The Credit Sails investigation lasted more than two years, and during it we interviewed a large number of affected investors. The stories we heard gave real impetus to our investigation. Some investors were charitable entities whose investment goal had been to preserve their capital and produce an income. They understood that Credit SaILS might produce little or – at worst – no income. But they expected and were assured that their capital would be safe. When it turned out, in 2009, that these investments had failed and would redeem in 2012 at almost zero, many investors felt angry and dismayed. Some faced hardship as a result.
The fact that many investors were elderly and that in many cases these investments formed the bulk of retirement savings, gave us a clear focus: the desire to act promptly to try to deliver them some form of compensation.
We conducted a thorough investigation of the product and why it failed, and sought expert help on some of the technical issues. All of this helped us to shape the ‘twin pillars’ of our decision that we could take legal action under the Fair Trading Act 1986:
- that the risks of the product were not stated clearly enough or given sufficient prominence
- and that Credit SaILS was not suitable for the average investor to whom it was sold.
Not all failed investment products would lead us to the same views. There can be complex reasons why an investment fails, and the global recession is a factor in recent collapses. But the Fair Trading Act asks us to focus not so much on ‘why did it fail?’ as ‘how was it sold?’ or ‘what claims did the seller make?’
This investigation showed us that this very complex investment product had been mis-sold. If it had been marketed only to sophisticated investors, with a clear description that both income and capital were unprotected, we would not have received the same complaints or had the same level of concern. But in this case the companies chose to sell the product indiscriminately, in a way that obscured its risks. That led us directly to the conclusion we reached that the companies, Forsyth Barr Limited, Forsyth Barr Group Limited, Credit Agricole Corporate and Investment Bank, Credit Sail Limited and Calyon Hong Kong Limited, were likely to have breached the law. These companies do not accept the Commission’s views.
