Serious Fraud Office launches probe into South Canterbury Finance related party transactions

Serious Fraud Office launches probe into South Canterbury Finance related party transactions

The Serious Fraud Office is investigating five related party loans involving South Canterbury Finance made between 2005 and 2009.

SFO chief executive Adam Feeley told interest.co.nz that he wasn't prepared to name the specific transactions under scrutiny for potential false statements or other fraudulent conduct, at this stage.

"Obviously we know what they are but we don’t want to get drawn into the details until we have had the opportunity to review all the documents and also talk with people, who on the face of what we’ve seen were part of those transactions, to understand what part they played in it and also what representations they may or may not have made," Feeley said.

Asked about the timeframe of the deals, likely to be worth tens of millions of dollars, Feeley said: "The earliest goes back to 2005 and the last date I have seen is 2009."

He said that "as of today" there were five transactions under the spotlight.

"When I say transactions, loans, and obviously there are numerous transactions related to those loans but we are in the very early days of the investigation," said Feeley.

"We may find either none of those transactions or one of those transactions warrants further investigation, or we might find out that number doubles, trebles or quadruples."

Meanwhile, a Treasury spokesman confirmed the probe would not affect the NZ$1.25 billion payout to South Canterbury Finance debenture and deposit holders under the Crown retail deposit guarantee scheme, due to be made tonight tomorrow.

Finance Minister Bill English had no comment on the matter.

Was guarantee valid?

Feeley noted that the Crown guarantee required any party entering into it, or remaining in it, to disclose certain information.

"Amongst other things it required them to disclose transactions with other parties which weren’t on an arms length basis," said Feeley.

"If indeed these transactions are proven to be not on an arms length basis, and had to have been disclosed, then the question may arise would South Canterbury Finance have been admitted into the scheme had it disclosed these transactions, or would it have remained in the scheme had it disclosed them?"

"As I understand – the Crown would not have suggested that the beneficiaries of the scheme – ie the investors, would ever be effectively punished by a mis-statement," said Feeley.

"But either eligibility or on-going eligibility may have terminated."

He noted that one finance company - Viaduct Capital - which initially entered into the scheme was kicked out because of related party transactions.

"Investors funds (up) to that point were guaranteed but any new investment was no longer guaranteed," said Feeley.

Meanwhile, Feeley wouldn't say where the information the SFO had acted on had come from. South Canterbury Finance was placed in receivership by trustee Trustees Executors on August 31 with McGrathNicol appointed receiver. The company had been monitored by KordaMentha whilst under the Crown guarantee.

"It would be fair to say the information we’ve got to date is from reasonably well informed sources but there will need to be further talks with parties who will be equally well informed – from (South Canterbury Finance CEO) Sandy Maier through to KordaMentha over the next few weeks," Feeley said.

Maier not implicated

Although the SFO wouldn't comment on individuals, Feeley did say there was no suggestion that Maier was implicated "in any way." As for South Canterbury Finance's former owner Allan Hubbard, Feeley said: "We’re not commenting on individuals. (But) people can draw their own conclusions about whether any one individual might be the subject of our inquiry based on the extent of involvement they had with South Canterbury Finance."

A separate SFO investigation into the affairs of Hubbard's Aorangi Securities was nearling its conclusion with a decision on whether to lay charges or close the investigation not far off. However, new information had emerged during the investigation and it was possible this could happen again, potentially delaying a decision.

"I  think we're in the closing stages (of the Aorangi investigation)," said Feeley.

"It could be two or three weeks (until a decision is revealed), it could be upwards of six, but I don’t think it would be longer than that," Feeley said. "But the caveat is if the goal posts shift on us then we’ve got to respond."

As for the South Canterbury Finance investigation, it was impossible at this stage to estimate how long it might take.

The business affairs of Hubbard, his wife Jean, Aorangi Securities and seven associated charitable trusts were placed into statutory management by the Government on June 20 with the SFO investigation following. The third report from the Statutory Managers was damning in its criticisms of the way Hubbard had run the funds and his financial affairs, detailing new losses, miserly returns, undocumented loans, interest free loans, related party loans and sweetheart rental deals.

Here is today's full statement from the SFO.

The Serious Fraud Office (SFO) today announced that it had launched an investigation into South Canterbury Finance (SCF).

Chief Executive, Adam Feeley, said that as a result of inquiries made by its newly established Fraud Detection Unit, the SFO had grounds to suspect that a number of related party transactions involving SCF may have involved false statements or other fraudulent conduct.

“Given the scale of the SCF collapse, it would be neither feasible nor productive for SFO to carry out an investigation into all aspects of the failure. Instead we will focus on specific transactions which we consider may have been a fraud on the investors in SCF and/or the Crown as the guarantor of investor funds.”

Mr Feeley said that despite the volume of cases which SFO had taken up in recent months, the matter was one which would have a high priority and would be progressed as quickly as possible.

“As is appropriate with a small agency, we will coordinate our efforts with the receivers of SCF; the Registrar of Companies; and the Securities Commission. We will also be engaging private sector insolvency and forensic accounting specialists for external assistance.” Mr Feeley said the sharp increase in SFO investigations in recent months should be seen as a positive sign of greater law enforcement in the financial markets.

