Prison and large fines proposed for false disclosure statements

Individuals could face up to 10 years in prison or fines of up to $1 million for known or reckless inclusion of false information in disclosure documents, while companies could face fines of up to $5 million.

Friday, June 3rd 2011, 7:32AM 3 Comments

by Benn Bathgate

The penalties are part of further Cabinet decisions on the review of securities law announced by Commerce Minister Simon Power.

Other measures include a system to regulate securities exchanges and licensing regimes for specific financial sector participants including fund managers, independent trustees of workplace superannuation schemes, derivatives dealers and peer-to-peer lenders.

The penalties announced range from an infringement notice of up to $20,000 for failure to keep registers of security holders, to up to 10 years imprisonment and/or a fine of up to $1 million for individuals and $5 million for companies for known or reckless inclusion of false statements on disclosure documents.

Power said that under the liability regime, the fines could also be directed at celebrities fronting adverts.

"This means celebrities who make false or misleading statements on behalf of providers of regulated financial products or services will be subject to significant liability.

"They will not, however, be prohibited from endorsing a financial product or face liability of the product fails and they have not made a misleading statement about it."

Power said Cabinet had considered specific regulation for celebrity endorsement, but decided against it as "the proposed liability regime will sufficiently penalise celebrities for any misrepresentations they make.

"This is an extremely difficult area to address, and I would welcome submitters' comments on the proposals once the bill is released for public consultation, and look forward to seeing what the select committee makes of it."

The ongoing review has been described by Power as a "once-in-a-generation" chance to modernise securities laws.

"The new legislation will be better for mum and dad investors as well as for New Zealand companies looking to raise capital. It will provide clearer, more consistent information for investors, and clarify obligations that issuers have to meet."

A working draft of the new securities legislation will be released in August for public consultation and a Bill will be introduced to the House before the election.

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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Comments from our readers

On 3 June 2011 at 8:08 am Independent Observer said:

I agree that Directors and “people in the know” should be held accountable for false claims, but suspect that celebrity endorsements are more of an invitation to treat, and should be exempt.

Under the proposed amendments – Politicians would be personally accountable for failing to accurately report the country’s accounts.

On 3 June 2011 at 2:46 pm denis said:

So how do we define a celebrity? What if it's a jobbing actor, pretending to be an investor, telling us it's a great thing? Is he in the gun too?

To sidestep this, I suspect we'll see cartoon characters on our screens from now on. In fact, Mickey Mouse would have been an ideal choice for the job in some cases.

On 15 June 2011 at 1:19 pm Bob said:

So we will see some very prominent people in large insurance companies soon in jail looking at each other wondering why they entertained false disclosure of information. The cowboy days are over - or are they?