High-risk derivatives broker fined $200,000 for pretending to be regulated in New Zealand

Tuesday, 12 January 2021

The Financial Markets Authority, headed by chief executive Rob Everett, has moved in recent years to clear companies from the Financial Services Providers Register that are not doing business in New Zealand, but are pretending to be regulated here.

Broking firm Pegasus Markets has been ordered to pay $200,000 for a “deliberate, prolonged and harmful” pretence that it was registered as a financial service provider.

Companies Office records show the Registrar of Companies has begun action to remove the company from the register, effectively shutting it down.

Pegasus was registered to provide high-risk derivatives to investors within New Zealand, but in June 2015, the Financial Markets Authority (FMA) concluded it was only providing services to investors overseas.

The FMA believed these overseas investors would be mislead into thinking Pegasus was subject to regulation in New Zealand, which has an international reputation as having a safe, highly-regulated financial services sector.

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Pegasus' pretence posed a threat to the integrity and reputation of New Zealand's financial markets, the FMA said, and the company was deregisted in August 2015.

Despite that, it continued to use its websites to tell investors it was registered as a financial service provider in New Zealand, continuing to do so as late as February 2018.

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Pegasus’ directors Rafael Lemonche, based in Barcelona, Spain, and Michael Reps from Warkworth, were notified that the company was deregistered, but deliberately, and blatantly continued to advertise that the company was regulated in New Zealand, the FMA said.

Pegasus was sentenced “in absence” at the Waitakere District Court on December 16.

Judge June Jelas said: “New Zealand cannot be a country where breaches of its financial markets regulatory systems can be an acceptable commercial consequence.”

“I consider the aggravating factors of Pegasus’ offending include the significant period of time over which the offending occurred,” she ruled.

“The false and misleading representations on both of Pegasus’ website continued to be available to the global financial market for a period of over two-and-a-half years,” she said.

The judge was critical that Pegasus’ websites were altered in 2017 with a silver fern being added, which he said was designed to further enhance the impression that Pegasus’ business activities were being overseen by New Zealand regulators, when they were not.

“I accept the FMA’s submission that the false and misleading statements risked undermining New Zealand’s financial market regime,” the judge said.

It wasn’t the first case taken against a company pretending to be regulated in New Zealand while selling financial services to foreigners.

In June 2019, Morgan DeVere Corporate Finance Limited was fined $40,000 at the Wellington District Court for continuing to claim it was registered on the Financial Service Providers register after it had been deregistered.