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SFO says won't be laying criminal charges over collapse of Hanover Finance; says investigations into finance companies at an end

SFO says won't be laying criminal charges over collapse of Hanover Finance; says investigations into finance companies at an end

By Bernard Hickey

The Serious Fraud Office (SFO) has announced it has completed its investigation into Hanover Finance and will not be proceeding with criminal charges, although it was very critical of Hanover Finance's disclosure, solvency, and related party transactions.

It said the decision brought to an end all its investigations into the 2007/08 finance company collapses, which had resulted in criminal prosecutions relating to 9 companies and charges against 23 people.

The Financial Markets Authority filed civil proceedings against Hanover directors and shareholders Mark Hotchin, Eric Watson, Greg Muir, Sir Tipene O'Regan, Bruce Gordon and Dennis Broit last year over statements they made in a 2007 prospectus. Hotchin's assets have been frozen since December 2010.

The SFO said its Hanover investigation had taken 32 months and it had analysed more than 107,000 pages and 3,730 gb of data over 12,700 hours. Fifty-four interviews have been conducted over 120 hours, and more than 30 individual loans or other transactions of interest have been identified and reconstructed.

“This has been by far the most extensive and challenging of the finance company investigations undertaken by SFO,” said Acting SFO Chief Executive Simon McArley.

The SFO said serious questions arose from the investigation, including:

1. The consistency between the overall view of the nature and financial condition of the companies disclosed to investors in the period from December 2007, and the actual position of the companies;

2. The solvency of the companies at the times that dividends were paid during the six months immediately prior to the suspension of payments to depositors in July 2008;

3. The propriety of a number of transactions entered into in the three months immediately prior to the suspension of payments to depositors that appear to have provided little or no benefit to the companies, while conferring some significant benefits on the related parties;

4. The accuracy of the valuation of the companies’ assets in the financial statements supporting the Debt Repayment Proposal put to investors in November 2008.

"However, in order for criminal charges to be successful it is necessary not only to prove beyond reasonable doubt that these circumstances occurred and that they breached the companies’ legal obligations, but that identified individuals in control of the companies had both knowledge of the circumstances and caused them to occur with dishonest intent," the SFO said.

“Recent decisions relating to other failed finance companies have highlighted how difficult it is to satisfy this standard,” said McArley.

“SFO’s prosecution decisions must also be made within the context of the Solicitor-General’s Prosecution Guidelines. These require me to be satisfied that there is a reasonable prospect, based on credible and admissible evidence, that an impartial jury could be satisfied, beyond reasonable doubt, that the person prosecuted has committed a criminal offence. On the basis of the evidence currently available, SFO is not able to reach that threshold. As a result it is unable to commence any criminal charges in relation to Hanover Finance and its related companies.”

Simon McArley said the SFO remained open to reconsider its decision if fresh evidence as to the actual knowledge and intent of those in control of the company became available.

“While many may view the conduct that occurred at Hanover Finance as egregious, that alone is not sufficient for me to commence a prosecution,” he said.

“This is a case that has attracted huge public attention and is of significant public interest. I believe that this justifies the vast time and resources that SFO has dedicated to it. However, we have now exhausted every available avenue of enquiry and the time has come to move on and focus our resources elsewhere.”

“While this has been an extremely difficult decision to make, I’m convinced that it is not only the right one but the only possible decision on the basis of the available evidence. The decision has not been reached in a vacuum. I have consulted with the Crown Solicitors, leading criminal Queen’s Counsel, and the Deputy Solicitor-General,” he said.

McArley told he shared the frustration of investors who "seemed to have been let down at every turn."

But he said he had received advice from five lawyers that the prosecution would almost certainly not have succeeded.

He said the related party transactions entered into near the end might have provided benefits for the related parties, but in the end no-one benefited, including the first mortgagee.

"It was so far under water that even the BNZ didn't get out of there. No one really missed out on anything because there was nothing left," McArley said.

SFO said it had coordinated its activities with the civil claims being pursued by the Financial Markets Authority (FMA), and would provide all the information and evidence possible to assist FMA in those claims for compensation of the investors.

