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Collapsed property development financier Strategic Finance not off the SFO's radar screen

Collapsed property development financier Strategic Finance not off the SFO's radar screen

By Gareth Vaughan

The Serious Fraud Office (SFO) isn't investigating Strategic Finance, but nor is the failed property development financier completely off its radar screen.

Chief executive Adam Feeley told that the SFO kept an eye on all significant company failures which might be of interest.

Strategic was tipped into receivership by its trustee Perpetual Trust last March. Receivers John Fisk and Colin McCloy of PricewaterhouseCoopers say the about 10,000 secured debentureholders are likely to get back between 12% and 35% (or between NZ$44.1 million and NZ$128.7 million) of the NZ$367.8 million principal investments owed to them. They've so far got back just 2 cents in the dollar.

Unsecured Strategic 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.

Feeley said the SFO had "made some enquiries".

"The Securities Commission is doing a lot of work on it and we are in ongoing discussions with them about the next steps. I think it'd be fair to say that in the next few weeks we will have a clearer view on whether that's a matter we take forward or not or whether it's something the Commission takes forward or not. But at the moment it's not an investigation and whether it becomes an investigation, at the moment we don't want to get drawn on that."

Long running Securities Commission investigation

The Securities Commission says it is investigating, or has investigated, all of the dozens of finance companies to fail since 2006. According to its website, the investigation into Strategic opened in August 2008 and is still ongoing. See our Deep Freeze List for details of finance industry failures.

Strategic, whose CEO was Kerry Finnigan and which counted former All Blacks captain and ex-New Zealand Rugby Union chairman Jock Hobbs among its directors, froze repayments to investors' in August 2008 blaming tough conditions in the property market. Investors' then voted for a moratorium in December 2008 that aimed to repay them 100% of their principal investments plus interest through asset realisations over five years. Perpetual Trust subsequently called in the receivers after Strategic failed to generate sufficient loan recoveries for a repayment to investors' that had been due in January last year, and failed to sway the trustee with suggested alternatives to receivership.

Finnigan told last year that he didn't expect himself, or the rest of the company’s leadership, to face any charges stemming from investigations into Strategic's demise.

“We don’t think we’ve done anything wrong,” Finnigan said then.

Fisk and McCloy say the high end of their estimate of potential returns to Strategic debentureholders reflects "some optimism" in the level of potential recoveries. Included in the NZ$367.8 million owed is NZ$76.1 million owed to the Bank of Scotland.

Lengthy Hanover probe

Meanwhile, Feeley said the SFO's investigation into Hanover Finance, another failed property development financier, was likely to be a lengthy one.

"We've got an entire room full of boxes, not to mention the (computer) hard drives we have," said Feeley. "It's a beast of a case in terms of size."

"It has got six months of work I think, and that's a bit of a guesstimate, before we really get a clear sense on that. There is just so much to work through," he added.

"That said, as we start to focus on specific issues we'll figure out if we are going to look at the totality or whether we're going to focus on specific issues, and as we do it will certainly sharpen up the timeframe."

The SFO revealed last November that, after a three month investigation, it had decided to investigate at least four or five Hanover Finance transactions with a particular focus on dividends shareholders Mark Hotchin and Eric Watson paid themselves prior to the company freezing investors’ money in July 2008, and debt restructuring before Hanover's finance book was sold to Allied Farmers in late 2009.

See details of all the SFO's cases here.

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“We don’t think we’ve done anything wrong,” Strategic CEO Finnigan said.

What about losing approx. $300 million of investors savings?