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20 June 2007
News release
Securities Commission accepts enforceable undertaking from Contributory Mortgage Investments Limited
The Securities Commission has accepted an enforceable undertaking from contributory mortgage broker Contributory Mortgage Investments Limited (CMI), its nominee company Contributory Mortgage Nominees Limited (CMN), and its directors John Martin and Ron Jamieson (the parties).
The Commission accepted enforceable undertakings from CMI, CMN and John Martin in February 2006 to give CMI an opportunity to raise its standards of care and governance to the standards required of those who raise funds from the public. These undertakings included an agreement not to offer new mortgages. Subsequent oral undertakings extended the period of restraint on CMI offering new mortgages.
CMI has not offered new mortgages to the public since September 2005.
All the mortgages remaining under its management are in default. It is endeavouring to sell the properties held as security for these mortgages and is taking some other steps to recover contributors' funds. Some mortgages have been settled by CMI at a loss to contributors. Two mortgages were removed from CMI's management by the Commission in December 2006. At the time of their removal investors were owed money.
The Commission continued to investigate CMI's conduct. It has concerns about aspects of the parties' compliance with the law and conduct in the offer and management of contributory mortgages including:
- the legality of deductions made, or proposed, from sale proceeds of property held as security for the mortgages to pay CMI in priority to investors;
- the adequacy of CMI's disclosure about the risks of investment in some mortgages it offered;
- the time taken by CMI to notify investors of borrowers' defaults in some cases;
- conflicts between CMI's own interests and the interests of investors where funds are claimed by CMI or where CMI may have potential liability to investors for losses.
The Commission is seeking a Court opinion on certain legal issues. In particular, the legality of CMI's deductions from sale proceeds in priority over repayments to investors. The Commission considers the interests of contributors will be best served by seeking this opinion before deciding whether or not to remove other mortgages from CMI's management. This means the Commission, rather than investors in individual mortgages, will incur the costs of determining investors' rights to these funds.
CMI, CMN, Mr Jamieson (while he is a director) and Mr Martin have acknowledged the Commission's concerns and have offered undertakings to the Commission:
- not to offer or promote securities until after 31 March 2008;
- to keep all money received for the mortgages in trust, except for distributions to registered investors in proportion to investors' contributions to the mortgage and some other lawful payments;
- to have an independent chartered accountant audit the mortgage records and report to the Commission each month on the distribution of money and whether funds are properly accounted for;
- to provide information to the Commission to assist the Commission in its legal proceedings.
The enforceable undertaking is on the Commission's website. The previous enforceable undertaking, and media releases in relation to it and in relation to the Commission banning CMI from acting as a broker for two of its mortgages are also available on the website.
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Contacts: Poly Banerjee ph 04 471 7666