“The vast majority of the information we have accumulated has already been shared with FMA, but if there is any additional material we can provide to assist we will do so,” said Simon McArley.

“We will now be reviewing the evidence we have gathered to see if other referrals are appropriate,” he said.

McArley said the SFO had already budgeted for a prosecution in its financial planning and finances were not an issue in the decision not to prosecute.

(Updated with more detail, background, comments by FMA and McArley)

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I am totally gobsmacked!
SFO stands for Serious Fraud Office... Appropriately named...?

[Stupid comment deleted - Ed]

What an appalling statement from a government bureaucracy. It puts the boot in on emotive terms in every paragraph, smearing all the time the reputations of those involved, and then states they can't make a case.  
That is: they can't make a case. End of.
No members of a ministry should be using such emotive terms when there is no case to answer to, and it's not as if they've not put the hours into it. The entire notion of innocent until proven guilty, or in this case, even charged, doesn’t seem to exist in New Zealand anymore, and this from government officials.
And I know and understand the vitriol that will flow to myself, and Hotchin from this release, and this comment, however, think what you will of Hotchin, I don’t know the man, but the state has just shown they can freeze your assets, which is to freeze your life, for almost three years, not only without charge, but obviously when the freeze was first put on, without even a case to be had - that freeze must have been on emotive whim, also, just as I have been saying since the first year of the freeze.
The case only proves the disdain the state operates regarding the rule of law, and how we as a society are far closer to a police state, than a free society.
I hope the MSM are going to pull the SFO apart, and the government that did this.
Do any legal minds know if Hotchin is entitled to legal restitution for the harm done to him and his family?
And just to round off the vitriol that's coming, because I'm not sticking around on this thread, quoting myself from the above link:
"I don't know Mark Hotchin, I'm neither defending nor attacking him: we simply owe it to ourselves to dispassionately understand the nature of the society we live in, and most of us would know what sort of a state practices detention without trial; well, an asset freeze with neither trial nor charge, for nineteen months, is a police state. When we smugly watch the nascent protests against Putin in Russia, and draw the obvious conclusions about that state, we are all missing the jackboots standing inside every room in New Zealand.

More and more I ask myself how can this happen? Every NBR and thread about Hotchin is full of personal vitriol against the man, with no one seemingly able to grasp the desperate principles underneath his frozen life. I suspect it just shows how slavish as a society we have become behind the IRon Drape, in which the unprincipled hate of people laughing at the state-built gallows of their own lives, is part of the course in a country where a vigilante TV show consistently tops the weekly ratings."

Tribeless, you'll find the asset freeze action against Hotchin was taken by the FMA, not the SFO. The FMA has actually taken a case against Hanover -

Yes, but as I say in my piece, in a society under the rule of law, the FMA's civil suite is entirely inappropriate: the state should only be prosecuting criminal cases, never civil: that's between Hanover and its investors, not for my taxpayer money to be used on, I never invested with it, or any finance company.

the FMA's civil suite is entirely inappropriate: the state should only be prosecuting criminal cases, never civil
I unreservedly agree with your thoughts on this matter.

Perhaps your support for Hotchin is because you identify (and therefore empathise) with him?

Libertarians are generally a pretty unethical lot, so there is probably much merit in your comment.

I don't know Hotchin, he may be the lowest of the low, or not. That was never my point.
Mind your step when you leave, jh, you might step over a principle. If 'they' can freeze his assets for three years on, to date, nothing, they can do it to you. You know that bit in my quote when I was talking about the, in this case, nasty, laughing at the state-built gallows of their lives ... look down to where your feet are.

OT - to Bernard or any moderator: I've not used the handle Tribeless for years, but can't find how to change it under my account.
It's not important, in the scheme of things, however, can one of you simply change my account name to my name: that is Mark Hubbard?
(Without the question mark :) )

The case only proves the disdain the state operates regarding the rule of law, and how we as a society are far closer to a police state, than a free society.
" Licence they mean when they cry Liberty" John Milton. (1608–1674)

Got  to laugh SL, got to laugh... Otherwise, cry in frustration!
Seriously Flawed Office would be more appropriate. I think it is time they moved on into oblivion and stop wasting taxpayer funds. Even if they (SFO) could catch them (crooks) redhanded, they would have to let them go, because they are either TBTF (Too Big To Fail), or because they are TBTJ (Too Big To Jail)!

