Controlled
from Budapest, having no clients in New Zealand but a client base of 21,000
located primarily in Russia, Kazakhstan, Ukraine, Bulgaria and Uzbekistan led
to Innovative Securities Ltd being deregistered by the Financial Markets
Authority.
Since 2014, the FMA has
been able to deregister financial service companies operating from New Zealand
who provide no financial services within New Zealand. This followed political concerns of rogue
firms trading on New Zealand’s good reputation.
In August 2016,
Innovative Securities Ltd was told it would be deregistered. It appealed, claiming the FMA did not
properly evaluate its business. FMA
investigators found Innovative had three staff in its Auckland office. They had no client contact. Client funds had been deposited in New
Zealand bank accounts, then moved to accounts outside New Zealand.
Innovative’s bona fides were questioned when the FMA
received a tip-off that the company was allegedly part of an international
Ponzi ring. A request for assistance
from the Polish prosecutor-general’s office followed shortly after. It alleged a director of Innovative was
involved in criminal activity. The FMA
discovered later a letter sent to Poland by Innovative touting its registration
in New Zealand as evidence of the company being monitored and supervised by a
regulatory authority.
Evidence was given of
two New Zealand banks closing Innovative’s bank accounts. They were concerned about money
laundering. A letter sent by Innovative
to the FMA purported to be evidence of rigorous external audits ensuring it was
not involved in money laundering. FMA
inquiries found the two individuals named had never provided audit services,
though one had provided a draft proposal.
Justice Moore ruled the
FMA acted correctly in deregistering Innovative Securities. Continued registration would create a false or
misleading appearance to overseas investors that their dealings with Innovative
were regulated by New Zealand law.
The High Court was told
Innovative Services has as its ultimate owners two individuals based in Hungary. Related companies are registered in the
United Kingdom, United States, the Netherlands and Belize.
Innovative
Securities Ltd v. Financial Markets Authority – High Court (1.06.17)
17.060