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February 2017 Edition

We wish to comment strongly on this article in the New Zealand Herald http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11794020 written by Matt Nippert. The article tells of a joint venture of American Billionaire Peter Thiel and the New Zealand Government , using a company called Valar New Zealand. The main activity was to invest $42m in the well established New Zealand accounting software company Xero. Mr Nippert's interest in the matter tended to be about Mr Thiel apparently running off with the lion's share of the profits as per a clause in the agreement; and on Mr Thiel being given NZ citizenship about the time the deal was entered into. Mr Thiel is now able to and has bought NZ land without scrutiny by commission which control such purchases by foreigners. We share such interest but are more concerned about at who's expense the profit of this "investment" was made and what good the investment was ever going to do Xero or New Zealand.

We wish to refer to the classic exploitation of amateur investors as employed by Joseph Kennedy among others in the "boom" times of the 1920s. Kennedy would suddenly buy up shares in a company inducing a significant rise in the share price. Amateur investors would observe the profit the existing shareholders had made should they then sell their shares and tend to think "this is the company to be in". They would then purchase the particular company's shares in droves bidding up the price far higher, when Kennedy would progressively sell off his shareholding in the company. The price rally would eventually run out of energy and fall back to levels similar to those before Kennedy intervened. His profit would be at the expense of the amateur investors. No doubt perhaps less amateur investors would look to see who caused the price spurt before doing any buying. They might be reassured that buying into a company as this rich person had done was the thing to do or they might see red.

As a general statement one might say that these days the Government commissioned market regulators stop such exploitation of investors. They require companies to explain any significant movements in the share price. If there is no known reason the authority will see who seems to have manipulated the price and if appropriate warn the public or halt the resale of those shares until it can be established that nobody will unfairly suffer from those actions.

But such regulators are no doubt reluctant to throw suspicion on the Government. This may be because they have promised not to embarrass the Government, and/or have promised to accept specific instructions from the Government in order to get their job.

We think a $42m injection would trigger and has triggered a price explosion in Xero shares, Mr Dury of Xero has said as much. The price soared from $3 to as much as $45. There seems to have been no justification for the price rise at all other than to enable Mr Thiel to drain the pockets of well meaning but slightly thick investors who were entitled to Government protection. The injection seems to have gone unchallenged by the regulators which is very wrong but not surprising from what we know about such regulators. Xero was a company where amateur investors would easily fall for such a trick as it because the company is always talking about "cracking" the US market and it was easy to think that it might have done so. The Xero price is yet to fall back to the $3 but likely will do so in time.

Instead of getting protection from the Government the Government actually encouraged amateur investors to throw their money away by being part of the entity that "set the example". This investment is claimed to be a follow-on from the function of the former Development Finance Corporation which invested in companies with apparent good ideas that needed help in getting started. The Government did not necessarily expect to make a profit out of DFC overall. It was there to support business. But as the Green Party pointed out Xero was not in the development phase. DFC would likely buy newly created shares directly from the company itself. Bidding up the companies share price buying existing shares distorts the market and does not necessarily provide the company with any funds for development.

The Green Party and Mr Nippert talk about "incompetence" in having a clause in the contract allowing the private investor, Mr Thiel, to take nearly all the "profit" or spoil should such arise as it surely did. Mr Joyce said that this clause was inherited from the Labour Government but National have been going on so much about Labour being poor business managers that the idea that they would not look over the contract were it at genuine business development initiative is laughable. This is not a case of incompetence, it is a case of criminality. It is rather obvious that Mr Thiel would not be getting as big a share of the "profits" as the documents say but he will have made payments to those politicians and state "servants" who have jacked up the theft for him. He is a payments technology expert.

Talking about incompetence when in fact one is referring to criminality is, we say, in itself a criminal act.

The injection into Xero shares appears to have yielded about $25m from the deceived amateur investors. While this is an absolute disgrace it is chicken feed compared with the near $250m the Government wilfully stole from amateur investors by way of the "Feltex IPO". The Governments main role in this was to set up a crooked Securities Commission and Judiciary which dismissed all accusations.

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