Financial Markets Authority v Savage
[2025] NZHC 152
•13 February 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-000929
[2025] NZHC 152
UNDER the Financial Markets Conduct Act 2013 BETWEEN
FINANCIAL MARKETS AUTHORITY
PlaintiffAND
RANGI WYATT STEPHEN SAVAGE
Defendant
Hearing: 13 February 2025 Counsel:
T Epati and JL Butcher for Plaintiff
Judgment:
13 February 2025
ORAL JUDGMENT OF DOWNS J
Solicitors/Counsel:
Financial Markets Authority, Auckland. T Epati, Auckland.
JL Butcher, Auckland.
FINANCIAL MARKETS AUTHORITY v SAVAGE [2025] NZHC 152 [13 February 2025]
The case
[1] This judgment addresses a claim by the Financial Markets Authority1 against Rangi Savage in relation to his company, Powder Shed Tokoroa Ltd.2 Mr Savage has not defended the claim or taken any steps in connection with it. Indeed, as Ms Epati explained to me this morning, Mr Savage has “not engaged at all”. Consequently, I heard the claim by what the law calls “formal proof”.3 This means I have considered the untested evidence offered by the FMA to determine whether I am satisfied it establishes the allegations (or causes of action). That evidence comprises seven affidavits and many exhibits.
[2] For the reasons that follow, I am satisfied the allegations are established to the civil standard — the standard required by s 509 of the Financial Markets Conduct Act 20134 — hence civil liability orders should be made under the Act.
First, some law
[3] The Act seeks to promote the confident and informed participation of businesses, investors, and consumers in financial markets; promote and facilitate the development of fair, efficient, and transparent financial markets; and among other things, provide for timely, accurate and understandable information to be given to those making decisions in relation to financial products or services.5
Sections 22(a), 48(1) and 50 are important to this case. They provide:
22 False or misleading representations
A person must not, in trade, in connection with any dealing in financial products, the supply or possible supply of financial services, or the promotion by any means of the supply or use of financial services, make a false or misleading representation—
(a)that the products or services are of a particular kind, standard, quality, grade, quantity, composition, or value, or have had a particular history;
1 FMA.
2 Powder Shed Tokoroa.
3 High Court Rules 2016, r 15.9.
4 The Act.
5 Financial Markets Conduct Act 2013, ss 3 and 4(a).
48 PDS must be prepared and lodged
(1)A person must not make a regulated offer, or distribute an application form for a regulated offer, unless the issuer of the financial products has—
(a) prepared a product disclosure statement (PDS) for the offer; and
(b) lodged the PDS with the Registrar; and
(c) supplied to the Registrar all of the information that the register entry (if any) is required to contain by this Act or the regulations.
50 PDS must be given if offer requires disclosure
(1)This section applies if an offer of financial products is made to a person
(A) to whom disclosure under this Part is required.
(2)A person must not accept an application, or issue or transfer the financial products to A, if a PDS for the regulated offer was not given to A before the application was made.
(3)In this section, application means an application for the financial products that is made by A.
(4)See sections 39 and 40 and Schedule 1, which contain provisions relating to when an offer of financial products to a person requires disclosure under this Part.
[5] These provisions constitute civil liability provisions, contravention of which may give rise to civil liability orders.6
What the evidence establishes (to the civil standard)
[6] On 14 April 2020, Mr Savage incorporated Powder Shed Tokoroa. Mr Savage was, and remained, Powder Shed Tokoroa’s sole director. Initially, Mr Savage was also the sole shareholder.
[7] Mr Savage intended Powder Shed Tokoroa would operate a tyre recycling business in connection with Black O Ltd,7 a company he had incorporated 18 February 2019.8 Black O collected used tyres for a fee and delivered them to an
6 Financial Markets Conduct Act, s 484.
7 Black O.
8 Mr Savage’s son was Black O’s shareholder and director, but Mr Savage operated Black O.
independent company for recycling. The independent company charged Black O a disposal fee.9 Mr Savage envisaged Black O would instead deliver tyres to Powder Shed Tokoroa for recycling; Powder Shed Tokoroa would grind the tyres into powder; sell the powder, which could be made into other products, thereby generating profit for Powder Shed Tokoroa.