My personal opinion is that the SFO statement can be interpreted as "we didn't think a prosecution could succeed against the now well established 'we didn't know what we were doing'" defence, as there are situations where if one knows what one is doing then the personal enrichment is criminal but if you enrich yourself through negligence the same actions are not criminal.

Guess who has the last laugh?  I have a mental picture of Mark and Eric giving the finger salute to SFO and to all people who lost their lifetime saving!
Nice work..

A Dad of a friend ,worked in the timber industry all his life,was careful about spending ,served in the navy in WW2,raised with his equally thrifty wife ,six kids who are "solid" kiwi parents themselves.When he finally stopped working he invested the capital that he had freed in selling his sawmill, in Hanover and a local factory that employs many locals.His last few years have been less than what he ,and his wife deserved,and yes there are others equally badly hit but I know this man.I believe the Hanover principals are representitives of a society that values wealth over values and the "good " guys lose,because the greedies"have the good guys umbrella'

Don't forget Hanover was a golden boy in this website many years ago with countless recomendations over property. 
My next door neighbour who passed away last year, lost 300K+ and her own home with Hanover and Elder Finance.  She didn't have the chance to enjoy her life time's saving, she had dream of travel to America and Europe but instead lived in a grotty old granny flat under someone's house..  For that I do believe in hell.

I think your memory is playing tricks on you (in your unending quest to spruik property investment). Although Hanover used to (I think I recall) advertise on the site I cant remember Bernard (or anyone else of importance) recommending investment in Hanover. Indeed at the time this website was very much a focus for warnings against Finance companies before it became remotely 'fashionable' to criticise them. Anyone paying attention to the discussion on here in say 2007 would have had plenty of warnings to get out of Finance companies.

Interesting assumptions; I don't own any investment property.. You should check the contents around mid 2000s on this website.

I think this website launched in 2006? Or is that wrong? Unfortunately last time I tried to delve into the archives I drew a blank as I think they rebooted everything a couple of years ago. Apologies for casting aspersions re: property spruiking.
I can only ever remember the site back then (certainly contributor wise) as being pretty hostile towards Finance companies.

The Internet Archive Wayback Machine has a pretty random collection of visits to archived since 2001*/
(Edit: Nov 24th 2005 is the first capture of the current site)

SFO is saying that they are beaten, have not the brains or resources to follow this through successfully.
In theory the law does not allow what happened to happen, practice is different.
Good old Kiwi business model, set it up, make it very complex,make it look as if it is making money, pay yourselves fortunes in dividends and directors fees,(while asset stripping) then let it all collapse and walk/run away, plenty of money left to throw at lawyers to scare off the hounds.
With this SFO failure the doors are open for the next lot of gullibles to be fleeced.
By those Too Big To Jail.
Who have no regrets whatsoever.
Because "they have done nothing wrong"???

Allan Hubbard would surley have been prosecuted for fraud had he not died. He took money to invest, presented a set of accounts and charged a percentage fee but there was one problem.......

I'd like to see Nigel Lattor/ Latta/ Lavatory do a profile of some of these people. I suspect Alan Hubbard was a narcissist who fudged the boundary between me and my subjects..?

We need to replace ANZAC Day wth Finance Company Collapse (and Leaky Home) Day so all the beddraggled old people who lost money can stand in rememberance along with our politicians... Least We Forget.. the bastards... Because we will, the old people will die and the next generation of sharks will surface for the kill.

Well , you beat the SFO on a budget and the next logical step is  to Sponsor  N.Z. Polo or something and pick up your  Knighthood,
It's happened before you know...smash the oiks ra ra ra.
 Oh yeah ...this has got the familiar ring to it.. Suits on Sphincters, the club for the new elite.

Don't think so at all, on a budget :-) My business paths crossed one of the shareholders a numbers of years ago and regardless of what you may think of their ethics it was very clear they acted and followed meticulously legal advice.

