The Securities and Markets Authority issued a stop order on Friday against an Auckland-based property investment firm which claimed it was likely to “mislead or confuse potential investors”.
The One Management GP promoted a residential development investment opportunity which it said would offer investors a “50% fixed return” with minimal risk.
The FMA’s acting director of capital markets, Paul Gregory, said that if the offer was only available to wholesale investors, that did not make misleading statements acceptable.
“The disclosure of this offering falls far short of the basics of what helps investors make investment decisions: the level of risk and the returns to be paid,” Gregory said.
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Wholesale investors are individuals or organizations who have enough investment experience that they do not need to be disclosed. They have fewer protections than retail investors.
Gregory said the stop order was issued to protect investors from harm.
“This offering was clearly riskier than it was and while there will always be the potential for investment gains and losses, investors should be able to rely on the issuers’ statements.”
The stop order follows an interim stop order made to The One Management and James Law Realty Limited in March 2022 regarding the same offering.
The FMA said the level of investment risk was misrepresented in promotional material and that security and collateral offered little or no protection for investors.
The guarantee given to investors by One Management company director Tung Wei Ling and Manna Wang did not provide any protection for investors in the fund in the event the fund defaulted, the FMA said.
There were also references to a mortgage on the land securing advances from the fund. But the FMA discovered that these would not be in place at the time of the initial drawdowns under the loan agreement, likely misleading investors about risk levels.
The offer gave the impression that investors were secured by Ling and Wang’s personal assets. However, the FMA discovered that these assets were not at risk under the guarantee, undermining its benefit to investors.
The fund’s promotional materials clearly stated that investors would receive a “50% fixed return” over three years. But it was actually offering 16.7% per year, or 14.5% per year on a compounded basis. “These percentages differ significantly from 50% per year,” the FMA said,
The stoppage order indefinitely prohibits The One Management GP from distributing any promotional materials related to the fund.
A management group is also prohibited from issuing or selling shares in the fund or accepting new contributions to the fund for another two months.
If the company fails to comply, it can be convicted under the Financial Markets Conduct Act and fined up to $300,000.