, the general partner of the Du Val Mortgage Fund Limited Partnership (Du Val Mortgage Fund, MFLP, the Fund) and Du Val Group.
The FMA is satisfied that DVCP and Du Val Group may have breached section 19 of the Financial Markets Conduct Act 2013 (FMC Act) by engaging in misleading or deceptive conduct, or conduct that is likely to mislead or deceive investors in the Du Val Mortgage fund, in relation to dealing in financial products.
The FMA considers that investors have been given a misleading impression of the reasons for Du Val Capital Partners suspending cash distributions on the Fund and proposing instead to convert cash distributions into units in the fund, pending a potential public listing. The FMA considers investors may also have been misled about their rights in relation to the suspension.
Paul Gregory, FMA Executive Director, Response and Enforcement, said: “Investors in Du Val’s Mortgage Fund have not had the information necessary to make properly informed decisions to accept or reject the proposal. In particular, investors were misled about the reason Du Val has suspended the prominently advertised cash distributions, which was because Du Val’s Board could not approve a cash distribution which would leave the fund unable to meet its other obligations. And, that 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 are therefore not obliged to accept that decision.”
The warning relates to communication in December 2022, when DVCP and Du Val Group contacted investors, informing them of plans to restructure the Du Val Mortgage Fund, whereby this fund would be wound up and investors’ units in the fund would be converted into shares in a new Du Val company. Du Val Group would then potentially seek to list this new company on the NZX, or another exchange.
Investors were then informed, in January 2023, the DVCP Board had resolved to suspend all cash distributions on their units. The Board stated their decision was made against the background of the proposed restructure, but didn’t provide any further information on the reason for the suspension. Investors were also informed that cash distributions would immediately be capitalised and added to investors’ unit holdings, up until the date that units are converted into shares in the new Du Val company.
The FMA is satisfied that making those statements may have constituted misleading or deceptive conduct, or 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 concluded that DVCP and Du Val Group should receive a formal warning concerning this conduct, and that it is in the interest of fair and transparent financial markets that this warning should be published.
“The warning means Du Val investors have more accurate information on the public record about the proposal which, if they wish, means they can better engage with Du Val and/or seek advice about their options,” Paul Gregory said.
“Du Val should now reflect on its fair dealing obligations and whether it has provided accurate information to its investors. For the FMA’s part, we reserve the right to take further action in the matter.”
