The FMA's investigation into the loans has been made public after Perpetual failed in Court of Appeal challenge to High Court Justice Paul Heath's decision to lift a confidentiality order on the case.  

The loans were made in February by Perpetual as trustee of the Perpetual Cash Management Fund, following an emailed request by George Kerr, the NBR Rich Listed chairman of Torchlight and 76.5% owner of PGC.

In May the regulator confirmed it was making inquiries into issues regarding PGC and related entities.

These inquiries have focused particularly on loans made by the fund to Torchlight and the implications for the investors in the fund and the Perpetual Mortgage Fund.

Today the FMA put out a statement saying the loans "were not in the best interests of investors in the funds and the circumstances in which they were made by Perpetual reflects a lack of judgment and lack of understanding of its role as trustee of funds of this nature.

"FMA considers Perpetual has now had ample time to secure repayment of the loans, but is concerned at the lack of progress and the consequent risk to investors."

In a statement to the NZX, PGC said Perpetual "does not accept the FMA's interpretation and indeed intends to dispute the FMA's position. Perpetual considers that the interfund facility provides superior first ranking security and provides a good return.

"However, to alleviate the concerns raised by the FMA, Perpetual has (without prejudice to its position) asked Torchlight to prepay the $28 million interfund facility in advance of the scheduled repayment in February 2013.

"In response, Torchlight agreed to do so. To date, Torchlight has prepaid $15 million in cash leaving a balance of approximately $13 million outstanding. Full prepayment is expected this month."