The Commission concluded that the parties involved in the promotion of the products, including Forsyth Barr and Calyon Hong Kong, likely breached the Fair Trading Act.

However, it reached a $60 million settlement with the companies instead of prosecuting as it believed this would return more to investors, many of whom are elderly.

Because Calyon is not a New Zealand company, the Commission had no legal power to force it to take part in the investigation; therefore, it agreed to take evidence from Calyon on the basis that it was confidential.

But it was able to publicise email correspondence by Forsyth Barr showing it pushed back against recommendations by both Calyon to tone down the marketing of the product.

An email by a Forsyth Barr to Calyon in April 2006 said: “One of the deletions we feel is harmful to the marketing of this offer. Remember we catch more flies with honey than vinegar!”

Another email a few days later said that Forsyth Barr wanted a section on back testing to be removed.

“The graphs in particular show a large number of incidences were the returns are materially lower than we expect which is a big marketing negative, and there is no obligation for you to include this  information anyway.”

The Companies Office raised concerns about the use of the words “capital protection” and “principal protection” in the Credit Sails prospectus, as well as the promised 8.5% interest rate, which it said could be misleading without further clarification.

Most (but not all) of the references to capital and principal protection were removed but the 8.5% figure remained prominently displayed.

“The Prospectus described Credit SaILS in a manner that, in the Commission’s opinion, was difficult for a layperson to understand.

“The risks were set out in sections 3.5 and 3.6 of the Prospectus, but in relation to the Momentum Notes, we considered that the disclosure of the risks was inadequate and misleading, and was also inconsistent with other statements in the Prospectus and in marketing materials.”

Forsyth Barr said that it was not a promoter of Credit SaILS under the Securities Act and that Credit SaILS was a CALYON product.

“Forsyth Barr’s position is that the role it played in the issue was consistent with normal market practice for a lead manager and was no different to the involvement of other professional parties assisting the Promoter in an offer such as lawyers and auditors.”

Forsyth Barr said the AA rating of Credit Sails by S&P was central to its decision to recommend the investment to clients.

“It relied heavily on the rating and believed that recommending a security with a rating of AA was a sound basis for its involvement.”