween" in the way these supposedly "capital guaranteed" bonds were marketed. Forsyth Barr brokers told customers these Credit Sails notes were "safer than investing in a Westpac term deposit" and would generate regular interest of 8.5 per cent.

Instead, the notes were based on derivatives of bonds issued by supposedly blue-chip firms, including three Icelandic banks, as well as US banks Lehman Bros and Washington Mutual.

When they collapsed in 2008 so did the capital in the "capital guaranteed" Credit Sails notes.

Forsyth Barr has consistently denied any responsibility for the notes or any wrongdoing in the marketing of the notes.

The commission's report, however, contained allegations about how Forsyth Barr was "misleading and deceptive" during the marketing. The best example is an email apparently showing Forsyth Barr's reaction when Calyon tried to tone down the language in the prospectus. "One of the deletions we feel is harmful to the marketing of this offer. Remember, we catch more flies with honey than vinegar!" it read.

The salesmanship was barely concealed in another email detailing Forsyth Barr's frustration at a Companies Office request to tone down the 8.5 per cent return figure.

"Why can't we put the 8.5 per cent in there with a tiny (1) next to it and then at the bottom in tiny text next to the (1) we put all their dumb language? This would be workable. We're not selling bloody cigarettes!"


Forsyth Barr has not denied the emails exist, but has disputed the commission's report, saying it contained factual errors and statements were taken out of context.

The Government certainly doesn't feel it is selling cigarettes with its sale of Mighty River shares. Yet it has put Forsyth Barr on the panel of brokers to sell them to regular investors.

Mixed Ownership Model share floats are designed to win back the confidence of an older generation of stock market investors and create a new generation of NZX-lovers. Given that in the Commerce Commission's view Forsyth Barr acted in a misleading and deceptive manner in respect of the sale of Credit SaiLS notes, in my view including Forsyth Barr on the panel risks undermining that aim. I believe the Government should remove Forsyth Barr and its managing director, Neil Paviour-Smith, should resign as an NZX director.

Partying like it is 2006 or 1986 or 1999 will just give us another hangover.