Celebrities who make misleading endorsements of finance companies will face hefty fines under laws being drafted by the Government.
Commerce Minister Simon Power has released further details of a major rewrite of securities law, including a liability regime under which anyone making misleading comments in a disclosure statement or
advertisement for a financial product will be liable for a penalty of up to $1 million, plus compensation orders.
Companies would face fines of up to $5 million, as well as compensation.
The issue of celebrity endorsements was brought to prominence by high-profile advertising campaigns, featuring household names, for finance companies that eventually failed.
Former TVNZ newsreader Richard Long endorsed Hanover Finance, which collapsed in 2008 owing $554 million to investors.
Former All Black Sir Colin Meads backed Provincial Finance, which owed $300 million when it went into receivership in 2006.
Neither knowingly made misleading statements, but their endorsements drew in investors.
Mr Long featured in advertisements saying Hanover had "the size and strength to withstand any conditions". Sir Colin promoted Provincial as "solid as".
Aucklander Glen Stanton was just nine days away from getting his $50,000 back from Hanover Finance when it collapsed, and said Long's endorsement gave him the confidence to invest such a large amount of money.
"I lost a lot of money in the other finance companies as well, but in most of those companies I [invested] smaller amounts, like $5000 or $10,000," he said. "Hanover was the only one that I invested the large amount in ... [Mr Long's endorsement] gave you a feeling of false security, definitely."
Mr Stanton, whose family collectively had about $250,000 invested in Hanover, said he supported the Government's moves to introduce stiff fines for misleading endorsements.
Mr Long has said he would not have done the advertisements had the proposed fines regime been in place.
He also said it was "a bit unfair" to hold celebrities responsible, as it was unlikely they would ever have known how sound the firm they were backing was.
A draft of the law will be released in August for public consultation.
