17 June 2011
The Financial Markets Authority has withdrawn civil proceedings against Insured Group Limited (Insured).
The case was commenced by the Securities Commission last year and related to continuous disclosure breaches the Commission alleged were committed by the company in 2008 when it was known as Lombard Group Limited (LGL).
LGL was the parent company of Lombard Finance and Investments Limited (LFIL) that collapsed in April 2008 owing $127 million to 4,400 investors. In March 2010, Perth-based Australian Consolidated Insurance Limited listed on the NZX by means of a reverse takeover of LGL and later changed its name to Insured.
The criminal charges against the directors of LFIL remain. These allege that the LFIL directors made untrue statements in offer documents issued in 2007 and 2008, and that investors were misled as a result. The trial starts in the High Court at Wellington in October 2011.
The former Commission's case against Insured alleged that LGL's failure to disclose the circumstances giving rise to the untrue statements to the market breached the continuous disclosure obligations of the Securities Markets Act.
A notice of discontinuance of civil proceedings was filed today in the High Court, and FMA and Insured Group have prepared an agreed statement, which accompanies this release.
FMA Chief Executive Sean Hughes said that FMA had made the decision to withdraw the civil proceedings as part of the process of reviewing the case load inherited from the Commission.
"We need to focus our energy and resources on the most serious areas of misconduct, and against perpetrators who set out to deliberately mislead or deceive innocent third parties.
"We concluded that the civil proceedings against Insured did not meet FMA's current tests for the types of matters we will prioritise.
"The civil proceedings were directed at the current board of directors, and would have been conducted at the cost of shareholders, who generally had no involvement in the non-compliant behaviour. Accordingly, we felt that continuing the proceedings would not provide a significant deterrent effect for other listed issuers."
Mr Hughes said FMA hoped that Insured Group was committed to complying with its continuous disclosure obligations.
Financial Markets Authority v Insured Group Limited
1. On 22 December 2010 the Securities Commission filed civil proceedings against Insured Group Limited (Insured Group) for alleged breaches of the continuous disclosure obligations under the Securities Markets Act 1988.
2. The proceedings alleged that Lombard Group Limited (as Insured Group was then known) failed to disclose material information to the market in late 2007 and early 2008 regarding its then subsidiary Lombard Finance and Investments Limited (in Receivership) (LFIL). Specifically, the information related to LFIL's five major loans and that company's failing liquidity and cash balances during that period. LFIL was subsequently placed into receivership in April 2008.
3. In March 2010, Perth based Australian Consolidated Insurance Limited engaged in a process to list on the New Zealand Stock Exchange by means of a reverse take-over (RTO) of Lombard Group Limited and migration of that company's place of incorporation to Australia.
4. As part of its process of reviewing the case load inherited from the Securities Commission, the Financial Markets Authority (FMA) has concluded that the case would not have a significant deterrent effect, being directed at a generation of directors, at the expense of shareholders, who had no involvement in the behaviour at question. FMA has therefore decided to discontinue its proceedings against Insured Group.
5. Insured Group has assured FMA that it understands and accepts the vital importance of strict compliance with its continuous disclosure obligations, and that it will ensure Insured Group continues to comply with them. Insured Group is very supportive of any action(s) taken by FMA to protect the integrity and international competitiveness of New Zealand's capital markets.
6. FMA's separate proceedings against the former directors of LFIL for alleged civil and criminal breaches of the Securities Act 1978 which relate to the same alleged matters are continuing. The criminal charges are set down to be heard by the High Court in October this year.