Du Val Capital Partners has taken another rap on the knuckles from the Financial Markets Authority (FMA), after the regulator issued it with a formal warning for misleading investors in its mortgage fund.

FMA executive director, response and enforcement, Paul Gregory said the FMA was satisfied that Du Val Group could be in breach of section 19 of the Financial Markets Conduct Act 2013, as it had misled investors for the real reasons for suspending cash distributions in the fund as well as investors’ rights in relation to the suspension.

That was after the FMA received complaints from Du Val Capital Partners (DVCP) investors when they found their funds locked until the group finalises its plans for an initial public offering on either the New Zealand or alternate stock exchanges.

Mortgage fund investors had also seen their quarterly distribution payments, based on a guaranteed return of 10% per annum, stopped from last October. 

Gregory said investors in the fund hadn’t been provided with the information necessary to make properly informed decisions to accept or reject the proposal. 

Unable to meet obligations

“In particular, investors were misled about the reason Du Val has suspended the prominently advertised cash distributions, which was because Du Val’s board could not approve a cash distribution which would leave the fund unable to meet its other obligations.” 

And, he said, the proposal to convert cash distributions into units in the fund is not permitted under the terms of the limited partnership agreement governing the investment. “Investors are therefore not obliged to accept that decision.” 

The warning relates to communication in December 2022, when DVCP and Du Val Group contacted investors, informing them of plans to restructure the fund, whereby this fund would be wound up and investors’ units in the fund would be converted into shares in a new Du Val company. 

Du Val Group would then potentially seek to list this new company on the NZX, or another exchange.

In January, investors were also informed that cash distributions would immediately be capitalised and added to investors’ unit holdings, up until the date that units are converted into shares in the new Du Val company.

The FMA action follows a formal warning issued to DVCP and other wholesale property investment firms last year, including Black Robin Equity, Wolfbrook Capital, Jasper NZ Investments and Williams Corporation Capital Partnership, about offering unregulated products to non-expert investors. 

More complaints

Those warnings come on the heels of the FMA’s review of wholesale property investment offers, sparked by an increasing number of complaints from investors, many of whom didn’t consider themselves as astute investors. 

In some cases, the investors had recently come into large sums, from a property sale or having a KiwiSaver or other investment mature.

A year prior, the FMA had ordered Du Val to also remove what it considered as misleading Instagram posts that promoted property syndication as a ‘low-risk’ proposition. Du Val failed in its appeal to overturn those orders in the high court last July.

Gregory said the latest warning means Du Val investors have more accurate information on the public record about the proposal which, if they wish, means they can better engage with Du Val or seek advice about their options.

He said the FMA now has the right to take further action in the matter.