Serious Fraud Office, Financial Markets Authority throw the book at 2 ex-directors and an associate over Belgrave Finance demise

Serious Fraud Office, Financial Markets Authority throw the book at 2 ex-directors and an associate over Belgrave Finance demise

The Serious Fraud Office (SFO) and Financial Markets Authority (FMA) have laid a combined 129 charges against two former Belgrave Finance directors and an associate. Both sets of charges carry maximum potential jail terms of 10 years.

The SFO said it was laying 60 charges against ex-Belgrave director Stephen Charles Smith, fellow ex-director Shane Joseph Buckley, and an associate Raymond Tasman Schofield, over NZ$18 million of loans made by Belgrave Finance to entities allegedly related to Schofield and Belgrave. Meanwhile, the FMA is laying 69 charges against Smith, Buckley and Schofield.

The FMA says the three breached the Securities Act by making untrue statements in documents offering securities to the public, and breached the Companies Act by making a false or misleading statement to Belgrave's trustee Covenant.

The SFO says the related party loans took place between June 2005 and March 2008. Property lender Belgrave collapsed into receivership in May 2008, owing about 1,000 investors roughly NZ$22 million. Belgrave provided financial accommodation and mortgage facilities for commercial and residential property developments.

Its funding for lending was sourced largely by issuing debenture stock and convertible capital notes to the public.

SFO chief executive Adam Feeley said Smith and Schofield appeared in the Auckland District Court today. Buckley will appear at a later date. Feeley said the charges were laid under the Crimes Act and, if convicted, the defendants face penalties of up to ten years imprisonment.

The SFO alleges the three defendants misrepresented to investors how their investments in Belgrave Finance would be used, and subsequently used those funds in an unauthorised manner.

Meanwhile, the FMA says it has laid 69 criminal charges against Smith and Buckley, plus Schofield. The alleged untrue statements relate to related party lending, asset quality and lending practices, source of funding, connections with other financial institutions, concentration of credit risk, and liquidity.

If convicted under the Securities Act charges, the three men face a maximum penalty of five years’ imprisonment or fines of up to NZ$300,000 plus NZ$10,000 for every day the offence continued. The Companies Act charges face a maximum penalty of five years' imprisonment or a NZ$200,000 fine.

The Belgrave probe is the 12th into a collapsed finance company concluded by the SFO. It continues to investigate Rockforte Finance, Dominion Finance, South Canterbury Finance and Hanover Finance.

Simon McArley, the SFO's general manager of financial markets and corporate fraud, told interest.co.nz in July that the SFO was aiming to wrap all its finance company investigations by Christmas.

Today Feeley said the SFO expects to conclude the majority of the four live cases shortly, but timing will ultimately be determined by the evidence acquired and the issues arising.

Feeley added that the FMA's predecessor, the Securities Commission, made initial investigations into Belgrave’s collapse before referring it to the SFO in June 2010. He said the SFO was continuing investigations into Belgrave to determine whether additional persons should be charged.

Chronological summary of SFO finance company investigations

1) Waipawa Finance – Charges laid and conviction secured.

2) Clegg Finance – Closed without charging. Prior conviction secured by Ministry of Economic Development.

3) National Finance – Charges laid and conviction secured, further charges to be tried by the FMA.

4) Bridgecorp – Charges laid, trial pending.

5) Capital + Merchant Finance – Charges laid, trial pending.

6) Five Star Finance – Charges laid and convictions secured, further charges to be tried.

7) Nathans Finance Limited – Closed without charging. Prosecution completed by FMA.

8) Kiwi Finance – Closed and referred to FMA.

9) Mutual Finance – Closed and referred to FMA.

10) Viaduct Capital Limited – Closed and referred to FMA.

11) Capital + Merchant (No.2) – Further charges laid, trial pending.

12) Belgrave Finance – Charges laid, trial date to be determined.

13) Rockforte Finance – Under investigation.

14) Dominion Finance – Under investigation.

15) South Canterbury Finance – Under investigation.

16) Hanover Finance – Under investigation.

See more from the SFO on Belgrave below:

Belgrave Finance Limited was incorporated in September 2000. Belgrave Finance provided financial accommodation and mortgage facilities for commercial and residential property developments. Funds for lending were sourced primarily from the issue of securities to the public in the form of debenture stock and convertible capital notes.

Belgrave Finance was placed into receivership in on 28 May 2008 owing around $22 million to approximately 1,000 investors.

