Serious Fraud Office, Financial Markets Authority investigate proportionate ownership schemes as investors look for secure property investments

By Alex Tarrant

Serious Fraud Office head Adam Feeley says the newly-created Financial Markets Authority (FMA) has been referring concerns to the SFO about proportionate ownership schemes for property, as fraudsters move to take advantage of unsophisticated investors looking for more secure investments after the finance company collapses during the last five years.

Feeley was appearing before Parliament's Law and Order Select Committee on Wednesday afternoon alongside the Minister responsible for the SFO, Judith Collins. Feeley had been asked how the SFO was keeping tabs on new types of fraud appearing in New Zealand.

“As often happens with incidences like the collapse of the finance companies in New Zealand, the average mum and dad investor looks for what they perceive to be a more secure type of investment, and often that default position is into property," Feeley told the Select Committee.

“Fraudsters are aware of New Zealanders’ love of property – seeing it as a secure and safe investment - and are now beginning to offer proportionate ownership schemes in property," he said.

"But there are in those offerings often inherent risks, and there needs to be a response. That’s being picked up very quickly by the FMA [Financial Markets Authority]. They’re seeing it in their monitoring, and we are already looking at cases that they are referring to us of concern in that area."

The FMA was one of a number of other agencies passing information on to the SFO about rising types of fraud, Feeley said.

“But to be honest, New Zealand is such a small country, that very often the best information comes from receivers and CA [Chartered Accountancy] firms and law firms out there," he said.

“The best way we can get that information is have a very strong relationship with them, and it is as simple as meeting with them frequently over a cup of coffee and saying, ‘what are you seeing in your sector?’”

'Jail sentences really work'

Meanwhile Feeley said there had been considerable debate about the effectiveness of criminal sanctions on white-collar criminals, especially imprisonment.

“It [imprisonment] really works with white collar criminals,” Feeley said.

“They don’t like going to jail, and we had this year the first imprisonment sentence for a finance company director," he said in reference to the imprisonment of Former Five Star Finance directors Marcus MacDonald and Nicholas Kirk in December.

"The level of consternation amongst company directors as a result of that was palpable," Feeley said.

"I’d hasten to add that most of these people that raise these concerns are reputable and very good company directors, and we have been at pains to point out to them that good, competent company directors have nothing to fear. In fact they can be a significant aid in whistleblowing to the work of the SFO," he said.

"But there is no doubt that even one imprisonment sentence on a finance company director had quite a chilling effect on the corporate boardroom."

(Updates with comments on jail sentences working)