Making a difference to the community is a major motivator for the Financial Markets Authority’s Head of Enforcement, Karen Chang. Her work helps to protect people who rely on New Zealand being a trustworthy place to invest in the financial markets.
She’s encouraging young lawyers to consider the public sector, as the jobs have so much impact.
Making a difference to the community is a major motivator for the Financial Markets Authority’s Head of Enforcement, Karen Chang. “I like to feel like I have an impact and that I can do things that will help protect the people that are vulnerable, who want to invest in the financial markets, and who rely on New Zealand being a trustworthy place to do that.”
Starting out in the law
It was her father who inspired Karen to consider studying the law as he had achieved a law degree in Taiwan. But her family were also keen for her to have back up, just in case it didn’t work out.
“My family stressed to me “Always have a back-up.” They told me, “Accounting is the way!” she laughs.
Karen went on to study honours degrees in Law and Commerce, majoring in accounting and finance, from the University of Auckland.
After graduating she moved to Sydney where she worked for the private law firm Freehill. She worked on the first ever insider trading case taken by the Australian Securities and Investment Commission (ASIC). The case was against Citibank and Karen was on the defence team. The whole thing happened within a year, which is unusual in litigation.
“It was really intense, I was flying around, going down to Melbourne to brief witnesses and occasionally sleeping on the office floor!”
Another case that she worked on was a Royal Commission of Inquiry which investigated her client BHP Billiton for potential breaches of United Nations sanctions over their oil for food programme.
From Australia Karen moved to New York where she worked in commercial litigation for a prestigious firm based in Manhattan. Wall Street was just a stone’s throw away. Her clients were banks – many of whom don’t exist anymore after the global financial crisis of 2007-2008. New York Bar admitted attorneys must complete 10 hours of pro bono each year, and Karen said she found the mandatory pro bono really fun.
In 2011, she returned to New Zealand driven by family ties, when her sister – her only sibling – had had two children. “I took a long road home though – I did a course in fashion design in Manhattan so I could get to experience the city, not just working all the time. I also backpacked through South America.”
Life at the Financial Markets Authority (FMA)
Karen joined the FMA as Head of Enforcement in 2017. She is responsible for executing the FMA enforcement strategy, leading cases ranging from fair dealing breaches and insider trading, through to AML/CFT contraventions and several fraud cases. In September she was appointed as acting General Counsel through until January 2022, which is when the FMA’s new Chief Executive Samantha Barrass starts.
She compares her team’s work in enforcement to the stick, where the rest of the FMA is the carrot: “If there weren’t any consequences for breaking the law, nobody would bother to obey, because it takes money and time.”
Identifying market conduct that poses a risk to investors or consumers
The FMA gathers information from a broad range of sources to identify market conduct that poses a risk to investors or consumers. Tips arrive through the FMA’s website, these cover global and domestic scams amongst other things. Karen says “our front-line function are the ones engaging in the market, they can address any issues they encounter with their own tools, or escalate potential serious misconduct to investigations and enforcement.”
The FMA also receive referrals from the Serious Fraud Office, Commerce Commission and the New Zealand Exchange (NZX) and the Australian Securities and Investment Commission (ASIC). “Self-reports are another interesting source,” she says.
For the FMA, working out the greatest likely harm is quite a structured process. The FMA publishes its strategic risk outlook every three or so years. “We look at what we think will be the greatest areas of risk and harm to fair and efficient financial markets. There are five strategic priority areas we use as the FMA’s compass for when things come through the door. We look at what we can control, and what we can prioritise.”
The next level of assessment are things that are a constant: how serious is this thing, what is the impact or scale, the amount of money or number of people involved, how widespread it is, and the impact on confidence in the market and market integrity.
Karen says that “insider trading is insidious and destructive – that sort of stuff chips away at public confidence, market integrity and New Zealand’s reputation. We’ll look at whether it is deliberate and coordinated, and the potential for future harm and offending. We consider all these factors to determine the most appropriate level of action or response.”
Getting money back for investors
Getting investors’ money back isn’t possible in every case. “Sometimes the money is long gone, and it’s sad,” Karen says. “We’re really lucky that we have powers to seize assets before court action but it’s quite a big deal to do that, and there is a lot of admin that is required.”
Karen remembers being involved in a prosecution against a fraudster who defrauded many trusting, hard-working New Zealanders of millions of dollars to fund his lavish lifestyle of helicopters and private jets.
