Recent scandals within New Zealand’s unregistered wholesale fund market have illuminated glaring gaps in regulation and accountability, leaving a devastating trail of financial and emotional wreckage. Victims who trusted these funds now find themselves abandoned, not just by the operators who misused their investments, but also by the very regulator tasked with protecting market integrity—the Financial Markets Authority (FMA).
Victims’ Plight: Financial and Emotional Toll
At the core of this issue are the victims, often business owners or individuals who met the wholesale investment threshold of $750,000. Many were lured by promises of lucrative returns, only to discover that the funds they invested in were being mismanaged or outright abused by directors who lacked the qualifications—and ethics—to operate financial ventures. As their life savings dwindled, victims faced sleepless nights, mounting debts, and the overwhelming sense of betrayal.
This emotional toll is exacerbated by the hollow assurances of regulatory oversight. Despite numerous complaints detailing fraudulent or unethical practices, the FMA’s standard response was to acknowledge the victims’ wholesale status but avoid addressing the substantive allegations of fund mismanagement and director misconduct.
Regulatory Oversight or Abdication?
The FMA’s reluctance to investigate unregistered wholesale funds and their operators signals a worrying abdication of duty. By narrowly interpreting its responsibilities to focus on whether investors meet the wholesale criteria, the regulator has turned a blind eye to the actual content of complaints. Victims allege that directors of these funds were neither "fit and proper persons" nor compliant with basic financial norms, yet these issues went unexamined.
What makes this failure more egregious is the burden it places on victims. Without the FMA’s intervention, victims are forced to spend tens of thousands of dollars conducting investigations, gathering evidence, and initiating legal proceedings. Essentially, they are doing the job the regulator should be doing—at their own expense. Meanwhile, wholesale fund managers who have misused funds face minimal, if any, consequences, continuing to live comfortably off the proceeds of their misdeeds.
We have seen several parties having to spend money they don’t have, taking substantive proceedings against wholesale fund managers to try and recoup their funds. Where is the media when these events happen? What’s even more concerning is that, despite these parties complaining formally to the FMA, Serious Fraud Office (SFO), and other authorities, they are now being forced to do the regulators' jobs with money they can’t afford.
Contradictions in Regulatory Action: The Du Val Group Case
In recent times, we have all seen the reaction of the FMA with the Du Val Group. Yet what the writer finds more than confusing is that the Du Val Group has multiple millions of dollars in property developments under construction. The Du Val funds are all registered correctly, and from our own investigations, we have uncovered that the FMA was working with Du Val on issues over a two-year period. On July 2, 2024, the FMA confirmed they were comfortable with investors in the mortgage fund converting to shareholders. So why is it that one month later, the FMA took the drastic action of sending in the receivers, PwC?
This raises critical questions about the FMA’s approach to monitoring, supervising, and then taking action. We have seen such an overreach in the case of Du Val, where there are named debts of $230 million, but it has been conveniently overlooked that they have over $300 million in property developments under construction, completed, and awaiting settlement.
Yet here, we clearly have a regulator who has refused to manage serious complaints made by multiple parties to investigate wholesale fund managers who have misled investors, have no developments or projects actually in play, and are clearly using funds for their own purposes.
We have seen the FMA and Statutory Management using the media to play out the Du Val case, with allegations of concerns around interparty transactions, etc. But what about the developments, the property management company, and other tangible assets? These are actual, visible investments.
Meanwhile, the victims of unregistered wholesale funds have nothing to view—no business, no developments, nothing at all. Instead, they are left with a well-put-together Information Memorandum that spins a fine tale about supposed directors. These documents, usually prepared by a law firm, provide a veneer of legitimacy to parties who, if fully transparent, would send us all running for the hills.
What’s even more alarming is that the action taken in the Du Val case is likely to create catastrophic losses for the poor investors. A very well-paid Statutory Manager will carry on bleeding a dying animal for everything it can get, but the investors and shareholders lose—and lose again.
A Broken System
This situation exposes a systemic flaw in New Zealand’s financial regulatory framework. The absence of mandatory registration for wholesale funds has created a gray area where unscrupulous operators thrive. The assumption that wholesale investors are sufficiently experienced to manage their own risks ignores the fact that such investors are still vulnerable to bad actors. It also ignores the role of regulation in ensuring that all market participants—regardless of their financial sophistication—are protected from fraud and misconduct.
Moreover, the FMA’s passive stance sends a dangerous message: that unregistered wholesale funds exist in a regulatory vacuum where oversight is optional. This not only emboldens unethical operators but also undermines confidence in New Zealand’s financial markets as a whole.
Time for Reform and Accountability
To restore trust, immediate reforms are needed:
1. **Mandatory Registration:** All wholesale funds should be required to register with the FMA, ensuring greater transparency and accountability.
2. **Director Standards:** Stricter vetting processes should be implemented to ensure that directors meet "fit and proper person" criteria before they are allowed to manage funds.
3. **Proactive Regulation:** The FMA must take a more active role in investigating complaints, especially those involving allegations of fraud or mismanagement, rather than hiding behind technicalities.
4. **Victim Support:** A dedicated fund should be established to assist victims with the legal and investigative costs of pursuing justice.
Conclusion
New Zealand’s unregistered wholesale fund market is a cautionary tale of what happens when regulation fails to keep pace with market realities. The victims of these schemes deserve more than bureaucratic indifference; they deserve justice. Until the FMA steps up and the system is reformed, the unethical practices of wholesale fund managers will continue unchecked, leaving more lives and businesses in ruins. It’s time for New Zealand to put ethics and accountability back at the heart of its financial markets.
