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FMA action to recover $25 million in related party loans

Media Release
5 July 2012

FMA can now confirm its continued engagement with Perpetual Trust Limited (Perpetual) to recover $25 million in related party loans made by Perpetual as trustee of the Perpetual Cash Management Fund (Fund).

Perpetual is a subsidiary of Pyne Gould Corporation (PGC).

In a High Court judgment delivered on 26 June 2012, Justice Heath discharged confidentiality orders originally made at the request of Perpetual in proceedings taken against FMA. Perpetual has sought judicial review of FMA decisions and actions since it became aware of issues in relation to the Fund in April this year.

The Court of Appeal yesterday dismissed Perpetual's appeal against the High Court decision and ruled it can be released.

"FMA welcomes the High Court and Court of Appeal decisions and believes they emphasise the importance of transparency in the markets," said FMA Chief Executive Sean Hughes.

FMA previously confirmed on 1 May that it was making inquiries into issues regarding PGC and related entities. Those inquiries have to date focussed particularly on loans made by the Fund to Torchlight Fund No. 1 LP (Torchlight) and the implications for the investors in the Fund and the Perpetual Mortgage Fund.

In FMA's view, these loans were not in the best interests of investors in the Funds and the circumstances in which they were made by Perpetual reflects a lack of judgment and lack of understanding of its role as trustee of funds of this nature.

FMA has sought to minimise losses that investors may suffer by engaging with Perpetual to seek the return of the loans. Since April 2012, around half of the total amount lent to Torchlight has been repaid, but approximately $13 million remains outstanding. FMA considers Perpetual has now had ample time to secure repayment of the loans, but is concerned at the lack of progress and the consequent risk to investors.

FMA believes investors in the Fund need to be aware of its concerns about the loans made by the Fund to Torchlight and the delays in repayment, so they can make informed decisions about their investments.

"FMA has moved proactively in the interests of investors in the funds and is pleased the High Court's decision can now be released. Actions taken by FMA are in line with its objective to promote the confident and informed participation of businesses, investors and consumers in the financial markets," said FMA Chief Executive Sean Hughes.

The High Court judgment can be found here and the Court of Appeal judgment here.

Any investor in the Perpetual Cash Management Fund or the Perpetual Mortgage Fund who is unsure whether to retain their investment in the funds or to request that it should be repaid should take advice from their Authorised Financial Adviser. You can find information about how to find and use a financial adviser on FMA's website.

Background
Torchlight is a limited partnership for sophisticated investors run by Torchlight GP No 1 Limited (Torchlight GP), a subsidiary of PGC. FMA understand George Kerr is Chairman and has an ownership interest in Torchlight. Brian Mogridge (one of Perpetual's two directors) and Torchlight GP also have ownership interests in Torchlight. Mr Kerr is also a director and owns approximately 76.5%, of PGC.

Ends


Contact:

Tony Reid on 021 739 052 or tony.reid@fma.govt.nz