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Credit Sails headlines NZX and Business Day

April 20, 2011

Credit Sails fallout continues



 Published by Business Day


Fallout from Credit Sails, a complex financial product which led to multimillion dollar losses for investors, is continuing to dog broker Forsyth Barr after it was fined and ordered to pay restitution for failing to sell stock for a client.

In a decision published on the stock exchange yesterday, Forsyth Barr was found guilty of breaking NZX rules by failing to execute a client’s written instruction to convert their entire portfolio to cash “as soon as possible”.

It was fined $5000 and must make good losses suffered by the client as a result of the failure.

Details of the transaction were not made public, but BusinessDay understands it involved 8000 Credit Sails bonds which were ordered to be sold along with the client’s other holdings in March 2008.

At the time the Credit Sails holding was still worth several thousand dollars.

However, although the rest of the portfolio was sold, Credit Sails was not and by November Forsyth Barr had to tell the client the stock was worthless.

Documents seen by BusinessDay show Forsyth Barr argued there was no market for Credit Sails at the time and was trying to safeguard client interests by not selling, although investment bank Calyon, which was involved in creating Credit Sails, was known to be buying stock.

That argument was not accepted by the regulator, which found there was a clear market for Credit Sails and Forsyth Barr had no discretion to override the client’s instruction.

Fund manager Greg Marshall of Logic Funds, who has campaigned for investors who suffered losses on Credit Sails, welcomed the Markets Disciplinary Tribunal’s decision.

“We applaud finally something’s finally happening,” he said.

“We’re really looking forward to the ongoing probe.”

Credit Sails were sold to investors in May 2006 with the prospect of 8.5 per cent interest and a capital guarantee.

But after $91.5m was raised through the offer, which was lead managed by Forsyth Barr, the price of the listed notes tanked on the NZX as the financial crisis developed and by late 2008 the notes were worthless.

The issue is now being investigated by the Commerce Commission for alleged misleading representations made as to the characteristics and risk of the product.

BusinessDay understands the stock exchange is considering other complaints involving Credit Sails and Forsyth Barr.


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