[8] Between April and July 2020, Mr Savage offered the public shares in Powder Shed Tokoroa. The offer was promoted on social media; by invitations to Zoom meetings; and by the recruitment of people as sales consultants. Mr Savage made at least five representations in relation to the offer.
[9] First, Mr Savage said Powder Shed Tokoroa had an approved site for its business. It did not. The land in Tokoroa Mr Savage was contemplating for the site was not suitable. Relatedly, no document has been found to support the proposition Powder Shed Tokoroa ever had a suitable site.
[10] Second, Mr Savage represented Powder Shed Tokoroa had already secured a major contract for the sale of powdered rubber. No such contract existed.
[11] Third, Mr Savage represented he had secured financial backing from international companies. He had not. The evidence reveals Mr Savage had not secured funding from any source (beyond the money provided by shareholders for shares).
[12] Fourth, Mr Savage represented Powder Shed Tokoroa would pay a substantial dividend within its first 12 months of operation, and that dividend would be better than an investor could obtain from “the bank”. There was no basis for Mr Savage to make this representation as the company had no funding or contracts.
[13] Fifth, Mr Savage represented Powder Shed Tokoroa was a successful business, and would be supported by Black O, a highly successful business. Powder Shed Tokoroa was not, on any view, a successful business. Black O could not be accurately described as a highly successful business; it had been struggling financially since early 2020.
9 Black O was placed in liquidation 29 April 2022.
[14] It follows Mr Savage contravened s 22(a) of the Act through a multiplicity of false or misleading representations in connection with the offer.
[15] As will be apparent, ss 48 and 50 require a product disclosure statement in connection with a regulated (share) offer. Mr Savage breached both provisions in that he made a regulated offer without a product disclosure statement being prepared. Mr Savage essentially acknowledged as much in correspondence with the FMA. That correspondence began after a complaint was made to the FMA 15 July 2020.
[16] On 21 July 2020, Mr Savage told the FMA he had ceased the offer and was removing marketing materials.
[17] In January 2021, Mr Savage contacted investors and said they may seek a refund. However, investors have not been repaid.
[18] In April 2024, the FMA brought this claim. As observed, Mr Savage has not defended it or taken any steps in connection with it.
Remedies
[19] The FMA seeks declarations Mr Savage contravened ss 22, 48 and 50 of the Act in relation to Powder Shed Tokoroa. I make those declarations at the end of this judgment.
[20] The FMA seeks a compensation order for loss suffered by investors; an order Mr Savage pay a pecuniary penalty to the Crown; and an order banning Mr Savage from being a director or promoter of an entity (as defined by the Act) for 10 years.
[21] On behalf of the FMA, Ms Epati contends Mr Savage should be ordered to repay investors the value of their investment, a figure of approximately $126,214.10
10 Under ss 494 of the Act, the Court may make a compensation order if a civil liability provision has been contravened and a person has suffered, or is likely to suffer, loss or damage because of the contravention. Under s 495, the order may be framed as the Court “thinks just to compensate an aggrieved person in whole or in part for the loss or damage (or to prevent loss or damage)”.
Ms Epati contends had Mr Savage not made the misrepresentations identified earlier, investors in Powder Shed Tokoroa would not have so invested, or at least not likely so invested, given the nature and breadth of the misrepresentations.
[22] I agree. Mr Savage’s failure to provide a product disclosure statement buttresses this conclusion as investors did not have the information that would otherwise have been likely to assist them in making a decision whether to invest. It follows there is a compensation order to the value of $126,214 at the end of this judgment. That leaves one or two things in connection with this order.
[23] The FMA is concerned that the money actually reaches the 162 investors. That may not happen if Mr Savage pays the money directly to them. Consequently, Ms Epati proposes an order be made that the money be paid to the FMA by Mr Savage and it then pays the money to the investors. Ms Epati contends this order, or one like it, is available in accordance with ss 494 and 495 of the Act. I agree.
[24] The FMA also seeks interest on this amount under s 10 of the Interest on Money Claims Act 2016. That aspect was not in the FMA’s original statement of claim, so Ms Epati seeks permission of the Court to amend its claim to include this aspect and to address a handful of other minor matters.
[25] I give permission to the FMA to amend its claim. I treat the claim as amended in the terms proposed. There is no prejudice to Mr Savage as it was always open to the FMA to seek interest. Moreover, he has not participated in any way in relation to the claim.