“We seized his assets, including his home and jewellery, and we were able to do that before filing charges. It was not an easy case, it took several years, the FMA had to execute search warrants, and he fought us every step of the way.”
Seeking clarity from the law
The FMA doesn’t only take on cases it knows it has a fair chance of winning. Karen says that there could be lots of reasons why the FMA takes on a case, and that it’s unlike a commercial litigant weighing up costs. “One reason could be that we are seeking clarity from the law, which can be good for the market. There can be gaps and grey areas, so taking cases is the only way to provide clarity. As a regulator we have to have the courage to test the law. The higher the stakes, the more risk will be involved. People need to understand that the regulator is prepared to take these cases, and this acts as a deterrent in itself.”
One significant case that stands out for Karen is a long battle to enable the FMA to engage with eligible investors in Ross Asset Management, so that the investors could determine whether to bring a claim against ANZ.
The Ross Asset Management Ponzi scheme was a major event for New Zealand’s financial markets and had a very significant impact on a large number of investors. Mr Ross went to prison but separate to that, the FMA confidentially investigated how ANZ had handled the money that came from David Ross’s investors.
“The matter raised important market-wide questions around clarifying bankers’ duties to investors, and was intellectually and legally super-interesting. The FMA wanted to disclose the results of their investigation to the investors who had lost out, so that they could exercise their legal rights against ANZ Bank. We made a determination that disclosure was appropriate, and advised ANZ of that, then ANZ sought judicial review and an injunction. This was fought all the way through the courts against a well-resourced adversary.”
The FMA lost at the High Court but won at the Court of Appeal. ANZ sought leave to apply to the Supreme Court, but this was declined. In the end the FMA were able to disclose to the eligible investors, who pulled together, got a litigation funder and entered into a confidential settlement agreement with ANZ. “Advising the FMA Board and executives on whether to go to the Court of Appeal was neither a straightforward nor an easy decision,” she says.
Toughest career moments
Moments that Karen has found personally hard in her career were when as a prosecutor the occasional trial that she had done was overturned by the Court of Appeal, especially on procedural grounds. “It’s just so gut-wrenching for the complainants and the victims.”
Karen describes working on a double homicide where the family of the victims came to court every day and camped out. “They were this amazing Māori family. I felt we had a bond over that time. They were just incredible, and I wondered to myself if anyone (apart from maybe my mum and dad, and my sister) would ever camp out for me in the way that they did for their whānau.”
Karen says that in this case there was no doubt that the defendant had committed the murders, but at issue was a plea of insanity. Due to the way expert evidence was handled, the case was retried, (another prosecutor handled the retrial) and the defendant was found not guilty. “Those sorts of things are hard – personally and professionally. I really could see the pain of both families.”
She said that she’s had to make peace with the occasional challenging outcome: “If I support the wider justice system, then I have to take the good with the bad.” For Karen it was a good learning experience to balance between investing and caring about what you do, but keeping a professional mindset, being able to carry on and rally others. “Don’t ever stop caring. It’s ok to care, to feel disappointment.”
Advice for the legal profession of the future
In 2017 22% of students completing law degrees in New Zealand were Asian New Zealanders. Karen says that earlier in her career she used to shy away from being noticed for looking different, but as she’s grown older she realises the importance of representation, and speaking out.
“I’m really happy to see these sorts of numbers. Representation is important, we need a more reflective demographic in our profession– especially in my areas of practice. I see very few Asian New Zealanders in advocacy, in Crown prosecution, the judiciary, Queen’s Counsel, or leaders in the public service.”
Karen encourages law graduates to consider the whole spectrum of legal work. “Look at what speaks to you. Where are your talents and interests? Don’t be pigeon-holed.” She suggests that young lawyers consider the public sector, as the jobs have so much impact. “We really need high calibre people in the public sector. People who want to make a difference to their community.”
She says that diversity can come in all forms and is not always visible. “Diversity of thought is really important, it’s about the experiences that you bring. I know what it’s like to be around people who are not confident speaking English, or to live with grandparents, or to come from a modest background.”
Her advice to others who may feel that they don’t see people like themselves in the legal profession is not to be put off, and that things are getting easier over time. When she was younger, she used to look at others in the legal world who seemed so connected and wonder how to get in on those conversations. “Don’t be put off. Doors can open. You might just have to knock a little harder.”