Hanover prosecution a waste of money

NZ Herald

Damien Grant has some balls, he has said what many are now whispering.

It is deeply frustrating to see public funds being wasted to defend those who lost money in the Hanover debacle.

What is often forgotten in this long-running saga is that any of the 16,000 investors who lost money in Hanover have been entitled to avail themselves of the same sections of the Securities Act that the FMA has elected to use.

They have not. Not one of the 16,000. Yet taxpayers are funding this expensive legal fishing trip on their behalf.

He is dead right. The FMA have shown they don;t have the gonads to pursue criminal charges and instead have gone all limp-dicked and decided after many, many months that they will focus on but a few paragraphs and some misplaces semicolons and commas and proceed with a civil action.

Their reasoning is that the threshold for proof is lower and so they have more chance of success…in other words they are not entirely sure of their case so are going for a slap on the hand with an extremely wet bus ticket. Sean Hughes has proven to be all mouth and no trousers.

The FMA seeks to restore confidence in the securities market and they are entitled and perhaps even obligated to pursue this matter. Yet I find something disquieting about seeing Hotchin’s assets frozen for more than a year, not charged with any crime and having a civil case against him funded by taxpayers rather than those who suffered losses. If only he were as charming as Kim Dotcom.

This is a very good point. A man who still is not charged with any crime has had his assets frozen indefinitely. This is an outrage, both constitutionally and legally.

If the FMA wins, the aggrieved Hanoverians will get paltry compensation and taxpayers will get some, but not all, of their legal costs back. If the FMA loses, as it very well may, taxpayers will get what we always get. The bill.

Still at least the taxpayer hasn’t had to bail out Hanoever like it did with South Canterbury Finance.

The FMA’s case is this: Hotchin, Watson, Sir Tipene and others agreed to the release of a prospectus, and possibly some advertising, to the public. That prospectus and or said advertising contained untrue statements. If these two things are correct then those named face civil liability for the losses suffered.

They could face a pecuniary penalty as well but the FMA must bring this case within two years of finding the dishonesty so it may be too late. Seeking a pecuniary penalty is an action limited to the FMA.

However, before any compensation is awarded it must be shown that money was invested “on the faith of an advertisement or registered prospectus”.

It seems unlikely that those who invested in Hanover were reading the prospectuses being issued, even more unlikely to have been influenced by their contents. They recognised the brand, liked Richard Long, and would not know an Ebit from an elf.

I bet that “investors” simply looked at the headline rate advertised. Never read a single line fo the prospectus and simply wrote cheques to their broker.

However, the 16,000 have an even bigger problem winning any compensation because, back in 2009, they elected to swap their impaired debt for shares in Allied Farmers.

Now, that deal looks to have been about as smart as kissing a scorpion but that is what these “investors” did.

Guardian Trust, at the time, told them they needed to weigh up what they were giving up for “… an investment in Allied, which may be traded on the stock market at the prevailing market price” before pointing out that the prevailing market price would be lower than Allied’s current price.

They walked away from their rights as bond holders when they voted for that deal.

If they want to sue someone for their past mistakes let them do so on their own dime.

It is very hard to disagree with Damien Grant isn’t it?


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  • Travdog

    This IS the best blog on the net Mark, where have you been?

  • In Vino Veritas

    It was always going to end up this way. Investors in Hanover were effectively funding 2nd and 3rd tier debt (that banks wouldnt touch). And funding it for a return that in no way reflected the risk. People bleat about the size of dividends paid to the shareholders, but forget that these were the result of the interest spread, which was wide!

    Many of these people were put into Hanover by their “financial advisors”. Daft really, given that Hanover sent many of the “advisors” on jollies to Wellington sevens, Sydney Bledisloe cup matches etc. A good portion of those people that lost money were just plain greedy for an extra couple of points of interest.

    I’d suggest that there are indeed skeletons in Hanovers closet, but the FMA unfortunately doesn’t have the people with the required experience to find them.