The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko has today confirmed it has made a stop order against The One Management GP Limited regarding an offer in relation to The One Property LP¹ (the Fund), which is only available to wholesale investors, including eligible investors.
This follows the FMA making an interim stop order to the entity and James Law Realty Limited in March 2022 regarding the same offer, which relates to funding a residential housing development.
The FMA remains satisfied that communications in relation to the offer, which were referenced in the interim order, are likely to mislead or confuse prospective investors for the following reasons:
- The level of investment risk: The promotional materials represented that the level of risk to investors was minimal, despite the security and guarantee referred to in the promotional materials likely providing little or no protection to investors.
The risk to investors is significant for the following reasons:
- Guarantee: There are numerous references to a guarantee given by Tung Wei Ling and Manna Wang but it only provides temporary protection because it could terminate prior to repayment dates. The FMA considers the guarantee is likely to provide no protection to the Fund or investors in the Fund in the event of default by The One Longhorn.
- Mortgage: References to a mortgage over the land securing advances by the Fund to The One Longhorn Limited will not be in place at the time of initial drawdowns under the loan agreement, likely misleading or confusing investors as to the level of risk.
- Family Trust: The offer gave the impression that the guarantee from Ling and Wang was predicated on their ultimate ownership of The One Property Group Holdings Limited, which was estimated to have net assets of $22.5 million based on a letter from BDO New Zealand Limited. However, the guarantee is in Ling and Wang’s personal capacity and the FMA considered the assets of The One Property Group Holdings Limited were not at risk under the guarantee, undermining its benefit to investors and any purpose for including the letter from BDO.
- Returns payable: The promotional materials prominently said investors would receive a “50% fixed return” over three years, when in fact the equivalent minimum annualised rate of return of a 50% over three years is 16.7% per annum, or 14.5% per annum on an annual compounding basis. These percentages differ considerably from 50% per annum.
Presenting annualised returns provides direct comparability of returns for investments that have different investment lengths. Advertising a total holding period return obscures that comparability with the advertised returns of other investments in the market. Any departure from this practice without further explanation is likely to mislead or confuse investors, including wholesale investors.
The order comes into force on 10 May 2022, after the interim stop order lapse, and indefinitely prohibits The One Management GP Limited from distributing any restricted communication (i.e. promotional materials) that relates to that offer of units in the Fund. This includes, but is not limited to, internet advertising/websites, social media posts, sponsored advertising content, and billboards.
Additionally, for a period of two months after the order commences (i.e. until 10 July 2022), The One Management GP Limited is prohibited from:
- making any offers, issues, sales, or other acquisitions or disposals of units in the Fund;
- accepting applications for units in the Fund; and
- accepting further contributions, investments, or deposits in respect of units in the Fund.
The time limitation is intended to balance the protection of investor interests while avoiding any disproportionate impact on the entity’s ability to undertake future commercial activities by raising capital in a manner that is compliant with financial markets legislation.
Paul Gregory, FMA Acting Director of Capital Markets, said: “This offer’s disclosure has fallen well short on the basics of what helps investors to make investment decisions: level of risk and returns payable. The exclusion in the Financial Markets Conduct Act for wholesale investors is intended to reduce the level of regulation, but does not make misleading or confusing statements acceptable.
“We have issued this stop order to protect investors from harm, including wholesale investors. This offer was clearly higher risk than it was made out to be and while there will always be potential for investment losses as well as gains, investors should be able to rely on statements by issuers. We will continue to use our regulatory tools in instances such as these to raise standards of conduct around offers of financial products.”
It is an offence under section 479 of the FMC Act to fail to comply with the Stop Order. If a conviction results, the penalty for such an offence is a fine not exceeding $300,000. The FMA may also bring proceedings for civil liability against a person involved in a contravention of a Stop Order under sections 484 and 485 of the FMC Act.
The interim stop order will lapse for James Law Realty Limited. The FMA considers the potential for ongoing harm is addressed through making the stop order against The One Management GP Limited only.
