Independent director supplies information for SFO's South Canterbury Finance investigation

Independent director supplies information for SFO's South Canterbury Finance investigation

By Gareth Vaughan

A significant amount of the information the Serious Fraud Office (SFO) has used to launch an investigation into related party loans at South Canterbury Finance (SCF) came from one of the company’s independent directors.

Chief executive Adam Feeley told interest.co.nz in a Double Shot interview that the SFO had received the information it has acted on from more than one source.

“But a lot of our information came from one of the independent directors within South Canterbury,” Feeley said. He added that he’d prefer not to name the director “at the moment.”

The SFO announced on Tuesday it was investigating five related party loans – made by SCF - between 2005 and 2009 for potential false statements or other fraudulent conduct. Feeley said that although the transactions all up were probably worth between NZ$40 million and NZ$50 million, the related party transactions per se weren’t the issue.

“Rather what affect that might have had on the financial position of the company, and from an SFO position most importantly, whether those transactions should have been disclosed, how they were disclosed, and whether the absence or manner of disclosure gives rise to any suggestion of fraud on the part of people within South Canterbury (Finance).”

He said the transactions were “certainly material” to SCF’s balance sheet.

“The question then is ‘what were the consequences, including the financial consequences of those loans on the position of the investors, and equally important, on the position of the Crown (retail deposit) guarantee scheme’,” said Feeley.

Massive potential fraud against the taxpayer

SCF collapsed into receivership on August 31 triggering a NZ$1.6 billion taxpayer funded payout to 35,000 of the company’s investors under the Crown guarantee. Therefore the SFO probe raises the possibility that a NZ$1.6 billion fraud has been committed against the New Zealand taxpayer.

“If we find there is fraud, and it was fraud that enabled them (SCF) to enter into a guarantee scheme, the consequences have been immense in financial terms,” said Feeley.

The SFO investigation also raises questions about monitoring of SCF by the Treasury and insolvency specialists KordaMentha, who assisted the Treasury. Feeley said he didn’t know whether Treasury officials and KordaMentha staff had missed the issues the SFO was concerned about, so it wouldn’t be appropriate or fair to comment on that.

“I think as we move our way through the case, in a certain sense they (Treasury and KordaMentha) can be viewed as possible victims, if indeed a fraud has in fact occurred,” said Feeley.

“Therefore we will need to talk with them and we’ll need to understand what they knew, what they didn’t know, (and) what they were told by various people within South Canterbury (Finance).”

Asked about individuals associated with SCF whose activities might come under scrutiny, Feeley said he couldn't comment on individuals.

"But we are looking at the affairs of South Canterbury (Finance) and people will draw their own conclusions about whether any officers or directors of the company could be part of that," said Feeley.

"The difficult thing for us at the moment is we don’t know the specific roles that each of these individuals played in these transactions. We don’t know what they said, we don’t know what they knew. Some people could be witnesses, some people could be suspects. Some people may have been completely unaware that these things were going on."

Ponzi scheme?

A separate SFO investigation into Aorangi Securities, Hubbard Management Funds and several charitable trusts overseen by SCF majority owner Allan Hubbard, is expected to be concluded within a few weeks with the SFO due to decide whether to lay charges or close the investigation. Hubbard and his wife Jean, plus the companies and entities under investigation - excluding SCF - were placed in government enforced statutory management on June 20.

Both statutory managers Grant Thornton and SCF's receiver, McGrathNicol managing partner Kerryn Downey, have said money entrusted to Hubbard by investors wasn't invested as instructed or expected.

Asked whether this suggested the possibility of a Ponzi scheme, Feeley said he wouldn't necessarily describe it as a Ponzi scheme.

"What I would say is there are situations where people can invest contrary to instructions and it is not necessarily a Ponzi scheme," said Feeley.

"Indeed one can commit a criminal offence by taking money for one purpose and investing it for another even if that money wasn’t lost, because the crime that we look at in that situation is the relationship between the individuals and the deception by which that person obtained the money."

"So a Ponzi scheme certainly fits within that, but if you like it’s the very worst example of fraud or deception. There are certainly other levels of fraud which can occur and still be a crime."

