Two former directors and the chief executive of property financier Capital + Merchant have been found guilty on some - and not guilty on other - charges brought by the Serious Fraud Office (SFO), with the SFO boss labelling the company's failure as being "as bad as anything which occurred in the (finance company) industry."
SFO chief executive Adam Feeley also described the case as "hugely complicated involving deeply cynical transactions."
Ex-Capital + Merchant CEO Owen Francis Tallentire and former directors Neal Medhurst Nicholls and Wayne Leslie Douglas have been remanded in custody for sentencing on August 31. The Crown has indicated it will seek jail sentences, while the defence may appeal.
Four charges were laid against Nicholls and Tallentire, and three against Douglas, following an investigation into transactions involving about NZ$28 million between 2004 and 2006. The SFO alleged these transactions, collectively known as the Clyde 1 & 2 and Numeria 1 & 2 transactions, were entered into in breach of Capital + Merchant’s trust deed, and resulted in trusts controlled by the accused receiving benefits totaling approximately NZ$15.9 million.
All defendants were found guilty in respect of the charges relating to Clyde 1 & 2, and Nicholls and Douglas were also found guilty in respect of the Numeria 1 transaction. Tallentire was found not guilty in respect of Numeria 1 & 2, and Nicholls and Douglas were found not guilty in respect of Numeria 2.
Nicholls and Douglas, also jointly faced charges each under the Crimes Act of theft by person in special relationship and jointly one charge of false statement by promoter. These charges stemmed from the non-disclosure of alleged related party lending totaling approximately NZ$14.4 million to a Palmerston North development known as ‘The Hub Properties’. Both were found not guilty on these charges.
Investors have got nothing back
Feeley said although the Capital + Merchant collapse hadn't received the same attention as some other failed finance companies, the two investigations into its affairs had been one of the SFO's top priorities.
“Thousands of New Zealanders’ lives were irrevocably changed for the worse from the collapse of Capital + Merchant. Its failure was as bad as anything which occurred in the industry, with NZ$190 million invested in it by approximately 7,000 members of the public. Nothing has been recovered for them, in contrast to most other finance company collapses where at least some recoveries have been made," Feeley said.
“This was a hugely complicated case involving deeply cynical transactions," Feeley added. "The defendants used convoluted legal structures and opaque accounting methods to fool the public into investing for one purpose and then using that money for other, unauthorised, purposes. The decision makes it clear that directors will be held accountable where they fail to act in accordance with their obligations to investors."
The SFO launched its probe into Capital + Merchant in March 2010 following a complaint from its receiver, Grant Thornton.
Capital + Merchant was incorporated on January 18, 2002 and operated as a finance company providing financial accommodation and mortgage facilities for commercial and residential property development. Funds for lending were sourced mainly from issuing debenture stock and convertible capital notes to the public.
Nicholls and Douglas were the founding directors and beneficial owners of Capital + Merchant. Tallentire was chief executive and later a director. The company was put into receivership in November 2007 owing 7,000 investors NZ$167 million. Its trustee was Perpetual Trust and auditor BDO Spicers.