Inquiry highlights need for change to adviser law
News Release 13 May 2002
Inquiry highlights need for change to investment adviser law
The need for tighter law relating to investment advisers is highlighted in a report of a Securities Commission inquiry released today, Chairman Jane Diplock said.
The Commission inquired into the offer of securities by Gideon Investments Pty Limited and the role of Morison Guildford Limited of Masterton as investment advisers for the offer.
Gideon was put into liquidation after the death of its managing director Michael Bastion in March 2000. Gideon purported to be a shares, bonds, currency and futures trading fund claiming returns of up to 51.5% per annum.
The liquidator concluded that there had been fraud and that most of the investors’ funds were used to buy property, thoroughbred racehorses and to pay for Bastion’s lifestyle.
The scheme had no prospectus or investment statement as required under New Zealand law.
The Commission has concluded that Morison Guildford actively solicited funds for Gideon as investment advisers. Some A$5 million was raised for Gideon through their office.
“Investment advisers have certain obligations to those who invest on their advice and with their assistance,” Jane Diplock said. “We consider that Morison Guildford’s conduct was incompetent and irresponsible.”
They did not question the
lack of offer documents. Their evaluation and monitoring of
Gideon was close to non-existent. It fell short of what
might reasonably be expected of a firm offering services to
the public. They did not keep proper records.
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This case may also be an example of churning - advising excessive turnover of policies to bring in commissions.
The Commission has recently recommended changes to investment adviser law. This case is an example of the type of matters our recommendations are intended to help address.
In particular the events illustrate the value of rules about mandatory investment adviser disclosure and about recommending illegal offers of securities.
The Commission’s report is available from www.sec-com.govt.nz.
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