The Financial Markets Authority (FMA) has ordered local property investment firm Du Val Group to take down its advertisements from social media because they are likely to deceive investors.
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However, the company has already hit back at the FMA, saying it planned to fight the order through the Courts.
The watchdog said the Du Val's messaging about its Mortgage Fund in a video that was shared on its website and in social media channels breached "fair dealing" provisions in the law.
This was because it created the impression that investing in financial products connected to property development had the "best of both worlds" with high returns and low risk, the FMA said.
"In fact, property development, including associated finance, is inherently risky," the FMA said.
It said the advertisements claimed there were no fees associated with the investment, despite the company receiving all of the profits above the 10 percent fixed return that was paid to investors.
The FMA concluded that this was effectively a performance-based fee.
Du Val's advertising also used the wholesale investor exclusion, which is designed for investors considered highly experienced and/or well funded.
These sorts of offers can promise attractive returns but do not have the same protections as retail investment offers.
FMA director of investment management Paul Gregory said this was particularly concerning because Du Val appeared to be using social media to target less-experienced investors.
"We have become increasingly concerned about wholesale offers spreading into mainstream advertising, especially through social media, where the notion highly experienced investors are the target market becomes questionable.
The regulator initially raised its concerns with Du Val and the firm took steps to amend or remove its advertisements.
However, the FMA felt these concerns were only partially addressed and proceeded with the directive order, which requires Du Val to cease publishing the advertisements in question.
It also asks the firm to ensure any advertising in the future does not claim to offer low risk and high returns or that it does not charge fees.
Du Val Group said it was disappointed by the FMA's approach to social media advertising, saying it was out of step with practices seen in other jurisdictions.
"We fundamentally do not agree with the FMA's analysis of how wholesale investment funds can be marketed, in particular through social media and other digital channels for advertising," Du Val Capital Partners director Owen Culliney said.
"We will be challenging those findings through the courts."
In interim, the company had suspended related social media advertising and made required changes across its financial products.
Culliney said the FMA's primary objection appeared to be that people who are not wholesale investors could have been able to view Du Val's social media advertising.
"However, whether we speak to our potential investors via social media and other online tools, or the more traditional print and radio options, people who are not necessarily eligible to invest in a particular product may still view that advertising, regardless of the channel used.
"What is important is that once a potential investor has contacted Du Val Group about the prospect of investing in one of its many opportunities, robust processes are in place to ensure we comply with the law, and our investors have the depth of information they need to make informed investment decisions."
Culliney said the company had not received a single complaint from a client who invested in its wholesale investment funds.