The Financial Markets Authority plans to take legal action against Hanover Finance.
It aims to file civil proceedings next year against the directors and promoters of Hanover Finance, Hanover Capital, and United Finance and will seek penalties and compensation for investors.
If successful, the FMA says its action may help others bring related claims.
The FMA says the action relates to statements made in the December 2007 prospectuses and subsequent advertisements and focuses on a period in which investors deposited about $35 million dollars in the finance firm.
Hanover went under the next year, owing investors $554 million.
FMA chief executive Sean Hughes says the prospectus, as well as the advertising and promotional material around it, painted a much rosier picture of the state of affairs than was the case, particularly in regard to volatility, risk and the severity of Hanover's position.
Mr Hughes says he is not at this point naming the directors who will be sued.
But the company prospectus lists Mark Hotchin and Sir Tipene O'Regan as its directors.
Former Hanover chairman Greg Muir says the authority's decision is disappointing and the directors will fight the charges when they are filed.
The Serious Fraud Office is still carrying out its own investigation into the company.