The company was placed into liquidation in April 2010 and at the time, was the 20th finance company to collapse in two years. Following the collapse of Belgrave, the (then) Securities Commission made initial investigations into the company before referring the matter to the SFO in June 2010. The Director determined that an investigation into the affairs of Belgrave Finance may disclose serious or complex fraud, and the SFO commenced an investigation under Part II of the Serious Fraud Office Act in July 2010.

Crimes Act offences: Section 220: Theft by person in special relationship

(1) This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person— (a) to account to any other person for the property, or for any proceeds arising from the property; or (b) to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.

(2) Every one to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.

(3) This section applies whether or not the person was required to deliver over the identical property received or in the person's possession or control. (4) For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements.

Section 242: False statement by promoter, etc (1) Every one is liable to imprisonment for a term not exceeding 10 years who, in respect of any body, whether incorporated or unincorporated and whether formed or intended to be formed, makes or concurs in making or publishes any false statement, whether in any prospectus, account, or otherwise, with intent— (a) to induce any person, whether ascertained or not, to subscribe to any security within the meaning of the Securities Act 1978; or (b) to deceive or cause loss to any person, whether ascertained or not; or (c) to induce any person, whether ascertained or not, to entrust or advance any property to any other person.

(2) In this section, false statement means any statement in respect of which the person making or publishing the statement— (a) knows the statement is false in a material particular; or (b) is reckless as to the whether the statement is false in a material particular.

And here's the FMA's statement

The Financial Markets Authority today announced that it has laid 69 criminal charges against three people associated with failed finance company Belgrave Finance Ltd (Belgrave). FMA alleges former Belgrave directors Stephen Charles Smith and Shane Joseph Buckley, and associate Raymond Tasman Schofield, breached section 58 of the Securities Act by making untrue statements in documents offering securities to the public.

FMA alleges that in substance Mr Schofield acted as a director of Belgrave.

The statements related to:

* related party lending

* asset quality and lending practices

* source of funding

* connections with other financial institutions

* concentration of credit risk, and

* liquidity

If convicted, the three men face a maximum penalty of five years’ imprisonment or fines of up to $300,000 plus $10,000 for every day the offence continued.

FMA further alleges the three men breached section 377 of the Companies Act 1993 by making a false or misleading statement to the trustee appointed to safeguard the interests of investors in Belgrave secured debenture stock.

The maximum penalty for a breach of section 377 is five years' imprisonment or a $200,000 fine.

The charges follow an investigation started by FMA’s precursor, the Securities Commission. Shortly after its establishment on 1 May 2010 FMA referred the investigation to the Serious Fraud Office (SFO).

(Updated with details of FMA charges).

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Unlike some of the more sophisticated schemes to steal money, these guys obviously weren't smart enough eh. Just a step above your common thief. Using a document is a bit easier to prove than manipulating a prospectus. The pleas will be interesting.

Perhaps scarfie the plea will be, not guilty by reason of being unsophisticated, as evidenced by their inability to evade the FMA.....What a shame we don't have punnishments compatible with US laws. Facing 65 years in the slammer does tend to discourage many...where as a 2 year sentence to be served at home just does not seem to cut it. None of them...not bloody one will ever cop a 10 year sentence....put your money on that.

put your money on that

I am in, what are the odds and where to I place my bet.

I think their defence will be "everyone else was doing it, so why not us?"  Seriously, a blatant example of theft.

I think I can explain it in part Ivan. Everyone has a right to bail and for it to be denied has to originate out of a request by the prosecution.

The circumstances a prosecution might use to request remand in custody would be:

  • The risk of reoffending
  • The risk of flight(defendant won't appear)
  • Seriousness of the offence & likelihood of a custodial sentence.

The problem i see is in the delays in the investigation and prosecution. Because of these delays the use of the likelihood of a custodial sentence is undermined. That really only works when they are caught at or close to the time of the offending.

To be honest I don't think it is a big deal despite my more extreme comments from time to time. You see having the investigation and charges hanging over their heads would be enormously stressful, they are in effect already imprisoned in their own minds.

However I would like to see some serious deterrent sentences given to these guys. A judge has a similar list as that above of things to weigh up when sentencing, previous offending being one of them. However the interesting part in the last case was the not guilty plea, which should attract a harsher sentence. I think the breach of trust and the sums of money involved should point toward the maximum end of the range also. The risk of offending again in say 20 years would be high also.

If you check section 223 if gives the penalties for theft, which is 7 years for the maximum value stolen. But it is 10 years for false promotion under 242.

