A judge is considering whether Act Party leader John Banks should face charges this month for allegedly misleading investors.
The threat hung over Banks' head as he took the podium at yesterday's annual party conference.
Court papers supplied to the Herald on Sunday allege that because Banks was an executive director of finance firm Huljich Wealth Management, he has absolute liability for false statements in the company prospectus.
Director Peter Huljich has already admitted that prospectuses for the Huljich KiwiSaver scheme were misleading. He was convicted and fined $112,500.
Prospective investors were not aware Huljich had injected his own money into the fund following losses made on investments he selected.
But a spokesman for Banks said last night that the Act leader could only be in breach of the Securities Act if it could be shown that the politician had been reckless, negligent or had known of the false claims in the prospectuses.
"Mr Banks can only be held liable for what he knew at the time."
The private prosecution has been brought by retired Wellington accountant Graham McCready, the same man who initiated assault proceedings against former Labour Cabinet minister Trevor Mallard.
He claims Banks breached the Securities Act when he represented himself as an executive director in advertisements, financial statements and the company prospectus.
This newspaper has seen copies of the company's glossy prospectus that identified Banks as an executive director as recently as 2008.
But after concerns emerged about how the company was paying its returns to investors, the word "executive" was removed from in front of Banks' title on the website and in a subsequent prospectus.
When the judge considers the allegation, Banks' lawyers will argue that is irrelevant: that a director is a director under the Companies Act, and the word "executive" is legally irrelevant to his liability.
Banks, and former leader Don Brash, had until earlier this month to respond to papers filed in Wellington and Auckland district courts. The pair stand accused of making false statements in the prospectus.