“Swift and visible investigations are a critical part of maintaining confidence in New Zealand’s financial markets. Despite the challenges presented by the current volume of cases, the SFO is committed to ensuring that the public can have confidence in us as the lead law enforcement agency for financial markets fraud.” Mr Feeley added that the SCF investigation was an entirely separate matter from the SFO’s investigation into the affairs of Aorangi Securities Limited.

“While there are some persons who are common to both cases, the SCF transactions we are currently investigating have no material connection with the affairs of Aorangi Securities. Mr Feeley added that, subject to receiving any new information from the statutory managers, the SFO was in the closing stages of its investigation into Aorangi Securities.

(Updates with English no comment, Adam Feeley interview, Treasury comments, corrects tonight to tomorrow).

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Well, it looks like Hubbard is in for the high jump for running his own piggy banks and candy store...still say the guy is no crim. but he's the biggest financial icon we've had and when he goes down for party related fraud it will go into the NZ financial lexicon forever as a strong warning that no-one is untouchable!

now all we need is to see those slimeballs like Petrivic from Bridgecorp etc get some serious time and we may start investing again...not sure about goodman fielder bonds or Apn's pending issue though?

I've just been looking at GFL's annual report, and nearly 2/3rds of its assets are intangible brands.  Take these out and the company is technically insolvent, with a very poor equity ratio.

Hmmm...not surprising, given all that has been unfolding in the past few months.

I'd be interested to know whether the said transactions are before or after Maier took over. I suspect before, but you can never be sure these days...

Here's a grab from the NBR account of this new development..don't bother clicking the links as they go to paid content only:

"SFO chief executive Adam Feeley said his organisation had grounds to suspect that a number of related party transactions involving South Canterbury may have involved false statements or other fraudulent conduct.

The investigation follows a National Business Review investigation into shell-games surrounding the ownership of the Hyatt Regency Hotel.

Peter Symes, a 66-year-old retired meatworker and brother-in-law of South Canterbury Director Edward Sullivan, was the sole owner of the Hyatt - and a $42.3m related-party loan - for 18-month from February 2009.

Mr Symes told NBR he was acting on behalf of Mr Sullivan, and three business days after his involved with the Hyatt was disclosed he abruptly resigned from four companies connected with Mr Sullivan.

The Hyatt was owned by Regency Auckland, and directors of the company have included Allan Hubbard, Lachie McLeod, Mr Sullivan and Mr Symes. For two months Regency Auckland was owned by Hilltop Trust, a company with lawyer Gregory Shanahan as sole director and shareholder.

“Given the scale of the SCF collapse, it would be neither feasible nor productive for SFO to carry out an investigation into all aspects of the failure. Instead we will focus on specific transactions which we consider may have been a fraud on the investors in SCF and/or the Crown as the guarantor of investor funds,” Mr Feeley said.

Mr Feeley added that the SCF investigation was an entirely separate matter from the SFO’s investigation into the affairs of Aorangi Securities Limited.

“While there are some persons who are common to both cases, the SCF transactions were are currently investigating have no material connection with the affairs of Aorangi Securities," Mr Feeley said.

Mr Feeley added that, subject to receiving any new information from the statutory managers, the SFO was in the closing stages of its investigation into Aorangi Securities.

Mr Feeley said despite the volume of cases which SFO had taken up in recent months, the matter was one which would have a high priority and would be progressed as quickly as possible.

"As is appropriate with a small agency, we will coordinate our efforts with the receivers of SCF; the Registrar of Companies; and the Securities Commission. We will also be engaging private sector insolvency and forensic accounting specialists for external assistance.

etc etc etc

About time too.  Maybe David Hillary was right and those "capital injections" were not really valued correctly and not really capital.

Trustee should also have a case to answer..... wonder if Treasury will go after them too?

Have just updated with Treasury comment saying this won't affect payout to depositors

Cheers

Alex

Amandla Ewethu

Viva the Revolution, VIVA VIVA VIVA!!

27th of November 2010

11am gathering in the Babylonical Garden Wellington before storming the Beehive under the command of GBH (129kg) armed naked, running downhill with the new flag of the republic.

Viva, viva “The  Revolution” !

To achieve what exactly?

Looks like at least some were post Maier so the Great White Hope may be implicated!!  Horror of horror especially for those north of the Bombays!

FYI, I have updated the story based on an interview with SFO chief executive Adam Feeley.

Can't understand his reasoning if the problem was the "disclosure"of these related party loans in relation to the Guarantee Scheme which was extended in April when Maier was on board.  But then again I never give any weight to what Feeley says.

where were Forsyth Barr in all of this - werent they advising the company on all of this stuff -   Just shows the broking community is rotten as well.

Your comment makes no sense whatsoever.....  Where is the causality? 

Yip agree and Mr Power will eventually find it necessary to review the actions taken by Government regulators in this whole debacle.

Something tricky is going on as we speak:

 

UPDATED: National Business Review publisher Barry Colman is aiming to set up a meeting with the Serious Fraud Office to discuss the notice served on NBR by the SFO to seize a reporter's files and notes.