Updated with more comments from McArley.
By the way, here's Hotchin commenting outside the court in Auckland today that he was relieved there would be no charges laid and that he would continue to contest any FMA civil charges.

That's Bruce Sheppard walking along with him afterwards isn't it?   I am surprised they are on speaking terms.

Mark Hotchin is going to do a Bruce Judge and depart these shores .. doesn't want to spend the rest of his life looking over his shoulder .. jumping at shadows
Bruce Judge was head of two companies, Ariadne and Judge Corporation, that hit the wall after the '87 stockmarket crash. Before that his personal wealth was said to be $250 million. Ariadne survived and Bruce Judge, after years of self-imposed exile in France, is said to be considering a return to Queensland and a new business career.

Listened to Hotchin repeating several times he'd done nothing wrong
I think there are a lot of elderly Hanover investors who would tend to disagree
What part of a several hundred million dollar loss does he not understand?
What did he do right?(except in his own interests)

Only via the ballot box....I suppose if greypower pushed it we might get some decent legislation and protection. Pity that could have been done after the 80s mess up.
Pointer or two depends on your view of whats going to happen.  Nicole Foss says in a deflationary period, cash and cash like things.


In the interests of accuracy on this matter, The SFO announced the withdrawal of the case based on failure to ..prove intent...not failure to prove any error or wrongdoing...but that it  would have to be intentional and provable beyond reasonable doubt.
 So it 's no good Watson or Hotchkin wandering about the place mouthing off  about bringing their good name into disrepute, with talk of seeking damages..(cheeky bastards) in my opinion.
 Their good name is worth,  whatever the investing public decides it is worth, not the crony elite.

And the FMA have stuffed up his long term tax "planning".

Ha..! well that's that refund goooone!
tax planning..? are you sure there wasn't a word begining with E and ending in N between those two words.  

The mixing of private funds and a trust, is a mistake many people make.
If a trust is separate legal entity, then any money advanced should be fully documented. Because if it's not, and things turn to custard, lots of problems crop up.
This is a point I think very few NZ's that have "Family  Trusts" understand.

It always appeared that the SFO case was a longshot especially where it has taken an inordinate time to put together a case.. There seems to be a lot of emotive commentary, individually some of it makes sad reading, but my personal view is Watson, Hotchin and Co have conducted themselves professionally. Finance is a complex business, and they would be nuts if they didn't use experts in all aspects of the business. As they " owned" the company as fundamentally it was privately owned it is not illegal to pay dividends provided they signed solvency certificates, and at the time they were not in breach of any trust deed covenants. Leveraging to the maximum is prudent when trying to maximize shareholder return in finance. My gripe is therefore with the trustee for not tightening covenants, and the RBNZ for letting the sector blow out to the degre it did, and then walking away when things got tough. As for those that lost their entire savings in Hanover - let this be a lesson - never ever put all your assets in one basket, or one industry. Spread it. Finally I remember commenting to a colleague at the time that Hanover debenture holders let Hotchin off the hook by accepting Allieds debt for equity offer. A stroke of genius by Hothin and Co., but a massive failure by all else, FMA included. It should have never been allowed to proceed. As I suspect at the time Allied too was on default watch by it's Trustee, the FMA and the RBNZ.

Worshiped Kimy..? gosh matey , you really have not been on this site long then, Brash  became the habitual fall guy for usurpers....Bollard was a benign presence while Bankers and Market finance ran hog wild.....or were they just perfect appointments in Banking interests...?
 Tis far easier to not have appointed them than suffer the humiliation of having it wrong.
 Mr Wheedler appears to following the " do nothing " mantra of Bollard to date, whatever conclusions are drawn about a lack of independence from the  finance ministery,an apparent unwillingness to respond to signals where overheated markets apply external pressures to the economy...and so on. The common road seems to lead right back to the Banking associations door.....they have truly flourished in the benign environment the RBNZ  have maintained. As the interests of Foreign Banks appear to be paramount on the economic landscape , I see little change where proposed regulatory changes may interfer with the Status Quo. 
 In the immortal words of Bolly   " Gee, Banks are great aren't they.!"