Cash distributions from the Du Val Mortgage Fund were suspended in January when investors were told the fund would be wound up and investors’ units in the fund would be converted into shares in a new Du Val company ahead of a potential public listing.
The FMA says investors have been misled about their rights in relation to the suspension. They were told the suspension of the prominently advertised cash payments was in the context of the restructure.
However, FMA executive director, response and enforcement Paul Gregory says this was misleading as the payments were actually suspended because “Du Val’s board could not approve cash distributions, because it would leave the company unable to meet its other obligations”.
Gregory says investors were left with a misleading impression for the reasons of the suspended cash distribution and capitalisation.
“Investors in Du Val’s Mortgage Fund have not had the information necessary to make properly informed decisions to accept or reject the proposal.
“The board says its decision was made against the background of the proposed restructure, but didn’t provide any further information on the reason for the suspension.
“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, and investors are therefore not obliged to accept that decision.”
Gregory says the FMA is satisfied that making those statements may have constituted misleading or deceptive conduct, or conduct that is likely to mislead or deceive, because investors were not informed of the underlying reason for the board’s resolution to suspend and capitalise distributions, or of their rights relating to the suspension.
“We consider the conduct has actively prevented or has not enabled investors to make a properly informed decision about dealing in financial products, including:
- considering and deciding whether to accept or reject the offer being made by Du Val Group to convert limited partnership units into shares of the new Du Val company and to acquire additional units in MFLP prior to conversion; and
- considering and taking action to enforce any legal rights they may have, under the limited partnership agreement or otherwise, with respect to cessation of quarterly cash distributions and DVCP’s decision to capitalise investor distributions.
“The FMA has concluded that DVCP and Du Val Group should receive a formal warning concerning this conduct, and that it is in the interest of fair and transparent financial markets that this warning should be published.
“The 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 and/or seek advice about their options,” Gregory says.
“Du Val should now reflect on its fair dealing obligations and whether it has provided accurate information to its investors. For the FMA’s part, we reserve the right to take further action in the matter.”