5 July 2023
FMA makes permanent stop order against Validus after appeal is dismissed in the High Court.
The Order follows an interim stop order the FMA issued to Validus and associated persons in February 2023. The Order prohibits Validus and Validus-FZCO and associated persons from taking steps that will result in repeat unlawful behavior that may cause material financial harm, in particular:
- making offers of Validus Financial Products; and
- distributing any restricted communication that relates to the offer of Validus Financial Products; and
- accepting further applications, contributions, investments, or deposits in respect of Validus Financial Products.
The FMA notes that associated persons means anyone promoting Validus Financial Products in New Zealand*.
The term Validus Financial Products refers to the Validus Pool Products promoted at an event at Mt Smart Stadium on 19 November 2022 (Seminar) and to any other financial products used to promote the purchase of Validus educational packages, regardless of whether those financial products actually exist or are intended to be issued.
This is because following the FMA’s interim stop order, Validus wrote to the FMA (the “Validus Letter” referred to in the Order) to say the Validus Pool promoted at the Seminar had been removed and no longer exists. Further, the letter said “Validus is not, and does not intend to be, a financial product and no person should ever enter into a commercial relationship with Validus intending or expecting to make returns of any sort, as no such returns are promised or guaranteed in any way”.
The FMA’s stop order is based on the FMA accepting these statements are true. Therefore, what was said and presented at the Seminar was false or misleading, or was likely to mislead or confuse, because it related to an offer of financial products which did not exist or was materially different from that described.
Validus appealed the Order and applied for interim relief prohibiting the publication of the Order while the appeal was determined. The FMA agreed, without the need for an order from the court, to not publish the Order. The non-publication did not otherwise affect the status of the Order which remained in force during that time.
The appeal was heard on 21 June 2023 at the Auckland High Court. The court has now issued its decision and has not allowed the appeal. The Order remains in force and can now be published.
The Validus appeal was based on three points:
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Validus’s right to be heard/natural justice
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That the Order must apply to a financial product that exists/a financial product must exist for Validus to be making false or misleading offers
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To issue a stop order, the FMA must be satisfied that Validus would break the law in the future if the Order was not in place and there was no evidence of that.
The Judge dismissed all three points.
In respect of the first point, Justice Jagose agreed that Validus was given enough opportunity to be heard “without any error of law on the part of the FMA”.
In respect of point two, the Judge agreed the reference to “intended offers” can be construed to extend to financial products not yet in existence. There is nothing in the statutory language to suggest the financial products must be in existence at the time of the offer or intended offer.
He said “the construction contended by Validus would be to exclude outright scams - inviting participation in non-existent financial products - from the FMA’s enforcement function. Nothing in the statutory purposes justifies such exclusion.”
On the third point, the Judge said because Validus acknowledged past breaches of the law, the FMA was within its right to issue the stop order based on the reasons set out in Section 462 of the Act. Section 462(2) of the Act provides at least three reasons for stop orders: past contravention, likely future contravention or “imminent danger of substantial damage” by any contravention. The judge agreed that the FMA may rely on any reasons independently to support the exercise of power to issue a stop order.
The FMA continues to cooperate with the Commerce Commission on matters relating to Validus.
View the related stop order.
15 February 2023
FMA issues interim stop order ordering Validus and its associated persons to stop:
- making offers, issues, sales or other acquisitions or disposals of financial products promoted under the brand or name Validus; and
- accepting applications for financial products promoted under the brand or name Validus; and
- distributing any restricted communication that relates to:
- the offer, or intended offer, of financial products promoted under the brand or name Validus; and/or
- the supply, or possible supply, of a financial advice service to any person; and
- accepting further contributions, investments, or deposits in respect of financial products promoted under the brand or name Validus; and
- supplying a financial advice service to any person; and
- supplying the financial service of keeping, investing, administering, or managing money, securities, or investment portfolios on behalf of other persons.
The FMA considers that making this Order is in the public interest because there is real risk of investor harm arising from activities of Validus and its associated persons, that appear to be dishonest and misleading and not to comply with the Act or the regulations made under the Act.
