See the release from the Financial Markets Authority on the High Court's guilty verdict for three directors of Nathans Finance:
The Financial Markets Authority (FMA) today welcomed the High Court’s verdict in its case against three directors of Nathans Finance NZ Limited (Nathans).
Directors Donald Young, Kenneth Moses and Mervyn Doolan were today found guilty of offences under section 58 of the Securities Act on the basis of untrue statements made in Nathans’ 2006 prospectus and investment statement.
FMA Chief Executive Sean Hughes said Justice Heath’s judgment sent a clear message of responsibility to issuers of securities and their directors.
“It makes clear that directors have a personal duty to ensure that disclosure documents and other advertisements do not mislead or deceive.
“That is a duty that cannot be delegated to staff or external advisers – the directors must form their own opinions.”
Mr Hughes said accurate and timely information was critical to ensuring investors could make informed investment decisions and to participate confidently in New Zealand’s financial markets.
“Today’s decision has reinforced the responsibility that every director of an issuer has to provide truthful and complete information to investors,” said Mr Hughes.
“This verdict will also send a clear signal to investors that it’s safer to enter the markets, with greater policing of behaviour, and this will contribute to capital markets growth over time.”
FMA alleged that the directors were responsible for untrue statements made in the registered prospectus and investment statement of Nathans in December 2006. The statements concerned lending to related parties (including Nathans' parent company VTL Group), and claimed that Nathans had no bad debts, that it had adequate liquidity, that its lending was diversified, that it made loans and managed them in accordance with robust policies and processes, and that all material matters had been disclosed in the prospectus.
A sentencing hearing is scheduled for 2 September. The charges, laid under section 58 of the Securities Act, carry a maximum penalty of five years imprisonment or fines of up to $300,000 plus $10,000 for every day the offence is continued.
Defendants: John Hotchin, Donald Young, Kenneth Moses and Mervyn Doolan
Charges: FMA alleged:
· that the directors made untrue statements in the registered prospectus and investment statement of Nathans Finance NZ Limited (in receivership) dated 13 December 2006. These statements concern lending to related parties (including Nathans' parent company VTL Group), that Nathans had no bad debts, that it had adequate liquidity, that its lending was diversified, that it made loans and managed them in accordance with robust policies and processes, and that all material matters had been disclosed in the prospectus.
· that the directors made further untrue statements when they signed a prospectus extension certificate on 30 March 2007. These stated that the company's financial position had not materially and adversely changed since its last balance date, and that the 13 December 2006 prospectus was not false or misleading.
· that letters sent to members of the public advertising Nathans Finance debenture stock contained untrue statements about some of the matters referred to above. These claims do not apply to Mr Hotchin who had resigned his directorship by the time the advertisements were sent out.
The Defendants denied the charges.
Penalties: as follows:
Criminal charges - These charges were laid indictably under section 58 of the Securities Act on12 December 2008 and carry a maximum penalty of five years imprisonment or fines of up to $300,000 plus $10,000 for every day the offence is continued.
Civil proceedings - The proceedings were issued under section 55C and related sections of the Securities Act. FMA has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each of the five directors. The civil proceedings are stayed pending resolution of the criminal case.
John Hotchin entered a guilty plea and was sentenced on 4 March 2011 to 11 months’ home detention and 200 hours community service, and was ordered to pay reparation of $200,000. He gave evidence for the prosecution.