The FMA has filed civil proceedings against Booster Investment Management Limited (BIML), a wholly owned subsidiary of Booster Financial Services Limited. The proceedings allege breaches of the Financial Markets Conduct Act (FMCA) by BIML and the following directors and senior managers of BIML: Allan Yeo (director), Paul Foley (director), Brendon Doyle (former director), David Beattie (senior manager) and Nicholas Craven (senior manager).
The FMA proceedings allege that multiple breaches occurred through 2017-2022, arising from investments made by BIML into a related, limited partnership, the Booster Tahi Limited Partnership (Tahi), which in turn invested into a series of domestic wine businesses, later amalgamated into the Booster Wine Group (BWG). The investors referred to in this case are retail investors and the funds involved come from three Booster Schemes (the Booster KiwiSaver Scheme, Booster Super Scheme and Booster Investment Scheme, (the Schemes)). Booster has advised that as at 31 May 2024, 24 of the 61 retail funds Booster manages have exposure to BWG, including six KiwiSaver Funds. Those Funds' exposure ranges from 0.77% to 3.83%.
The FMA alleges 75 causes of action that:
- BIML breached its duties and obligations as the manager of the Schemes when investing in the manner described above;
- the individuals involved used their positions improperly as directors or senior managers, in circumstances where conflicts of interest and related party benefits were not properly managed, when making investments of Scheme funds to benefit Tahi and the BWG; and
- failures to follow required processes meant that the relevant transactions were made in breach of the prohibition against related party transactions.
Relevant provisions of the FMCA
Managers' Duties
The entity, BIML:
- section 143(1)(b)(i) - to act in best interests of scheme participants (six causes of action);
- section 143(2) - to carry out the functions of a manager in accordance with the governing document (18 causes of action);
- section 143(3) - to comply with the same duties and liabilities as those imposed on a trustee (one cause of action); and
- section 144 - to exercise any powers, or perform any duties, with the care, diligence and skill that a prudent person engaged in that profession would exercise (14 causes of action).
Individuals:
- sections 145(1)(b) - duty to not make an improper use of their position to gain an advantage for another (17 causes of action); and
- section 533(1)(c) - being knowingly concerned in a breach of s 143 (for Mr Yeo and Mr Doyle only) (one cause of action).
Related party transactions
- section 173(1) - general prohibition on transactions giving a related party benefit (18 causes of action).
The basis for the FMA filing a case for these alleged breaches is broadly as follows:
As the Manager of these schemes, BIML is responsible for selecting and managing the investment portfolios of Scheme funds in accordance with its governing documents (including the trust deed, Product Disclosure Statement and Statement of Investment Policy and Objectives). BIML's Investment Committee (BIML IC) is delegated to make specific investment decisions within the framework of those governing documents, and in accordance with BIML's Investment Charter.
The FMA alleges the relevant Tahi investments were made without any consideration by the BIML Investment Committee:
- where the specific circumstances of an investment suggest that it was not in the best interests of Scheme participants. These circumstances include the concerns of BWG's lenders (that were known to BIML), the purpose of advances, and the underperformance of the BWG;
- where the specific investment was not made in accordance with Tahi's investment criteria (which BIML was obliged to monitor);
- the size and timing of particular requests for funding, and the timeframe for responses; and where there were material changes in the underlying business or the broader circumstances of that underlying business, without any reassessment of the appropriateness of the ongoing investment.
Margot Gatland, FMA Head of Enforcement, said: "The FMA considers the alleged breaches to be serious, and that civil proceedings are the proportionate response. The allegations are centred around important governance provisions of the FMCA, including fiduciary duties of managers and related party transactions. The Court's determination will provide guidance to the market about the application of these core FMCA investor protection provisions, that managers and directors are required to comply with when making investment decisions on behalf of others."
The FMA will be seeking declarations of contravention, pecuniary penalties to be paid to the Crown, and an inquiry into damages. As the case is now before the courts, the FMA cannot comment further on these matters.
FMA's approach to supervision during a litigation process
The FMA's regulatory delivery team has increased engagement with BIML to ensure it is satisfied with aspects of BIML's governance and operations, with a focus on its direct investment activities. Booster is cooperating with the FMA's supervisory team. This work will continue in parallel with the proceedings and is focused on current and future compliance and investor outcomes.
