The FMA's planned action may not go far enough for some of the more jaundiced investors.
Hughes confirms the commission's investigation (which he inherited when the FMA opened in May) was much broader, and covered a wider period and other activity.
"We have just formed the view that on the particular case given the nature of the likely defendants and the assets that have been frozen and potential other assets that might be available, that civil compensation action offers the best opportunity for redress."
That said, Hughes underlines that the Hanover investigation has not revealed the same scale of alleged misconduct that was apparent in, for instance, Nathans Finance.
"We're not talking about wanton reckless misconduct."
On the surface the FMA is taking a restrained approach.
But by opting for what seems a limited-overs game, the FMA contends that if its litigation is successful it will open the door for broader-based action by either itself or other parties.
Former Hanover chairman Greg Muir maintains the FMA's investigators were given a substantial amount of evidence that the directors conducted themselves responsibly, with appropriate rigour, and made judgments they believed were in the best interests of the company and its investors on the information available at the time.
"Reports from an expert forensic accounting firm and the company's lawyers concluded there was nothing materially untruthful in the prospectus and that there is no evidence of any misconduct by the board," Muir said.
But Hughes has spelled out that the test the FMA has to satisfy is that the prospectus did not "portray the true position to a non-expert but prudent investor".
He makes clear the FMA is not alleging intentional or reckless misconduct. "What we are saying is that the prospectus and the advertising painted a much rosier picture for investors than was actually the true situation."
If the FMA won its case, the court would award it a "liability judgment" , Hughes said.
This is basically a judgment which says the 2007 prospectus did not meet Securities Act standards.
The judgment can then be used as a basis for investors to seek compensation without having to go back and prove the original breach. On top of this the FMA would get automatic management-banning orders and penalties of $500,000 per person per breach.
Hughes said the upshot would be the ability for the market watchdog or lawyers acting directly for investors to use section 34 of the FMA Act and seek compensation in terms of the entirety of the losses that flow from the December 2007 prospectus. This could bring a wider range of players into the net including KPMG which was Hanover's auditor and Guardian Trust which was the trustee, and other advisers.
Given the reputations that are at stake it would appear likely that, if the FMA looks able to prove its case, settlement negotiations would proceed.
Hughes says he is "not ruling out the possibility" of a commercial settlement.
"It could well be likely if the defendants who we are proceeding against have insurance coverage or sufficient assets to satisfy a judgment - and one of them most certainly does - it would seem to be more pragmatic to go down that path.
"But it's very early days and we will have to see their response."
It is also possible that the Hanover directors and promoters may seek to join their advisers as co-defendants to the civil case to off-load their liability and widen the pool for those that are at risk of having to stump up in the event they lose the action.
What is sure is that the FMA will continue to make representations to Justice Helen Winkelmann to ensure the order freezing Hotchin's New Zealand assets remains in place.
Over the New Year, the FMA will be refining its investigation to make sure it has the right people in the frame.
One of the more tricky issues is who to name as promoters. Hughes says on one view of the law, Watson - who is not a director - could be seen as a promoter by virtue of the companies that sat behind Hanover Finance. Former TVNZ news reader Richard Long - who cashed in his credibility to spruik Hanover Finance to investors - is also under scrutiny. But the Government's decision to step back from extending liability to celebrities means Long may not face action. But Hughes is not drawing conclusions until the FMA has received legal advice.
Irrespective of who does end up in the frame, the forthcoming Hanover action is bound to be a cause celebre. It will underline the need for directors to take a very careful approach to prospectus commitments.
Meantime the Serious Fraud Office has yet to conclude its own probe into Hanover Finance. The SFO is understood to be concentrating on related party transactions involving Hanover Finance and its two shareholders Hotchin and Watson.
