Anderton gaffes torpedo People's Bank funds plan

Friday 3rd August 2001

EXCLUSIVE INVESTIGATION

By Jock Anderson

Top-secret government papers obtained by NBR yesterday show Deputy Prime Minister Jim Anderton broke securities law, was untruthful and cost the taxpayer $40 million in a People's Bank funding blunder the government tried to bury.

A favoured plan to fund the controversial bank partly with taxpayers' money and partly by a public redeemable preference share float was torpedoed by Mr Anderton's hamfisted statements on national television last year.

Instead of a plan that would have given the government - through state-owned enterprise New Zealand Post - a 51% stake costing taxpayers $40.8 million, the taxpayer will pay the full $80 million.

An official complaint against Mr Anderton was this week made to Securities Commission chief executive John Farrell and registrar of companies Neville Harris by Act New Zealand finance spokesman Rodney Hide, who wants Mr Anderton prosecuted for breaching the Securities Act and the Securities Regulations.

Mr Hide said Mr Anderton's statements about a proposed redeemable preference share float had exposed him, the Crown and potentially the directors of the People's Bank and New Zealand Post to civil and criminal liability.

Confidential reports to ministers and the Cabinet show Mr Anderton blew it when he talked on the Holmes television show last June about how the bank would be funded. Particularly devastating were his statements about a public share proposal that Mr Anderton said New Zealand individuals or institutions would be able to take up.

One statement in particular had government advisers diving for the law books. According to the Holmes programme transcript, which officials accepted as accurate, Mr Anderton said: "Well, the thing about buying redeemable preference shares is that you don't risk them, you get an interest payment on them, and they're redeemable at any time by the company if they want to buy them back at the price that you paid. And you can trade them if you want. But basically there's very little risk. Is anyone seriously suggesting New Zealand Post is in the business of going broke? I don't think so ..."

Officials immediately raised concerns at ministerial and cabinet level that Mr Anderton's reference to securities offerings in relation to the potential involvement of New Zealand Post in banking breached the Securities Act.

Within days officials reported to State-Owned Enterprises Minister Mark Burton, who reported to the cabinet, the firm view that Mr Anderton's public statement "along the lines that there might be an offer of redeemable preference shares to fund a banking venture" would be caught by the Securities Act's broad definition of "offer."

Officials said the act prohibited a security from being offered to the public other than in one of the prescribed forms unless key offer documents, such as an investment statement or a prospectus, were referred to or an exemption had been given by the Securities Commission.

"Technically this prohibition applies even when, as with NZPL's [New Zealand Post Ltd] potential involvement in banking, it is not yet certain whether any securities will eventually be issued," officials advised Mr Burton. "A breach of this prohibition creates significant issues if and when any such securities are actually issued."

Officials considered Mr Anderton's public comments went beyond "very strict limits" set down in s3(6) of the Securities Act on what could be said without an "offer" being made and said any further public comment should be restricted only to what s3(6) allowed.

Officials also censured Mr Anderton on another front, advising that the Securities Regulations 1983 prohibited any statements in advertisements that investment in a security was "safe or free from risk." They said there was little doubt his comment would be regarded as saying investment in the redeemable preference shares was "safe or free from risk."

They concluded, "... certain comments which have been made to the media probably amount to a technical breach of this provision."

The danger was that any formal offer of securities to fund the NZ Post banking venture may be linked back to the public comments of Mr Anderton and others.

"This may cause the Hon Jim Anderton, the Crown and potentially any director of the banking venture - which may in effect be the directors of NZPL or NZPL itself - to be in breach of the Securities Act and the Regulations.

There is potential civil liability for any such breach and depending on the circumstances, even criminal liability with a fine of $15,000," officials warned.

S56 provides for civil liability in respect of untrue statements and s55, according to officials, "essentially deems a statement to be untrue if it is misleading."

"On this basis the statement made by the Hon Jim Anderton that any redeemable preference shares offered would be without risk is untrue.

"In order to avoid liability under s56 each director of NZPL as well as any relevant minister of the Crown, and someone on behalf of the Crown, would have to publicly disclaim the statement of the Hon Jim Anderton before the redeemable preference shares are subscribed for."

That means ministers would have to come out publicly and make it clear Mr Anderton was not only well out of line but was wrong and broke the law. That has yet to happen.

Meanwhile, a public share float was still favoured as a viable finance option, according to a top secret report prepared for Mr Burton and Finance Minister Michael Cullen last November by the Crown Company Monitoring Advisory Unit (CCMAU).

In a report leaning heavily toward the advantages of a government/public share holding mix, CCMAU warned the ministers about the risks and financial and criminal penalties involved for breaching the Securities Act and Regulations.

Comments from our readers

No comments yet