Stockbroking firm Pegasus Markets fined $200,000 for ‘blatant’ financial register breaches
A stockbroking and trading firm has been fined $200,000 for what a judge described as “deliberate and blatant” lies involving New Zealand’s Financial Service Providers Register.
In what is just one of a handful such prosecutions in the country, Pegasus Markets Ltd was charged by the Financial Markets Authority (FMA) in February 2018 with breaching the Financial Service Providers (Registration and Dispute Resolution) Act (FSP Act).
The government agency accused the company of claiming on two websites it was registered on the Financial Service Providers Register (FSPR), despite being deregistered.
After hearing evidence at trial last August, Judge June Jelas found the firm guilty of two charges.
The company’s NZ-based director Michael Reps was also charged and found guilty of knowingly failing to prevent Pegasus Markets from committing an offence under the legislation.
Pegasus Markets’ only other director and sole shareholder is Rafael Ruiz Lemonche, whose residential address is in Barcelona, according to Companies Office records.
Pegasus Markets’ registered office, however, is on Dickens St in Napier.
The firm went unrepresented when it faced the prospect of fines reaching $300,000 per charge during its sentencing in the Waitakere District Court last month.
In her decision released to the Herald, Judge 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 … 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.”
Pegasus Markets, which was incorporated in March 2014, was also warned by the Companies Office about the misleading statements but failed to remove them.
Judge Jelas added the representations were not only misleading, but false.
“I consider the fact that they remained in place was for the intended purpose of portraying to others that Pegasus was subject to regulation by New Zealand’s financial regulators,” she said.
The inclusion of a silver fern logo was also a “particularly aggravating feature” because it was designed to enhance the impression the company was being overseen by NZ regulators, the judge ruled.
When Pegasus Markets was first informed by the FMA of the intention to deregister, it did respond in writing the following day setting out grounds to remain registered.
However, when a formal notice was given to de-register Pegasus it took no action.
“Pegasus’ offending is serious,” Judge Jelas said.
“There is a high degree of culpability involved in the offending which was deliberate, blatant and over a lengthy period.”
She accepted the FMA’s submission the offending risked undermining NZ’s financial markets regime and imposed a total fine of $200,000 while convicting the company.
Reps, who is understood to now be living in the Queenstown area, is due to be sentenced in March and faces a maximum sentence of 12 months’ imprisonment and/or a $100,000 fine.
He did not wish to comment about the case until then.
The prosecution came after the FMA was granted powers in 2014 to direct the registrar of the FSPs registry at the Companies Office to deregister providers.
During the same year, the FMA also began a review of companies on the registry to prevent businesses and individuals from damaging the integrity and reputation of NZ’s financial markets.
The review found some FSPs deliberately promoted a New Zealand registration to give an impression its activities were regulated by authorities.
In 2017, the watchdog started to crack down on New Zealand-based directors who encouraged the misuse of the FSPR.
Other similar FMA prosecutions include Morgan DeVere Corporate Finance Ltd, which was fined $40,000 by the Wellington District Court in 2019.
Morgan DeVere’s NZ-based director, former Wellington real estate agent Rene Moorby, also pleaded guilty and was sentenced to 75 hours of community service for his part in the offending.
In a separate case, South Island businessman Garry James Patterson was prosecuted and sentenced to 200 hours’ community work and three months’ community detention in 2018.
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