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Serious Fraud Office aiming to complete all its investigations into failed finance companies by Christmas

Posted in News

By Gareth Vaughan

The Serious Fraud Office (SFO) aims to play its part in bringing an end to a particularly ugly chapter for New Zealand retail, or "ma and pa", investors by concluding all its finance company investigations by Christmas.

Simon McArley, the SFO's general manager of financial markets and corporate fraud, told interest.co.nz in a Double Shot interview that his goal was to have all investigations into failed finance companies wrapped up by year's end.

Investigations still ongoing include probes into South Canterbury Finance (SCF) related party loans, Hanover Finance, Belgrave Finance, Dominion Finance and Rockforte Finance. See the SFO's full case list here.

"I would hope to have at least one of those (five) cases resolved in the next three or four weeks, we’ll have an announcement on it," McArley said.

"Beyond that my hope is that we can probably get all of them finished before the end of the year. Now, that may not be able to be done in some of the cases because some of them are extremely complicated. But my hope is to have them all finished by the end of the year so that we can move on and start a new era," McArley added.

He said a pre-Christmas conclusion was his goal.

"Whether I achieve that or not, that’s what I’m working towards. We’re very keen to get to that position, but obviously we’re also very keen to do a thorough and proper investigation in each case so we’ll do our best to get there but we won’t sacrifice quality for timeliness."

Charges laid against individuals from four companies so far

A total of 63 finance companies and other entities have collapsed since 2006 putting NZ$8.5 billion held in more than 205,000 deposits under threat. See full details here in our Deep Freeze list. The SFO has, thus far, laid charges in relation to the demise of Bridgecorp, Capital + Merchant, Five Star Group and National Finance 2000.

Two ex-directors of Five Star Consumer Finance, Nicholas Kirk and and Marcus Macdonald, received jail sentences of more than two years each, which they're now serving, after pleading guilty to stealing NZ$50.1 million through related party lending. And former National Finance 2000 accountant John Gray was sentenced to 18 months imprisonment after pleading guilty to charges relating to misuse of National Finance funds and false accounting. However, Gray sought and was granted home detention.

National Finance 2000 owner and director Alan Ludlow is currently on trial and other cases brought by the SFO, including against Bridgecorp's managing director Rod Petricevic and finance director Rob Roest, who are due in court next March, are awaiting trial.

As for the investigation into SCF related party loans, McArley said it was "very focused",  looking at a small number of transactions. See more in this interview with SFO CEO Adam Feeley.

The SFO revealed its investigation into the Mark Hotchin and Eric Watson-owned Hanover, which froze NZ$554 million owed to 16,500 investors in July 2008, last November. McArley said this was now well advanced but proving a "huge" undertaking.

"There are a lot of transactions to look at," said McArley. "We’re in the 30s range (in terms of total number) of separate transactions we’re sifting through. We have an open mind on all of those. We haven’t reached any conclusions at all."

Hanover investors' approved a moratorium proposal in December 2008 that pledged to pay them back over five years with investors told to expect up to 83 cents in the dollar. Then a year later, after getting back just 6 cents in the dollar, they were offered the opportunity, and agreed to, swap their Hanover debentures for shares in Allied Farmers valued at 20.7 cents each . Those shares are now worth just 1 cent each.

This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.

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Meanwhile, the SFO has just

Meanwhile, the SFO has just released this statement on Capital + Merchant:

The Serious Fraud Office (SFO) has today laid eleven charges under the Crimes Act against two current and one former director of Capital + Merchant Finance Limited (C+M).

The charges relate to transactions involving just over $28 million that occurred between 2004 and 2006.

The SFO alleges that these transactions were entered into in breach of the restrictions contained in the company’s trust deed, and resulted in trusts controlled by the accused receiving benefits totalling approximately $15.9 million. 

Acting SFO Director, Simon McArley, said “Confidence in the integrity of our financial markets will not be restored unless New Zealand investors believe there have been thorough investigations and, where appropriate, serious criminal charges laid against those responsible for the collapse of the finance companies.”

The three accused are Neal Medhurst Nicholls (55), Wayne Leslie Douglas (57) and Owen Francis Tallentire (64). 

At the time C+M was placed into receivership the company owed over $165 million to approximately 7,000 investors.

The SFO commenced its investigation into C+M in March 2010 following a complaint from C+M receivers, Grant Thornton. 

Initial charges were laid against Mr Nicholls and Mr Douglas under sections 220 and 242 of the Crimes Act in December 2010.  The charges relate to the alleged non-disclosure of related party lending totalling approximately $14.5 million, to a Palmerston North development known as ‘The Hub Properties’.

Mr Nicholls and Mr Douglas will appear for trial in February 2012 in relation to these charges.

The SFO has laid Crimes Act charges against persons involved with several finance companies, including National Finance; Bridgecorp; Five Star Finance; and Capital + Merchant.

Mr McArley said that every investigation into a finance company that the SFO concludes enables more resource to be allocated to its remaining cases.

“It is important that the public understand the scale of resources allocated to the finance company failures, and the commitment the of the SFO investigative teams to concluding them.”

He said that the SFO’s additional funding for 2011/12 would not only help it conclude the remaining four finance company investigations as a priority, but would also ensure that the SFO was in a position to support other agencies with new investigations in the coming financial year.

The accused have been summonsed to make their first appearance in relation to these charges on 5th August at the District Court in Auckland.