The Financial Markets Authority is torn between maximising returns for Hanover Finance investors and its policing role, the founder of the Shareholders Association says.
Yesterday's $18 million settlement with the company's directors will pay out between 5 cents and 20 cents in the dollar to investors.
About 16,000 investors lost $550 million when the company collapsed.
A Financial Markets Authority associate board member not involved in the case, Bruce Sheppard, who is the founder of the Shareholders Association, said he had misgivings about the deal struck by the market watchdog.
He said the system was to blame which he said seemed to favour those with big chequebooks who could afford lawyers to grind people down. It was called attrition litigation he said.
Mr Sheppard said the FMA was taking into account how long victims, including the elderly, would have waited for a court result.