Company allegedly contravened “fair dealing” provisions
Du Val, a property development and investment company, is in trouble due to its allegedly misleading mortgage advertisement.
The Financial Markets Authority (FMA) stated that Du Val’s advertisement relating to its Mortgage Fund Limited Partnership (fund or Mortgage Fund) contravened “fair dealing” provisions in the Financial Markets Conduct Act because it created the impression that investing in financial products connected to property development was low risk.
However, the FMA pointed out that property development, including associated finance, is inherently risky. Therefore, it has ordered Du Val to remove its advertising materials from all its channels to avoid misleading or deceiving investors.
Du Val’s statements appeared at various times on its website and social media channels. The FMA initially raised concerns with the company, and it either amended or removed its advertising materials. However, it considered that its concerns were only partially addressed and continued to see Du Val marketing materials as likely to be misleading.
In the accompanying copy of the direction order, Du Val stated that the fund had “the best of both worlds,” with high security and high return and comparing it to bank term deposits but without a balanced view of the risks. It also claimed that there were “no fees” associated with the Mortgage Fund, despite retaining any profit on projects above the return to investors.
The FMA concluded Du Val receiving 100% of all profits above the 10% fixed return to investors was effectively a performance-based fee, and Du Val was not transparent about this.
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Paul Gregory, the director of investment management at the FMA, said the regulator assessed the seriousness of Du Val’s contraventions and decided it was appropriate to issue a direct order.
“The direction order requires Du Val to demonstrate how it is rectifying its advertising practices. Importantly, we expect Du Val to make changes across all its financial product offers, not just the Mortgage Fund,” Gregory said.
Gregory also confirmed the FMA has not ruled out further action, but the direction order focuses on addressing an existing and ongoing risk of harm to investors from advertising materials.
The regulator also warned Du Val to ensure that its future materials do not mislead or deceive customers about the inherent risks of financing property development projects.
When advertising the fund, the company must exclude any references to term or bank deposits and other low-risk financial products relating to property development and ensure its revenue-generating and sharing methods are transparent alongside any claims about no or low fees.
