‘Director for hire’ Michael Reps sentenced for FSPR abuse

Michael Reps, the New Zealand-based director of Pegasus Markets Limited, has been sentenced to two months’ community detention and 90 hours’ community work after criminal charges were brought by the Financial Markets Authority (FMA) for breaches to the Financial Service Providers (Registration and Dispute Resolution) Act (FSP Act).

Judge Jelas delivered the sentence today in the Waitakere District Court and reserved her reasons.

The FMA charged Pegasus and Mr Reps after the company stated on two different websites that it was registered on the Financial Service Providers Register (FSPR), despite it being deregistered. Pegasus was subsequently warned by the Companies Office about the misleading statements but continued the misrepresentation for two-and-a-half years.

Karen Chang, FMA Head of Enforcement, welcomed the sentence and said it will send a strong message of deterrence to those who abuse the FSPR by helping overseas companies that are attempting to fool prospective investors.

“This is an important ruling as it shows there are criminal consequences for local ‘directors for hire’ – people who try to profit off their New Zealand residency by becoming directors for offshore businesses with no real New Zealand presence. We continue to monitor the FSPR to ensure that those who are on it are there for proper reasons,” she said.

Mr Reps’ conviction means he cannot be a director of a financial services firm for five years.

In December 2020, Judge Jelas sentenced Pegasus Markets to a fine of $200,000. The judge said, “New Zealand cannot be a country where breaches of its financial markets regulatory systems can be an acceptable commercial consequence. The Court’s response to breaches needs to be sufficient to ensure financial operators in the New Zealand market will incur real and meaningful consequences if they breach the regulatory framework.”

Ms Chang said: “We have successfully deregistered dozens of companies from the FSPR that had no reason to be on it. There are some people and businesses who go to great lengths to take advantage of New Zealand’s good reputation, however Pegasus’ sentence shows it will not be tolerated.”

FMA’s enforcement of FSPR

Registration on the FSPR does not necessarily mean that an entity is regulated by the FMA. However, individuals and businesses have sought to use registration as a way to establish legitimacy, and then use this to target overseas investors, exploiting New Zealand’s reputation as a well-regulated country.

The FMA has used its powers under the FSP Act to direct the Registrar to deregister companies from the FSPR.

In September 2020, Pegasus was found guilty of two charges of breaching section 12 of the FSP Act, which states that no one can purport to be registered on the FSPR unless they are registered on the FSPR and a member of an approved dispute resolution scheme.

Mr Reps was also found guilty of breaching section 40 for knowingly failing to prevent Pegasus from committing an offence under the Act.

Other prosecutions the FMA has pursued in relation to businesses or individuals purporting to be registered on the FSPR include Morgan DeVere Corporate Finance Limited (fined $40,000 and its director sentenced to 75 hours’ community service) and Garry James Patterson (sentenced to 200 hours’ community work and three months’ community detention).

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