It feels like the modern wild west here at times.....need a decent sherrif and some hangings....

regards

Ok, so keep the sherrif and have some darwin DNA improvement programs....

regards

No you have it all wrong Steven, hanging is only for horse rustling. We could take the middle eastern example and chop their hands off though:)

yes very true....

but thats what courts are for....

regards

Whom...agreeing who needs to be hanging whom....otherwise who is being hung by who!

French GS is up 15% all because tehy say they are OK....the mind boggles......

regards

More from the SFO. 110 charges against 7 people over alleged defrauding of MTF. Here's the SFO's statement.

The Serious Fraud Office (SFO) announced today that it has laid a combined total of 110 charges against seven people alleged to have participated in a loan fraud involving Dunedin-based vehicle finance company, MTF.  All seven of the accused appeared in the Auckland District Court today.

Mark James Whelan (38), formerly an Auckland-based retail dealer for MTF and later a franchisee of the company, is facing 25 individual charges and 41 joint charges of obtaining by deception under the Crimes Act.

It is alleged that while in those positions and between July 2005 and February 2009, Mr Whelan wrotea number of loans in the names of family, friends and associates using various non-existent assets as security.He is accused of obtaining loans totalling $4.9 million and using those funds for personal gain, including the purchase of land, servicing of personal debts, and investing in a futures trading scheme.

SFO Chief Executive Adam Feeley says: “These individuals have allegedly colluded together to defraud MTF, to the detriment of the business. Where we see instances such as this, in which any party is suspected of knowingly taking advantage of their role or association with a company, the SFO will take decisive action to ensure that those involved are held to account.”

Six other individuals are facing joint charges under the Crimes Act for their roles in obtaining illegal funds under Mr Whelan’s scheme. They are: Richard Michael Barnett (43), 16 charges; Jonathan Earle Chiswell (35), three charges; Clark Antony Lewis (35), six charges; Brett Royce Donaldson (49), seven charges; Steward Travis Saunders (42), one charge; and Karl Sean Toussaint (40), five charges. Mr Chiswell, Mr Lewis and Mr Whelan are also facing a further three joint charges.

The SFO opened its investigation into Mr Whelan in September 2010.

1.         Background to investigation

From March 2005 Mark James Whelan was a Retail Dealer for Motor Trade Finances Ltd (‘MTF’), and became a franchisee of the company in January 2008.  While Mr Whelan was in those positions he is accused of writing a number of loans in the names of family, friends and associates using various non-existent assets as security.  In early 2009 these loans went into default and MTF were unable to locate those assets for repossession.

A complaint was submitted to the SFO on 17 September 2010.   

After considering the complaint the Director determined that there was reason to suspect that an offence involving serious or complex fraud may have been committed.  An investigation under Part I of the Serious Fraud Office Act 1990 (“Act”) was commenced in September 2010.  This was elevated to a Part II investigation on 15 November 2010.

2.         Crimes Act offences

Section 240: Obtaining by deception or causing loss by deception

(1)Every one is guilty of obtaining by deception or causing loss by deception who, by any deception and without claim of right,—

(a)obtains ownership or possession of, or control over, any property, or any privilege, service, pecuniary advantage, benefit, or valuable consideration, directly or indirectly; or

(b)in incurring any debt or liability, obtains credit; or

(c)induces or causes any other person to deliver over, execute, make, accept, endorse, destroy, or alter any document or thing capable of being used to derive a pecuniary advantage; or

(d)causes loss to any other person.

(2)In this section, deception means—

(a)a false representation, whether oral, documentary, or by conduct, where the person making the representation intends to deceive any other person and—

o    (i)knows that it is false in a material particular; or

o    (ii)is reckless as to whether it is false in a material particular; or

(b)an omission to disclose a material particular, with intent to deceive any person, in circumstances where there is a duty to disclose it; or

(c)a fraudulent device, trick, or stratagem used with intent to deceive any person.

repetition......The problems with the pursuit of such investigations lies in the interpretation of ..Intent...

While consequence can be proven and measured through documented fact...intent remains the obstacle to  raise the investigation to another level or indeed obtain a conviction.

If  the FMA have concluded these organisations have operated within the framework of the law.............then it is the laws governing the industry that require investigation...revision....to demand accountability.. for outcomes that..should...have been forseeable  by persons operating at this level of management.

to quote..".The Law is an ASS"

Interestingly enough...murder only requires a victim..then the charge is mittigated by level of intent...arriving at manslaughter...

In these cases we have victims but no sliding scale of intent....perhaps a precident need be set for financial folly....as in foreseeable misadventure carring penalties ranging from exclusion to participate in industry related business..... to jail with exclusion upon release.