FMA warning not relevant to public – Du Val Group

The warning against DVCP and its parent Du Val Group was over a proposed debt-for-equity swap for unitholders in the mortgage fund pending a stock exchange listing. 

The company, in a brief statement, says it made direct communication to a small group of investors in its mortgage fund. 

“The fund is closed, and the communications have no relevance to the New Zealand public. Investors have received further communication to clarify statements that may have been misunderstood. ”

Distributions from the fund were suspended in January when investors were told it would be wound up and the cash distributions converted into units at a 25% premium to be put into a new company pending a potential public listing on the NZ Stock Exchange or an alternate. 

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 as it would leave the company unable to meet its other obligations.

And, he says 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 were not obliged to accept that decision.

DVCP sold units under its mortgage fund to wholesale investors over the past two years at a minimum buy-in of $250,000. The units are backed by a portfolio of nine South Auckland apartment developments valued by Du Val at $750 million.

The investment offered a fixed return of 10% per year, paid quarterly, equating to cash distributions of $2.5 million per quarter or $10 million per year.

Just about all of the investors relied on the fund’s interest payments.

One elderly investor, who has $800,000 in the mortgage fund and recently leaked details of fund correspondence to BusinessDesk, says he was told by Du Val the company required him to remedy the ‘breach’ immediately by amongst other things destroying confidential information. Du Val says all investors are under a non-disclosure authority.

Last month, DVCP chairman Owen Culliney said a listing wasn’t certain, given there had been no formal engagement with either the stock exchange or the FMA to date.

Gregory says the FMA is satisfied that Du Val by making statements about the mortgage fund conversion of cash distributions into units may have constituted 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.

The FMA has reserved the right to take further action.

This latest reprimand comes on top of a warning in October last year to Du Val and six other property funds over dodgy wholesale investor certificates.

Du Val Group also lost a High Court appeal in the middle of last year against the FMA’s directions to withdraw a promotional video from an advertising campaign and remove claims about an investment offering,  considering it likely to be deceptive and misleading to potential investors. At the time Du Val was running its campaign to raise $100 million for the mortgage fund.