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Court action against ANZ not worth the extra fine

Tuesday 22nd June 2010

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Court action against ANZ New Zealand and ING New Zealand over the promotion of its diversified yield and regular income funds wouldn’t have been worth the punitive fine, and a record $45 million settlement was the “best outcome,” according to the Commerce Commission.

The regulator secured its biggest monetary settlement from ANZ and ING after the country’s largest bank approached the commission seeking to settle over the funds, the regulator told reporters in Wellington today.

The bank will also pay $1 million in legal costs as part of the final settlement, which is on top of the $500 million it has already available to investors under its compensation offer last year. The settlement eclipses the 2007 agreement the regulator reached with Midavia Rail and David Richwhite over alleged insider trading of Tranz Rail shares.

Commerce Commission Chairman Mark Berry said the bank and fund manager “understated” the degree of risk in the funds and the regulator initially deemed there was enough evidence to pursue legal proceedings but ultimately decidedly to settle.

Graham Gill, general manager of enforcement, said any extra punitive fine was not worth the wait, and that the elderly age of many investors weighed on the commission’s thinking.

“We decided it was best to return $45 million to investors rather than wait two or three years and maybe get a speculative fine of two or three million dollars,” Gill said.

The funds collected some $700 million from about 14,000 investors before being frozen in March 2008.

Only investors who held units in the fund at the date of its suspension and who had not recovered all of their capital would be covered by the settlement. Gill said the commission was working with the bank to determine how many people had clawed back all of their cash, and estimated it to be about 160 investors.

The commission will work with ANZ to determine the payment process and will update investors in 20 working days. Steven Fyfe, acting chief executive at ANZ National Bank Ltd., apologised to investors “who felt we had misinformed them,” and said that it was “in the best interests of investors to avoid a lengthy court process.”

About 98.5% of investors in the frozen funds accepted an offer from ING that saw them receive 60 cents in the dollar for investments in the diversified yield fund, and 62 cents in the case of the regular income fund. ING insisted that investors agree to forgo their rights to legal action before it would give back their money.

The Securities Commission said it considered the settlement achieved an appropriate outcome for investors and has accepted enforceable undertakings from ANZ and ING.

The undertakings and deed require ING to arrange an external audit of its process and procedures for product development, and the preparation of offer documents and marketing material. Last year, ANZ bought the 49% of ING in Australia and New Zealand that it didn't already own.

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