New Bill offers better protection to investors

Former Commerce Minister Lianne Dalziel has launched a Private Members Bill that aims to offer better protection to investors.

The Illegal Contracts (Unlawful Limitation on Regulators’ Powers) Amendment Bill will ensure that investors do not lose the benefits from a regulator taking action against an investment company that has breached the rules.

Ms Dalziel (who is Labour Party spokesperson for Commerce and Justice) said she was prompted to launch the Bill following the INZ/ANZ Fund fiasco.

ING and its co-owner ANZ Bank had the investments of more than 8000 New Zealanders frozen in March 2008.

The two institutions had launched ‘ING’s Diversified Yield Fund’ (DYF) and ‘Regular Income Fund,’ (RIF) claiming that they were low or moderate risk.

The Commerce Commission is investigating both organisations to determine if there was a breach of the Fair Trading Act, after investors complained they were encouraged to invest in ING which advertised that it was “as safe as a bank.”

Since then, investors have formed the ‘Frozen Funds Group,’ to represent their interests jointly. Their investments, which were valued at $850 million earlier, are now worth only $170 million.

Group spokesman Andrew Davidson said INZ/ANZ went beyond their ‘mantra.’

“They should never have sold this product as low to moderate risk,” he said.

Ms Dalziel told a meeting of the Group in Napier on March 19 that she was upset when she learnt that the ING/ANZ settlement forced investors to forfeit their rights to any benefit from someone else taking action against ING,  including the regulator.

“I have no problem with any company making a settlement conditional on not  proceeding with a civil cause of action; this happens every day.

“But this case was being investigated by the Commerce Commission at the time and the Commission was included in the release. For me, that was a step too far,” she said.

Ms Dalziel said allowing such a provision would prevent the Commerce Commission from fulfilling its role of upholding rules designed to protect investors.

“We cannot allow any regulator’s authority to be undermined. I have therefore taken the initiative of seeking amendments to the Illegal Contracts Act,” she said.

According to Ms Dalziel, more than $500 million are held up in the ING product funds, with a substantial representation of life savings of elderly people.

She said Parliament should consider the Bill worthy of discussion.

This Bill will amend the Illegal Contracts Act 1970, to extend the coverage of the statute to prohibit attempts to limit the power of any regulator to award any remedy or distribute the proceeds of any settlement or court order to any individual.

In the specific case, ING had set a deadline for investors to agree on a partial compensation deal, which forfeited their rights to take any legal action or participate in the benefits of someone else taking action against ING.

A Release Disclosure Document annexed to the Offer Letter contained a list of those covered (essentially ING, ANZ, NZ Guardian Trust, and all financial advisers who had advised on the investment in the Fund) and referred to the investigations being undertaken by the Banking Ombudsman and the Commerce Commission.

Ms Dalziel said in general terms, there was no problem in making a settlement conditional on not proceeding with a civil cause of action.

“But where a regulator has identified a breach of the very rules designed to protect investors, no such agreement should be allowed to stand. It exacerbates the wrong should it is found that these rules were broken,” she said.

It would not be fair on people forced to take their chances on accepting a deal that would prevent them benefiting from any action that could follow a finding that ING had breached its statutory obligations.

“If the Commerce Commission inquiry produces no findings of wrongdoing on the part of ING or those offering investments in the two Funds (DYF and RIF) then there is no problem. If they are found wanting by the Commerce Commission in terms of their legal responsibilities to their investors, this Bill will have retrospective application,” Ms Dalziel said.

ACT MP John Boscawen said he supported the Bill.

He said ANZ and ING had argued that they have been generous to investors by offering respectively 60c and 62c per dollar invested respectively in DYF and RIF.

“They have also said that this is further enhanced by offering an above the market rate of 8% on funds for up to five years.

“While investors receiving some 60c in the dollar will no doubt be far better off than investors in most failed finance companies,

“I do not believe ANZ should be comparing itself with that sector,” he said.