Commerce Commission settles with ANZ and ING

Commerce Commission settles with ANZ and ING over investment funds

In its largest monetary settlement to date, the Commerce Commission has secured $45 million for thousands of New Zealanders who invested in two funds marketed by ING (NZ) Limited (ING) and ANZ National Bank Limited (ANZN). This settlement follows an investigation into alleged breaches of the Fair Trading Act relating to the marketing and promotion of the funds by ING and ANZN.

The Commission’s investigation focused on whether representations made by ING and ANZN when promoting and marketing the ING Diversified Yield Fund (DYF) and the ING Regular Income Fund (RIF) breached the Fair Trading Act by misrepresenting the degree of risk of the funds. The funds were frozen in March 2008 affecting around 15,000 investors.

“In the Commission’s view, representations made by ANZN and ING concerning the degree of investment risk in the funds were likely to be misleading, in that the actual risk was understated. We concluded that there was sufficient evidence to commence proceedings against both parties for breaches of the Fair Trading Act,” said Commere Commission Chai Dr Mark Berry.

“It is important that consumers are able to make properly informed decisions, based on clear and accurate information. Investors decide where to invest their money based largely on their appetite for risk. Throughout our investigation investors have told us that they would not have invested in these funds if the actual risk had ben represented accurately, said Dr Berry.

As part of this settlement ING and ANZN have accepted that some of the representations made in marketing material and by ANZ advisors may have breached the Fair Trading Act and they have agreed to make payments totalling $45 million to affected investors. As a result, the Commission will not be issuing legal proceedings against ING and ANZN over the alleged breaches of the Fair Trading Act.

“After careful consideration, the Commission believes that this settlement serves the best interests of New Zealand consumers, and the affected investors in particular, who, in many cases, stood to lose part of their life-savings. The $45 million settlement represents the largest compensation sum the Commission has achieved for cosumers, said Dr Berry.

“Any court proceedings were likely to have involved significant delay, cost and risk, with no certainty of achieving an outcome that would benefit the affected investors,” said Dr Berry. “In addition to compensating investors, this settlement also sends a clear message that a failure to provide accurate information to consumers ca lead to significant financial consequences.

The Commission settlement with ANZN and ING will be a two stage process. While the compensation fund of $45 million has now been agreed, the Commission will now determine the payment process including the amount of payments to investors, working with ANZN and ING.

The target date for payment is within five months from today – around mid to late November 2010. ANZN will be responsible for implementing the process of making payments to eligible investors, and investors eligible for a payment will be contacted by ANZN/ING. Investors with questions should contact ING on 0800 737 575 and information will also be provided on both the ANZN and ING websites.Information will also be available on the Commission™s website and will be updated when the payment method has been determined.

Not all ING investors will receive a payment under the settlement. The settlement only relates to those investors who were still in the funds at the date of suspension. The individual amounts received by eligible investors will be determined by a number of factors and some necessary assumptions by the Commission. This may take into account such issues as whether investors have already been made right, and to what degree, by ANZN, or through remedial actions taken by the Banking Ombudsman, or through tax adjustments.

The Commission acknowledges the cooperation of ANZN and ING, throughout this investigation and during the settlement discussions. The Commission also recognises the patience of investors, many of whom have been greatly affected by the funds being frozen. The investigation involved over 300,000 pages of information, and interviews with complainants, financial advisors and a range of other parties, throughout New Zealand.

The Commission has now concluded its investigation and will not be taking any legal action against individual advisers, advisory services or other parties arising out of its investigation.

For further detailed information please refer to the Background section and the attached Q and A sheet.
Background

History of ANZ/ING case. Around 15,000 investors had their money frozen in the two ING funds (DYF and RIF) on 13 March 2008. ING and ANZN facilitated an offer to buy suspended investor units at 60c for the DYF and 62c for the RIF in July 2009. The offer was conditional on investors not taking or benefitting from any legal action in relation to the funds.

Timeline. In July 2003, ING (NZ) Administration Pty Limited (ING (NZ) Admin) established the DYF as an Australian unit trust. At the same time, ING (NZ) Admin directed ING (NZ) Limited (ING) to promote the New Zealand dollar denominated participatory units in the DYF to New Zealand resident investors.
The DYF invested principally in CDOs (collateralised debt obligations) and used derivatives to hedge currency risk. The DYF’s performance target was to outperform the New Zealand 90-day bank bill rate by 2 per cent per annum after taxes and the deduction of fees. The DYF was promoted to investors and prospective investors as having a moderate risk profile.

Beginning in late 2004, there were changes to the tax laws in Australia and New Zealand that affected investors’ obligations to pay tax on their investments in the DYF. In response, the DYF’s objective was changed from “after taxes and fees” to “after fees”.

In September 2005, ING (NZ) Admin established the RIF as another Australian unit trust. ING (NZ) Admin directed ING (NZ) to promote the RIF to New Zealand resident investors. The RIF had a similar investment strategy to the DYF. The RIF’s performance target was to outperform the New Zealand 90-day bank bill rate by 1 per cent per annum after fees. The RIF was promoted to investors and prospective investors as having a low to moderate risk profile.
In March 2008, the DYF and the RIF (collectively referred to as the Funds) were suspended by ING (NZ) Admin. The Funds had a total of 8,280 unit holders as at the date of suspension made up of 5741 in the DYF and 2809 in the RIF. The value of the Funds as at the date of suspension was $369.81m for the DYF and $163.7 million for the RIF, a total of $533.51 million.

Around 2800 ANZ customers invested in the Funds as at the date of suspension. The remainder were introduced by a variety of financial planners either directly or via a wrap platform. Altogether approximately 15,000 individual investors were affected.

Penalties under the Fair Trading Act. It is up to the Courts to determine penalties. The maximum fine for a business convicted of breaching the Fair Trading Act is $200,000, and the maximum for an individual is $60,000.

The largest individual fine imposed under the Fair Trading Act was $900,000 against Carter Holt Harvey in 2006 for selling timber that did not meet the grade claimed on the packaging.

In 2007 the Commission concluded the last of nine prosecutions against banks and credit card providers for inadequate disclosure of currency conversion fees. In those cases, compensation, fines and costs paid by the banks as part of the prosecutions and settlements totalled just under $30 million.

ENDS

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