At a hearing of the Disciplinary Tribunal of the Institute of Chartered Accountants of New Zealand held in public on the 3rd and 4th days of July 2006, at which the member was in attendance and represented by counsel, the member pleaded guilty to the following charges (1) and (4) and admitted the following amended particulars 1.1 (a), (b), (c), (d), 1.2 (a), (b), (c), (d) and 3.1. Charges (2), (3) and (5) and particular 3.2 were withdrawn by the prosecution.
Charges
THAT in terms of the Institute of Chartered Accountants of New Zealand Act 1996 and the Rules made thereunder, and in particular Rule 21.30, the member is guilty of:
(1) misconduct in a professional capacity; and/or
(2) (withdrawn);
(3) (withdrawn);
(4) breaching the Rules and/or Code of Ethics of the institute; and/or
(5) (withdrawn).
Particulars
IN THAT in relation to being a member of the Institute of Chartered Accountants of New Zealand and in relation to
a complaint, the member:
1.1 was professionally associated with an invitation to invest money to the public and/or prospective investors when the member knew, or after reasonable enquiry ought to have known, that the invitation did not give a full and fair statement in relation to:
(a) the nature of the rights that were to be purchased by Partnership A from Company B; and/or
(b) the right to claim depreciation in accordance with the Income Tax Act 1994; and/or
(c) the true value of the rights that were being transferred and/or the purchase price to be paid by Partnership A; and/or
(d) the estimated future results for Partnership A for the years ended 31 March 1998 to 31 March 2007.
(Code of Ethics 1995 - FP 1; and/or FP 2; and/or FP 5; and/or FP 7; and/or EP 8.4; and/or EP 22.)
1.2 made representations or caused representations to
be made to one or more prospective investors in Partnership A which failed to present the information fully and/or professionally so that such representations would be understood in the proper context in relation to:
(a) the nature of the rights that were to be purchased
by Partnership A from Company B; and/or
(b) the right to claim depreciation in accordance with the Income Tax Act 1994; and/or
(c) the true value of the rights that were being transferred and/or the purchase price to be paid
by Partnership A; and/or
(d) the estimated future results for Partnership A for the years ended 31 March 1998 to 31 March 2007.
(Code of Ethics 1995 - FP 1; and/or FP 2; and/or FP 5; and/or FP 7; and/or EP 22.)
AND:
3.1 breached the fundamental principle of objectivity
in circumstances where there was a director of
the investment companies and/or shareholder and the member participated directly or indirectly in determining the sale price of assets sold by Company A to the investment companies; and/or
(Code of Ethics 1995 - FP 2; and/or FP 5; and/or FP 7; and/or EP 22.)
3.2 (withdrawn).
Reasons
The member has admitted all the amended particulars 1.1 (a), (b), (c), (d), 1.2 (a), (b), (c), (d) and 3.1 and pleaded guilty to charges (1) and (4) with particular 3.2 and charges (2), (3) and (5) being withdrawn by the prosecution.
The tribunal acknowledges the environment in which the member operated with an entrepreneurial firm, a charismatic boss and a natural desire to please the employer and a reliance on the ACTONZ precedence.
The tribunal also acknowledges that other parties were also participants but are not before the tribunal but it is no defence to ethical breaches that the employer was not bound by such a code.
Although the tribunal noted that the member admitted in particular 3.1, to participating in determining the sale price, it was as a representative of the purchaser as opposed to the vendor.
The member has obligations in respect of the fundamental principles of the Code of Ethics but the tribunal finds that
the member's belief was genuine and given the member's role, also reasonable except for the fact that the member
had a professional obligation to make reasonable inquiries as to the validity of the transaction, which the member
was actively selling to clients who the member knew were relying on their professional judgment.
The member also continued to support and champion the investment opportunity without such inquiry long after
the member was alerted by the Inland Revenue investigation that it might be defective. Against that, the member appears to have borne the brunt of the investor interface and management of the investigation without any obvious economic benefit or incentive as the investors seem to have mainly been the member's clients.
Orders of the Tribunal
(a) Pursuant to Rule 21.31 (k) of the Rules of the Institute of Chartered Accountants of New Zealand, the disciplinary tribunal ordered that the member be censured.
(b) Pursuant to Rule 21.33 of the Rules of the Institute of Chartered Accountants of New Zealand, the disciplinary tribunal ordered that the member pay
to the institute the sum of $17,196.85 (inclusive
of GST) in respect of the costs and expenses of
the hearing before the disciplinary tribunal and the investigation by the professional conduct committee.
(c) Pursuant to Rule 21.52 (b) of the Rules of the Institute of Chartered Accountants of New Zealand, the disciplinary tribunal ordered that the briefs of evidence and the financial details of the complainants be suppressed.
In accordance with Rule 21.35 of the Rules of the Institute of Chartered Accountants of New Zealand, the disciplinary tribunal directed that the decision of the tribunal be published in the Chartered Accountants Journal and the New Zealand Gazette without mention of the member's name or locality.
Right of Appeal
Pursuant to Rule 21.41 of the Rules of the Institute of Chartered Accountants of New Zealand which were in force at the time of the original notice of complaint, the member may, not later than 14 days after the notification of this tribunal to the member of the exercise of its powers, appeal in writing to the appeals council of the institute against the decision.
No decision other than the direction as to publicity shall
take effect while the member remains entitled to appeal or while any such appeal by the member awaits determination by the appeals council.
Dated this 10th day of July 2006.
R. J. O. HOARE, Tribunal Chairman.