FMA Files Criminal Charges In Relation To Forestlands
The Financial Markets Authority (FMA) has filed criminal charges against an individual in relation to the Forestlands group of companies, for alleged disclosure and financial record keeping breaches.
The FMA claims relate to:
· omissions of security arrangements of an externally borrowed $1 million loan from the financial statements of certain Forestlands companies, which the FMA say were knowingly omitted and misrepresented their financial position (three charges under the Financial Reporting Act);
· failures to file the Forestlands companies’ financial statements for the financial years ending in March 2015, 2016 and 2017 (18 charges under the Financial Markets Conduct Act 2013 and Crimes Act 1961, and 36 charges under the Financial Reporting Act 1993);
· failures to keep proper accounting records (18 charges under the Companies Act 1993); and
· failures to keep and supervise share registers (36 charges under the Companies Act 1993).
The multiple charges for each issue reflects that the Forestlands group consists of 18 different numbered companies (i.e. Forestlands No. 2-12 and 14-20).
The leading three charges under the Financial Reporting Act carry a maximum penalty of five years’ imprisonment and/or a fine of up to $200,000. The charges were filed in the Nelson District Court.
From 1998 to 2011 Forestlands New Zealand Limited and its 18 related companies were incorporated, which each raised up to $2.75 million from the public via share offer.
Shares in the companies were divided into three categories: Class A, Class B and Class C. Public investors were subscribed to Class B shares, which were entitled to any dividends, or distributions from a wind up, but had no voting rights.
Nick Kynoch, FMA General Counsel, said: “The Forestlands companies raised a significant sum from the public and investors were left in the dark and concerned for their hard-earned money. Businesses must maintain proper accounting records and ensure financial statements are accurate.
“The Forestlands investment structure gave investors very little control but a fundamental right they had was access to financial information. We are seeking to hold this conduct to account, however we recognise shareholders may be left out of pocket.”
Forestlands claimed to have owned 1,934 hectares of forest land on the east coast of the North Island and in the south-west of the South Island.
After the Forestlands group ran into financial difficulty, a sale process was commenced in mid-2015, but investors were not notified or consulted.
Investors began to raise concerns about the lack of financial information and rumours around the sale of the forestry assets and the associated treatment of investor funds. In October 2016, the forestry assets were sold for approximately $23.5 million and in early 2017, at the direction of the FMA, $18 million was placed in trust to secure the interests of investors.
In September 2018, the FMA successfully applied for the 18 numbered Forestlands companies (which raised money from the public) to be placed into liquidation after determining that insufficient progress had been made towards completing the shareholder distribution process. The liquidation process is ongoing and the FMA has not sought costs.
Investor updates can be found on the liquidators’ (Calibre Partners) website.
Forestlands New Zealand Ltd was liquidated separately as it was not a financial markets participant.