23 February 2006
This undertaking is offered to the Securities Commission ("Commission") for acceptance under section 69J of the Securities Act 1978 by:
Contributory Mortgage Investments Limited
Mr John Martin ("Mr Martin")
C/- Shortland Street
Mr Peter van Nieuwkoop ("Mr van
C/- Shortland Street
1. CMI is a company incorporated under the Companies Act 1993 on 30 September 1999. It is registered, and carries on business as, a contributory mortgage broker under the Securities Act (Contributory Mortgage) Regulations 1988 ("CM Regulations"). CMI's director is Mr Martin. Mr van Nieuwkoop is a consultant to CMI.s.
2. The Commission has inquired into CMI's compliance with the securities laws. In particular it has inquired into the offering and management of interests in the following three mortgages:
- the Greys Avenue Development Limited first mortgage where CMI raised $10,800,000, and second mortgage where CMI raised $2,625,000 ("Greys mortgages"). The money lent was for the renewal of an existing mortgage arranged by CMI to purchase a car parking building at 85 to 89 Greys Avenue in the Auckland CBD; and
- the Trans Tasman Hotel Corporation Limited mortgage ("Trans Tasman mortgage") in the sum of $6,000,000. The money lent was for the renewal of an existing mortgage arranged by CMI for $7,000,000 in respect of an office building, namely the Zen Centre, in Rotorua.
3. The Commission is satisfied that CMI contravened the following regulations:
- Regulation 20(1)(a) of the CM Regulations by paying
contributions out of the trust account when it knew, or ought to
have known, that the offer documents for the Greys mortgages were
false or misleading, and regulation 8 of the Securities Regulations
1988 ("Securities Regulations") because those offer documents
contained information likely to deceive or mislead contributors.
The false, misleading or deceptive matters in the offer documents
- it was not disclosed that the Godfrey group appeared to be in financial difficulties;
- that, contrary to representations made, the statement of position provided by Mr Godfrey's accountant was not independently verified;
- that assets to the value given were unlikely to be available under Mr Godfrey's guarantees should Greys Avenue default on its obligations under the mortgages;
- it was not disclosed that part of the proceeds of the offer would be used to meet CMI's obligation to a third party and to repay contributions made by trusts associated with Mr Martin and Mr van Nieuwkoop;
- that, contrary to representations made, all principal and interest had not been paid on all mortgages; and
- in respect of offers made after 12 February 2005, that contrary to representations made about a monthly automatic payment authority from property rentals being available to pay interest owing by the borrower, rental income had not been received when due and no such rental was available to pay the interest. /li>
- Regulation 19 of the CM Regulations by paying contributions out
of the trust account in circumstances where contributors had been
given offer documents for the Greys Avenue mortgages or the Trans
Tasman mortgage that did not comply with applicable CM Regulations,
- they did not contain material information about the finances of the Godfrey group that was known to CMI;
- they contained misleading information about the value of the guarantees;
- they did not contain material information about the interests of CMI and its principals in raising funds for the Greys Avenue mortgages; and
- the valuation report for the Trans Tasman mortgage was not a valuation report as defined in Regulation 5 because it was out of date.
- In relation to the Trans Tasman mortgage, regulation 20(2)(a) of the CM Regulations by paying contributions out of the trust account when the mortgage had not been executed.
4. The Commission also noted that CMI's accounting systems could be improved and that CMI proposes to upgrade its accounting system in the near future.
5. The Commission considers that CMI, CMN, Mr Martin and Mr van Nieuwkoop have failed to meet the standards of care and good governance that it expects from those who seek to raise funds from the public.
6. CMI, Mr Martin and Mr van Nieuwkoop acknowledge the Commission's concerns and wish to remedy this situation. CMI, Mr Martin and Mr van Nieuwkoop have therefore offered the undertakings set out below. The Commission has agreed to accept these undertakings under section 69J of the Act.
7. CMI, CMN, Mr Martin and Mr van Nieuwkoop will by 31 March 2006 have obtained advice about their respective obligations as issuer and trustee and/or as directors and officers thereof from an independent lawyer with experience in securities law who has not previously been involved with any of the parties or their businesses and who is satisfactory to the Commission.
8. CMI and CMN will by 31 March 2006 upgrade their accounting systems and ensure that they are adequate to keep all necessary records and comply with all applicable laws.
9. CMI and CMN will at all times after 31 March 2006 have at least one appropriately experienced, independent director who is satisfactory to the Commission.
10. CMI and CMN will forthwith engage their auditors to perform an enhanced audit role for two years whereby in addition to the obligations of an auditor acting under regulation 39 of the CM Regulations, they will as part of their quarterly audits:
- review the adequacy of CMI and CMN's systems and processes, and CMI and CMN's compliance with internal procedures, with the requirements of the law and the enforceable undertakings offered to the Commission;
- conduct such a review by way of at least one onsite visit, including inspection of documents and interviews with directors and staff and review of such other information as the auditor considers necessary or expedient; and
- report in writing to CMI and to the Commission within one month of completing each review.
11. CMI and CMN will ensure that, before any contributor's funds are paid out of its trust account or otherwise applied (other than to that contributor), the contributor has been given all information that may be material to his or her decision whether or not to invest, including all material information about CMI, CMN and their directors and officers.
12. CMI, Mr Martin and Mr van Nieuwkoop will refrain until 31 March 2006 from making any offers of securities to the public other than to refinance existing loans provided to borrowers comprising contributory mortgage funds previously raised by CMI (i.e. "rollover mortgages").
13. Mr Martin and Mr van Nieuwkoop will take all reasonable steps to ensure compliance by CMI and CMN with the undertakings set out in paragraphs 7 to 12.
14.CMI, Mr Martin and Mr van Nieuwkoop acknowledge that the Commission:
- may issue a media release referring to the undertaking and to all of the concerns of the Commission which led to the undertaking being executed;
- may from time to time publicly refer to the undertaking; and
- will make this undertaking available for public inspection.
15. CMI, Mr Martin and Mr van Nieuwkoop acknowledge that this undertaking does not derogate from the rights and remedies available to the Commission or to any other person or entity arising from the conduct described in the undertaking.
16. CMI, Mr Martin and Mr van Nieuwkoop acknowledge that the Commission's acceptance of an enforceable undertaking under section 69J of the Act does not affect the Commission's power to investigate future conduct of any person, to take any action or exercise any power under the Act, or any other legislation, or to refer any matter for criminal prosecution or seek any civil penalties.
Signed for and on behalf of Contributory Mortgage
by its duly authorised officer Mr John Martin:
Signed by Mr John Martin
Signed by Mr van Nieuwkoop
Accepted by the Securities
pursuant to section 69J of the Securities Act 1978
by its authorised delegate:
[Kathryn Ann Rogers]