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BusinessDesk: Humiliation for former Justice Ministers Graham and Jeffries in Lombard judgment

BusinessDesk: Humiliation for former Justice Ministers Graham and Jeffries in Lombard judgment

Two former Ministers of Justice, Doug Graham and Bill Jeffries, have been found guilty on four of five charges relating to their role in the collapse of the Lombard finance group.

Graham, knighted for his contribution to the Treaty of Waitangi settlements process, was reportedly visibly shaken by the verdict, delivered in the High Court in Wellington this morning by Justice Robert Dobson against four Lombard directors: Graham, Jeffries, Lawrie Bryant, and Michael Reeves. All four had denied the charges.

The four were released on bail without conditions after an eight-week trial that wrapped up earlier this month and involved some of the highest-profile professional directors to get caught up in the widespread collapses of finance companies as the New Zealand property market went sour and the global financial crisis hit. Sentencing is scheduled for March 29.

Under the Securities Act the four potentially face the prospect of prison terms, fines of up to NZ$300,000, or community sentences. However, Justice Dodson's judgment says the four Lombard Finance directors’ offences are “a material step away from the seriousness required for a custodial sentence."

While the directors argued there had been no criminal intent in their actions, Justice Dobson said that was not a relevant issue from a legal perspective.

“The alleged offences are ones of strict liability so the Crown is not required to prove any form of mental intent to distribute documents that were false or misleading."

“Nor is it any part of the Crown’s case that the conduct by the directors … was other than honest.”

“In the relevant respects, the law has created criminal liability for what may be no more than a material misjudgement about the accuracy and adequacy of the description of the state of financial health of the company, as directors authorise it in offer documents,” he said. See Justice Dobson's judgment here.

The charges were laid by the then Securities Commission, which subsequently became the Financial Markets Authority, and relate to making untrue statements in a 2007 prospectus, investment statement and advertising material. See full detail of the charges here. Property financier Lombard, whose trustee was Perpetual Trust, went into receivership in April 2008, owing approximately NZ$127 million to about 4,400 investors.

FMA chief executive Sean Hughes said the regulator welcomed the verdicts but, because the matter is still before the court, he wouldn't comment further.

The four charges successfully prosecuted relate to registration of a prospectus that omitted to disclose the company’s deteriorating cash position, advertising in December 2007 seeking investors for various types of unsecured notes and debenture stock. A fifth charge, relating to a DVD, was not upheld.

The most recent letter to investors from Lombard's receiver PwC estimates secured debenture holders will get back between 15% and 22% of their original investment. So far they've got back 11.5 cents in the dollar. PwC says a further distribution is likely in March or April.

Lombard's major asset is its property loan book which consisted of 27 loans with a total book value of NZ$136.7 mill lion as at March 31, 2008. Gross realisations of about NZ$67 million have been recovered from the property loan book as at January 31 this year, PwC says. Of these realisations, Lombard has received about NZ$19 million, with the balance being paid to prior ranking security holders and to cover direct sale costs.

Lombard's receivership came after the company told investors it would seek a moratorium on its repayment obligations to secured debenture and note holders. But after reviewing the company's position, Perpetual Trust decided the interests of investors would be better served through receivership. In their first report PwC estimated secured debenture investors could recover 21% to 44% of their investments over time. But unsecured creditors, including capital and subordinated note holders, were unlikely to recover anything.

Additional reporting Gareth Vaughan.

(Updates add comments from Sean Hughes, detail from PwC) & Justice Dobson's judgment).

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Yes , let the full force of the law come down on them, jail time is a must to send a clear signal to other slippery suits. No home detention, that would be an insult to duped investors.

Oh the irony.  And again our latest former minister of Justice is going into the world of finance, I wonder how long before he ends up in jail.  Our Prime Minister emerged from the murky depths of the same industry, oh dear. 
There must be a few similarities between crime, politicians and finance. 

what happens to the borrowers of all the money the developers and the building companies?

....Must  MUST ...
....stable door

Typical warrior  reaction . "Strict liability" offence .
These finance company trials are   just  show trials - designed to let the real culprits off the hook .  Somehoe finance comnpany directors were meant to  forsee the  economic tsunami  about to  wash over the global economy . The banks & governments  failed to see it , However ,  they saved themselves by  using force to  extract  guarantees & taxes from citizens; as they hung the finance companies out to dry ..
It's all been done before . There is nothing new under the sun .

How ironic: "The Rt. Hon. Sir Douglas Arthur Montrose Graham (Chairman) KNZM, Hon D (Waikato) LLB:  A former Minister of Justice, Attorney General, Minister in charge of the Serious Fraud Office, and other portfolios, Sir Douglas was responsible for major company law reforms including the financial reporting requirements for companies."
I assume that it is not possible for out of pocket investors to launch a civil case against convicted directors?

Because of the "prevention" of "class action litigation" under NZ law, each out of pocket investor has to undertake their own individual action .. it would be of interest to see each and every one of them, simultaneously, take civil action .. and bog the system down so much so it would force the hand of government to allow class action .. and while you are at it explain why nz won't enable the enabling legislation

You have as much chance of seeing enabling legislation as seeing three legged aliens land on the Beehive roof in a  bath tub.

How myopic .. look further afield .. in this age of the internet and facebook and twitterati .. and put on your Yakuza hat and think to yourself .. now there's a good place to do da bizness .. then put on your Triad hat and think .. ditto .. and then put on your underbelly hat .. ditto .. and then try on your Wall Street Mafia .. Russian Mafia hats .. ditto .. and your Don Corelone hat ... ditto .. perfect place for money launderers .. take years to catch up if they ever do catch on .. and if they do catch ya .. whaddya get .. some jewelry around your ankle to wear around your mansion .. do you think nobody is watching .. sh*t .. I can see it a mile off .. and I'm not even looking ... as bernie says .. naive .. naive .. naive .. dumb .. stupid .. I wonder who is paying dotcom's rent at the moment

Look at it - Hotchin's still living in Paradise

Does that mean he will be stripped of his KNZM? Does anyone know?

You worried DavidB?  That urging of a young person to 'invest' earlier today, had me laughing, given the above. You wouldn't have had any contact with them in a professional capacity in the past, would you? Optimist may want to take that into account.

Yes, thanks again for your inane and utterly irrelevant drivel, pdk, as usual. In other words, you don’t know the answer to the question, but of course that never stops you from flooding the site with your half-wit's nonsense anyway.
So does anyone with some intelligence actually know, does this means that Sir Doug Graeme will now be stripped of his knighthood?

Now if Bollard or Key could give a rousing speech like that, we'd be down at 50c before you could blink.

"Graham himself lost money - he reinvested $12,000 of $17,000 of matured debentures in October 2007, and also held a small stake in Lombard Group, then NZX-listed." herald.
Humbug....he has a fat mp pension pouring into his sink and perks to go with it...investing his pocket change in Lombard was all about creating the fiction that the rort was safe.
Already the judge is bending over backward to impose a zero punnishment on these members of the old boys network....meanwhile it's jail time for stealing a chocolate fish if you are a peasant in this will be fine time and not much of that....then smiles all round and back slapping at the club...gong intact of course. Key has not the guts to take it back.

at least  with a title sir douglas will not have to pick up the soap from the shower will be done by others.
enjoy lord montrose

Stephen Franks has a very good blog up on this topic. I notice a very good comment two into his comments thread also.