*The interview was conducted prior to the announcement of an SFO investigation into would-be Crafar Farms buyers Natural Dairy Holdings and UBNZ.

* This article was first published in our email for paid subscribers earlier today.See here for more details and to subscribe.

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27 Comments

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“If we find there is fraud, and it was fraud that enabled them (SCF) to enter into a guarantee scheme, the consequences have been immense in financial terms,” said Feeley.

If this proves to be the case then heads should roll, namely Bill English's & that plonker John Key among others obviously

Fat chance Justice...the tins full of whitewash are being made ready.

That's just plain barking up the wrong tree Justice. What is it about us Kiwis, that goes looking for the head of a politician every time something happens "downstream". Is Bill English also responsible for the possible loss of The Hobbit from our shores? Perhaps he and John Key were also behind the JFK shooting? Fraud and concealment happen and if Treasury got taken in, then they were in good company. Standards and Poors did too - who seemed to have no grounds for downgrading SCF's investment grade rating (BBB-) nor had vocalised .any concerns in Oct, 2008.

If, however, there was fraud and it assisted SCF to enter the GG, then tell me exactly how English and Key should be responsible? Particularly given that they weren't even in power when the GG was set up! And SCF's acceptance in the scheme would have already been in motion, if not finished by the time English and Key were sworn in.

By the way, I did not vote for National at the last election or over any of the past 20 years so I have no political bias toward them whatsoever. I just don't like it when such shallow blame games are played.

Simple Wayne. If it is proven they authorized the paid out on the GGS WITHOUT actually verifying whether there was previous fraud to this degree then THEY are proven "negligent".  It's called "accountability". Your a Prendergast fan I bet?

Oh,, your welcome. I

Good to see someone who's onto it like you are, Wayne, re our pathetic tendency to always blame a politician for anything going wrong.

It's dopes like Wolly that foster that continual drivel on here but the reality is that essentially Kiwis have a child-like victim mentality classically demonstrated by welfare dependency but like all children Kiwis generally bawl and blame their parents for allowing their ??? to be hurt.

it's a crap attitude but it's always been their and fostered by a national lack of a sense of personal opinion or responsibilty....and you're right about Key and English...how can they be held responsible for anything other than trying to mitigate a rooted situation like SCF?

like talkback radio, you get a lot of celebration of uninformed opinion on here.

and Wally..bite me!

Unfortunately the 1.6b dollars has already been paid out!  It makes no difference if their heads do roll,  the taxpayer is still lumbered with the debt.

JK has got the cheek to say there is no money for pay increases for teachers , nurses etc

but he still can find the money to bail out finance companies. He has lost a lot of support over this.  

The lesson Valentina is too avoid teaching.....Sewell or whatever her name is gets a bloated salary and a pay rise on top. The graduates in Noddy have to see this for what it is.....a very clear signal that they must avoid working for the state sector as teachers.

correction....to avoid!

and you're another uninformed idiot...what about the selloff  they're currently undergoing of all the SCF assets which will probably go close to covering the 1.6 billion they paid out.

by doing that they took control of all SCF assets and the abilty institute an orderly sale of all assets plus give them control of all the books and potential fraud etc...hence this articel above.

I wonder were these guy's get their funding? I could have a guess but maybe not here.

http://www.stuff.co.nz/business/farming/4264939/Crafar-Farms-stock-court...

From the Stuff article

"Mr Crafar further commented on his banking relationships, saying that dealing with them was ''like rearing a tiger - they're always going to kill you in the end''.

Priceless

Why am I not shocked AJ.....crime throughout the US banking system and those involved protected by the FBI and the deps of State...the question has to be...why do Americans put up with this?

Many of us strongly suspected fraud in SCF and posted to this effect months ago. That nothing was done by the authorities, who of course will claim that they had insufficient evidence to proceed, gives a strong indication that there was at least a motivation to pay out under the GG, and possibly that there was some advantage to them in letting things run on as they did. To my mind there is sufficient cause for an independent inquiry into this mess, and at the very least we should find out which persons amongst our authorities stood to gain or loss from SCF.

@John Kelly - You know that just won't happen, for the following reasons.

