FMA rejected 2015 complaint CBL prospectus included 'blatant lie', emails show
By Sophie Boot
March 13 (BusinessDesk) - The Financial Markets Authority was warned of potential issues at CBL Corp before the
insurance services group went public in 2015 but dismissed the complaints from a businessman whose company was caught in
a US probe over "fraudulent" insurance sales.
The FMA didn't pursue Geoff Waterhouse's 2015 claim that CBL's prospectus contained "a blatant lie", one of many
complaints about CBL he levelled to regulators, including the FMA and the Reserve Bank. The FMA felt the overall
impression didn't mislead investors and due diligence was "sufficiently robust", emails between the regulator and
complainant show. The Reserve Bank last month convinced the High Court to put the company's CBL Insurance unit into
interim liquidation after the company breached the bank's orders by paying $55 million to overseas companies.
Contractors Bonding Ltd, now CBL, signed a deferred prosecution agreement with the US state of Georgia in 2007 after
being accused of selling fraudulent insurance. The deal, signed by chief executive Peter Harris and former executive
Anthony Thomas, saw the Kiwi insurer pay US$750,000 in restitution and agree that CBL wouldn't do business in the US for
10 years in exchange for the state not bringing charges. That restriction terminated early in 2014.
Harris had signed a statement of facts accepting CBL never bought Mark Solofa Insurance Company, which was licensed in
American Samoa. However, CBL's 2015 product disclosure statement states CBL did acquire the American Samoan business and
didn't accept it had breached insurance regulations, "but cooperated with the Georgia Insurance Department and ceased
writing new business".
Waterhouse, also known as Godfrey Waterhouse, was involved in the Georgia dispute through his company Phoenix Brokers
and has been pursuing Harris and CBL through the courts and the media for more than a decade.
The FMA considered Waterhouse's 2015 complaint, and a senior solicitor at the FMA responded that "at this present time
the information provided to use by the issuer suggest that all proceedings are appropriately accounted for".
"Our review has also shown that the due diligence processes of CBL appear sufficiently robust to give us confidence in
these processes," the FMA solicitor said in 2015. "The overall impression conveyed by the PDS is that there were
potential irregularities in the conduct of CBL in the US so any investor is on notice of these historical issues.
"On that basis our current position is that we do not believe that there is sufficient evidence to determine that the
disputed statements in the PDS are misleading and materially adverse from the point of view of an investor," the FMA
solicitor said in an email.
The FMA told BusinessDesk in an emailed statement that "directors are responsible for the content of a PDS" and it "does
not sign off or approve" a PDS.
"The FMA is currently investigating the conduct of CBL, including its directors and executive, to determine potential
breaches of the Financial Markets Conduct Act 2013, including breaches of continuous disclosure obligations, financial
reporting requirements, and fair-dealing," it said. "We have the cooperation of the RBNZ, NZX Regulation and overseas
regulators to assist in these matters."
That investigation differs from the one raised by Waterhouse, with the NZX-listed insurer suspended from trading over
its disclosure relating to the reserving adequacy for a French construction business. That attracted orders by the
Reserve Bank and Central Bank of Ireland, and CBL appointed voluntary administrators last month in an effort to preserve
value in the business.
Yesterday, the deputy governor of the Reserve Bank Geoff Bascand said in an interview with Radio New Zealand that the
bank had been taking steps to prevent something serious happening for "quite some time", but "unfortunately it escalated
to this crescendo moment" when CBL breached the central bank's directions and it had no other option than to put the
company into interim liquidation.
The state of Georgia began its CBL investigation with Phoenix Brokers, owned by Geoff Waterhouse and his son Robert. CBL
had entered into an agreement to underwrite taxi and limousine insurance sold by Phoenix in Georgia in 2000, but got in
trouble in 2002 when local regulations changed because it wasn't licensed or domiciled in a US state or territory. CBL
told Phoenix Brokers and National Program Management, another Georgia-based insurance broker, that it had a contract to
buy Mark Solofa Insurance Company.
However, CBL never received the shares and never paid the US$3 million price of the business to its owners, according to
the statement of facts signed by Harris and Thomas. It continued underwriting insurance for Phoenix and National Program
Management but didn't tell them that its agreement to purchase MSIC hadn't been settled. The state issued arrest
warrants for both the Waterhouses for civil racketeering, on the basis that they were knowingly selling fraudulent
policies, though those charges were later dropped and CBL was pursued.
Waterhouse sued CBL in New Zealand, backed by litigation funder LPF Group, with CBL disputing their funding source all
the way to the Supreme Court in 2013. The Supreme Court's judgment has become important case law on the court's role in
regulating litigation funding in New Zealand, while the substantive case was settled out of court.
(BusinessDesk)