The Financial Markets Authority (FMA) says it has finished an investigation into collapsed property financier Strategic Finance, concluding that six of the company’s directors are likely to have breached the Securities Act.
The FMA says the apparent breaches relate to statements made in a registered prospectus, investment statement and in an advertisement between March 2008 and August 2008. The six directors are ex-CEO Kerry Finnigan, Graham Edward Jackson, Marcel Aubrey Lindale, Timothy John Rich, Denis Grenville Thom and David John Wolfenden.
Strategic went into receivership in March 2010 owing about 11,000 investors NZ$383 million.
"FMA has notified the directors of its findings and has agreed to provide them with an opportunity to respond to FMA’s proposed claim before civil proceedings are filed," FMA head of enforcement, Belinda Moffat. “FMA’s role as a publicly-funded litigant, acting in the public interest, necessitates this announcement to keep the market and investors informed."
Finnigan told interest.co.nz in August 2010, after Corporate Finance was appointed Strategic's liquidator, the company's leadership had tried to deliver a good outcome for investors in a very trying and difficult time, and he didn't expect them to face any charges stemming from investigations into Strategic's demise.
Between August 1999 and August 2008 Strategic’s principal business involved lending money to property developers and investors in commercial, industrial and residential property in New Zealand, Australia and the Pacific Islands. Loans were made through term loans, bridging loans and development and construction loans, in a mixture of first, second and third-ranking facilities.
On August 7, 2008 Strategic placed a trading halt on all its securities. Then in December 2008 Strategic went into Moratorium. In March 2010 Strategic was tipped into receivership by trustee Perpetual Trust. The receivers PwC have since returned 10 cents in the dollar to secured debenture investors and estimate they'll ultimately get back between 12% and 20% of the principal amount owed them at the date of receivership.
Strategic's creditors included the Bank of Scotland, which was owed NZ$76 million when the finance company went belly up. Strategic's unsecured creditors, including unsecured depositors' owed NZ$1.45 million and subordinated noteholders owed NZ$21.7 million, are unlikely to get back any money at all. See the latest receiver's report here.
"From April 2010 FMA (and before 1 May 2011, the Securities Commission) has investigated the conduct of the directors of Strategic and its subsidiary Strategic Nominees Limited with respect to Strategic’s compliance with disclosure obligations under the Securities Act. Today’s news release is the result of that investigation. In December 2012 the receivers also announced that they have notified the directors of a civil claim and are now engaged in settlement discussions with the directors on a without prejudice and confidential basis in accordance with a formal process,' the FMA said.
Strategic's major asset was its property loan book, which consisted of 87 loans with a total net book value of NZ$229.1 million at the time of the receiver's appointment. About NZ$96.8 million, or 42%, of this was secured through a mortgage with a first ranking priority over the property. And about NZ$131.4 million, or 58%, was secured through a second ranking mortgage with prior ranking debts positioned ahead of Strategic's claims in the creditors' queue worth NZ$544.4 million. Many of Strategic's mortgages were over development land.
There were also some loans secured by third ranking mortgages, although most of these were provisioned for. Of the 87 loans, PwC said in its first receiver's report that about 25 of the borrowers were either in liquidation or receivership or the property owned by the borrower was being, or had been, sold by the mortgagee exercising its power of sale. Strategic's auditor was KPMG.
(Update adds additional detail).