@AndrewJ - re Huffington Post. Interesting article [quote] HUD Secretary Donovan's states "We will not tolerate business as usual in the mortgage market," he said. "we will hold them accountable". [end quote]

In America in May 2010 two events happened in quick succession. The BP oil spill and Obama demanding accountability followed by the NYSE "flash crash" with Obama again "angrily" demanding answers and accountabilty. The BP disaster cost BP $50 bn. The "Flash Crash" cost much more than $50 bn. Obama went after BP like a rat-up-a drain-pipe, constantly demanding answers, and re-imbursement, remediation, and sacking of the CEO etc etc etc. BP have fulfilled their obligations. To this day there has been no "fullsome" answer to the "Flash Crash" and Obama has remained forever silent. Why? One cost more than the other. And that's the way it's done. Follow the money and the lobbyists.

In the case of SCF the authorities knew the state of affairs of SCF in 2009. In the ways of Government instrumentalities the issue will be dragged out over many years. It will disappear from the headlines. Occasionally a new revelation will cause a ripple in the media and then subside. The issue is being "stage managed". The news is being managed. A blanket is being drawn over it. Soon it will be Xmas, then the new year will arrive and it will become SCF? What is that? Who is SCF? And you will never get answers. Do you see anyone in authority demanding answers?

About teaching.

Have a nephew who was a headmaster of a little school, left and took up a new job, now getting twice the pay he was getting. He says he works hard but not as hard as he had to as a teacher.

Was talking to a family friend in Hamilton, he left teaching and is now consulting, charges $2,000 a day.  Hell, times are only tough for some!
 

The independent directors of SCF knew about the supposed  secret deals well before the receivership - in fact before the Govt guarantee was extended. Because they weren't secret and in fact open.

Do you think this independent director helping the SFO is now covering his arse, because if he did know he would be legally negligent and liable, alongside the Govt.

If these deals are so bad why was the Hyatt deal attactive to some of the bidders pre receivership?

Why didn't the directors announvce to the NZX that their were major issues at SCF that could have a detrimental effect on the companys net assets ?? Why wasn'[t Hubbard or Ed Sullivan brought to account before the receivership if it was illegal? Surely that was what Sandy maier was paid so much for - even if he spent all his time in Aucklane ( not at SCF's office in Christchurch ) and why he paid numerous additional external consultants to do his job.

Everyone involved at SCF is guilty in respect to SCF's demise. Mr Feeley and the Securities Commission need to be assessing the whole scenario, not just Alan Hubbard, if they are keen on earning the countries respect.

This whole situation is becoming a Govt spin show to cover up their inadequacies that cost the taxpayer hundreds of millions of dollars that it didn't need to if Sandy Maier had done the job properly he was hired to do and been honest in the process.

admirable that you're still hanging in here, southern dude, and trying to protect old AL hubbard but the horse is well and truly out of the stable now and you've already agreed that the whole thing was a bad look from Hubbard down?

have a Speights and relax..you've done your best!

FYI Southern Dude, I have edited your post slightly. We welcome your posts but please keep the following (from the blurb under all our stories) in mind:

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making these comments.

Clipitty clop Ivan...the horse has bolted off down the road...so now it's time to close the gate mate...this is Noddyland where good govt has always been found in a box of cornflakes.

Jeez, Wolly, we're on the same page for once.. even if it is only about fools and horses, mate~

It's because there is still meat on the bones.  Say what you like about Hubbard, there's still real business and real productivity behind a good portion of his debt legacy.

whoo...just goes from bad to worse with that above blog..there's something in the water down there in the deep south ,i think, that makes detail be something that's only found on ducks?

Got an enquiry from a couple of low-level Russian-Mafia type scammers who are a bit out of their depth at home and struggling at the moment. They've been monitoring the NZ media and have figured NZ is the place to be. They wanted to know how they could get some of that action. Too easy. About their speed. Reckon they could clean up and be long gone before the coprorate puppy-dog stops licking himself. They're in the air now.

Why are we waisting all of our time and effort with this sort of stuff when there are teenagers smoking mariuana on the beach on the weekends? Shouldn't our police be focused on things like shoplifters, loud music and public urination????

We all know that there is no corruption in the ruling classes of New Zeraland. (yeah, right!)