[26] The Court may make a pecuniary penalty order when satisfied a civil liability provision has been contravened.11 As observed, Mr Savage contravened ss 22, 48, and 50. Section 492 of the Act provides:
492 Considerations for court in determining pecuniary penalty
In determining an appropriate pecuniary penalty, the court must have regard to all relevant matters, including—
11 Financial Markets Conduct, s 489. The maximum penalty is governed by s 490(1).
(a)the purposes stated in sections 3 and 4 and any other purpose stated in this Act that applies to the civil liability provision; and
(b)the nature and extent of the contravention or involvement in the contravention; and
(c)the nature and extent of any loss or damage suffered by any person, or gains made or losses avoided by the person in contravention or who was involved in the contravention, because of the contravention or involvement in the contravention; and
(d)whether or not a person has paid an amount of compensation, reparation, or restitution, or taken other steps to avoid or mitigate any actual or potential adverse effects of the contravention; and
(e)the circumstances in which the contravention, or involvement in the contravention, took place; and
(f)whether or not the person in contravention, or who was involved in the contravention, has previously been found by the court in proceedings under this Act, or any other enactment, to have engaged in any similar conduct; and
(g)in the case of section 534 (directors treated as having contravened), the circumstances connected with the director’s appointment (for example, whether the director is a non-executive or an independent director); and
(h)the relationship of the parties to the transaction constituting the contravention.
[27]Ms Epati contends:12
As to starting point, applying the factors above to the present case evidences the need for a significant penalty that deters the Defendant from engaging in similar conduct:
a.The contraventions, either individually or combined, seriously undermined the main purposes of the FMCA – many of the investors were first time investors with little experience in financial markets and who were deliberately misinformed by the Defendant.
b.The contraventions are individually serious. The conduct here was deliberate – the Defendant made false representations to investors in order to prop up his existing failing business. In addition, the Defendant never attempted to prepare, nor provide, investors with a PDS. These are highly aggravating features of the conduct.
c.The loss to investors was significant, as discussed above. Added to this was the personal gain that the Defendant received from those funds. Of the approximately $113,000 received from investors into the Powder Shed Tokoroa bank account the Defendant transferred:
12 Footnotes omitted.
i.$14,846 of investors’ funds directly to his personal bank account; and
ii.$84,135 to the Black O’s bank account, which was then used to make further direct payments to the Defendant and members of his family and pay significant expenses and debts Black O was facing.
d.The Defendant has not taken any steps to repay investors despite claiming that he would do so. He only stopped the Offer after being warned by the FMA to do so.
e.The Defendant has previously been involved in similar conduct, having pleaded guilty to the prohibition against pyramid selling under the Fair Trading Act. This involved very similar conduct to the present contraventions – the offending involved Mr Savage (who was found to be the leader of the operation) taking advantage of unsophisticated and vulnerable investors with frequent, yet unsubstantiated, promises of a significant return.
[28] The last point requires a little elaboration. In or about 2011, Mr Savage and two other defendants engaged in a pyramid scheme contrary to the Fair Trading Act 1986.13 Investors were “vulnerable and … unsophisticated”.14 Mr Savage was described by the sentencing Judge as “the primary force”15 behind the scheme and “prime mover” of the offending.16 He was convicted and fined $40,000.17
[29] Ms Epati argues the appropriate starting point is, therefore, $150,000. This figure encompasses the loss to investors (of approximately $126,214) with a modest uplift for aggravating factors. Ms Epati acknowledges Mr Savage may be impecunious. She suggests any discount for this factor be confined to five percent, or
$7,500, leaving a penalty of $142,500.
[30] I accept Ms Epati’s analysis. To accord s 493 of the Act, I direct the penalty (of $142,500) be first applied towards the FMA’s costs in bringing this claim.
13 Commerce Commission v Rowe DC AK CRI-2012-004-016817, 29 May 2014.
14 At [22].
15 At [29].
16 At [48].
17 At [52].
[31] This leaves the question of a ban, which arises because I have (just) made a pecuniary penalty order.18 Section 518 provides:
518 Terms of banning orders
(1)A banning order may, permanently or for a period specified in the order, prohibit or restrict the person, without the leave of the court, from doing either or both of the following things:
(a) being a director or promoter of, or in any way (whether directly or indirectly) being concerned or taking part in the management of, an entity (other than an overseas company, or other entity, that does not carry on business in New Zealand):
(b) providing financial advice services or client money or property services, or contributing, as employee or agent, to the provision of those services.
