Exploiting New Zealand’s reputation – local director sentenced

A director of Pegasus Markets Limited (Pegasus) has been sentenced for representing that Pegasus was registered on the Financial Service Providers Register (FSPR) when in fact it had been deregistered.

A link to the media release is available here.

Who needs to read it and why?

This prosecution and sentencing is relevant to all New Zealand based-directors of financial service providers.  It shows that the FMA is keen to ensure that New Zealand’s reputation as a country with well-regulated financial markets is not exploited by offshore businesses.  It also demonstrates that there may be criminal consequences for local ‘directors-for-hire’ where the company breaches local legislation.

What does the case cover?

In September 2020, Pegasus was found guilty of two charges under section 12 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008.  In breach of the section, Pegasus stated on two different websites that it was registered on the FSPR when it had in fact been deregistered.  Despite warnings from the Companies Office, Pegasus maintained these misrepresentations for two-and-a-half years.  In December 2020, Pegasus was ordered to pay a fine of $200,000.

As director, Mr Reps was found guilty of breaching section 40 of the FSP Act, for knowingly failing to prevent Pegasus from committing an offence under the Act.  The conviction prohibits Mr Reps from being a director of a financial services firm for five years and he has been sentenced to two months’ community detention and 90 hours’ community work.

Our view

Mr Reps’ sentence indicates that the FMA will not allow New Zealand’s reputation as a country with well-regulated financial markets to be taken advantage of.  It sends a strong message to individuals and businesses that neither the FMA or the Courts will tolerate the use of FSPR registration as a means of establishing legitimacy to target prospective overseas investors.

Karen Chang, FMA Head of Enforcement said that the sentence shows “there are criminal consequences for local ‘directors for hire’ who try to profit off their New Zealand residency by becoming directors for offshore businesses with no real New Zealand presence”.

While we await the sentencing notes of Judge Jelas, we anticipate that the FMA will continue to take a proactive approach to monitoring and deregistering companies on the FSPR.

What next?

If you have any questions in relation to the prosecution or are considering how this may affect your business, please contact one of our experts.

 

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