Prince
& Partners, trustee for debenture holders in failed Viaduct Capital, is
paying $4.5 million in a court-approved settlement after admitting it failed to
properly protect investor interests.
Terms of the settlement
spell out Prince & Partners dereliction of duty in failing to carry out due
diligence or exercise proper professional scepticism when signing off on deals
which saw cash spirited out of Viaduct, replaced by what was described as assets
of uncertain value and limited liquidity.
When the crunch came with Viaduct going into receivership in May 2010,
investors were out of pocket to the tune of $7.8 million. Most of that loss has been absorbed by taxpayers
with a government guarantee given after the 2008 financial crisis.
The Financial Markets Authority
sued Prince & Partners Trustee Co Ltd in what is the first time it has
taken a representative action against a licensed securities supervisor on behalf
of investors. Approving the settlement,
Justice van Bohemen said payment of $4.5 million is within the range of
investor losses caused by Prince & Partners default. A settlement saves the cost of what was
expected to be a five week trial. Prince
& Partners has agreed not to act as a licensed supervisor for the next five
years.
Terms of the settlement
agreement criticise Prince & Partners for failing to act in the best
interests of investors in relation to two transactions: the February 2009 purchase
of Viaduct Capital (then known as Priority Finance) by Nick Wevers’ Phoenix
Finance with financial assistance provided by Paul Bublitz’s Hunter Capital (this
assistance funded in part by cash generated by the sale of Hunter Capital
assets to Viaduct); and days later an asset swap with Viaduct Capital acquiring
further Hunter Capital assets in return $1.5 million in Viaduct capital notes. These deals had the economic effect of Hunter
Capital quitting assets with proceeds sheltered as government-guaranteed
investments in Viaduct Capital.
Viaduct’s government guarantee was removed in April 2009 on the grounds
guarantees were intended to benefit retail investors, not the likes of Mr
Bublitz and Hunter Capital.
Financial
Markets Authority v. Prince & Partners Trustee – High Court (25.08.17)
& FMA/Prince & Partners Settlement Agreement (25.08.17)
17.110