(2)The court may make a banning order permanent or for a period longer than 10 years only in the most serious of cases for which a banning order may be made.
[32] Attendant principle may be found in Australian Securities and Investments Commission v Adler,19 and closer to home, in Financial Markets Authority v Zhong.20
[33]Ms Epati contends a 10-year banning order is warranted:
a.For the reasons already discussed, the contraventions are serious.
b.The Defendant’s conduct was both deliberate and dishonest. The Defendant admitted that the representations were not supported by fact. The Defendant’s hope that Powder Shed Tokoroa and Black O could work successfully together also involved an element of serious incompetence.
c.The Defendant obtained material personal gain from the contraventions.
d.The Defendant’s actions and refusal to engage with the FMA once an investigation commenced illustrates a lack of remorse or contrition for his actions.
e.The Defendant’s actions, after having plead guilty and penalised for similar conduct, illustrate a continued wilful disregard for legal obligations.
18 Financial Markets Conduct, s 517(1)(a).
19 Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002 42 ACSR 80.
20 Financial Markets Authority v Zhong [2024] NZHC 2126.
f.The Defendant also appears to have subsequently become involved in an international cryptocurrency scheme even after the FMA’s warnings in relation to the Powder Shed Tokoroa. These point to a high propensity that the defendant, has done, and may continue to engage in similar activities in the future.
g.Whilst the loss to many unsophisticated investors was no doubt material, the loss as a whole is not large in comparison to other cases.
[34] This morning, Ms Epati underscored that submission. She described Mr Savage as “a menace to society”. She acknowledged the amount of loss was not especially large given the case law but submitted that matter should not detract from the other aggravating factors and a 10-year ban was therefore warranted.
[35] I remove (f) of Ms Epati’s written submission from the mix as it is likely controversial, and Mr Savage is not before the Court (albeit that presumably reflects choice). I otherwise accept Ms Epati’s analysis but not the outcome — at least not the outcome in full. While a ban is appropriate, a 10-year ban is not. Mr Savage’s case presents as less serious than those of Adler and Zhong. It appears less serious than the category identified in Adler involving bans of between seven and 12 years. But it is more serious than the lowest category (referred to in Adler) in which the ban is three years or less. I settle on six years. This period reflects the relative modesty of the amounts involved while recognising the seriousness of Mr Savage’s conduct and that he has engaged in broadly similar conduct before. I add this for completeness. Had the loss been greater, I would have imposed a 10-year ban.
Result, declarations, and orders
[36]The claim is established.
Declarations
[37]Mr Savage:
(a)Made false or misleading representations in relation to an offer for shares in Powder Shed Tokoroa, contrary to s 22.
(b)Made a regulated offer (in relation to shares in Powder Shed Tokoroa) in the absence of a product disclosure statement, contrary to s 48.
(c)Accepted applications for a transfer of financial products (in relation to shares in Powder Shed Tokoroa) without a product disclosure statement being given to applicants, contrary to s 50.
Compensation order
[38] Mr Savage must meet a compensation order of $126,214. That compensation is to be paid to the FMA and in turn by it to the investors. Mr Savage is also to pay interest calculated in accordance with s 10 of the Interest on Money Claims Act from the date of the last purchase of shares in Powder Shed Tokoroa.
Pecuniary penalty order
[39] Mr Savage must meet a pecuniary penalty order of $142,500. That penalty must first be applied towards the FMA’s costs in bringing this claim.
Ban
[40] Mr Savage is, for a period of six years from the date of this judgment, prohibited from:21
(a)Being a director or promoter of an entity (other than an overseas company, or other entity, that does not carry on business in New Zealand).
(b)Being in any way being concerned in the management of an entity (other than an overseas company, or other entity, that does not carry on business in New Zealand).
21 Unless he first obtains permission of the Court.
(c)Taking part in the management of an entity (other than an overseas company, or other entity, that does not carry on business in New Zealand).
……………………………..
Downs J
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