Adam Feeley - The fraud buster

By Karyn Scherer

Adam Feeley's efforts to rev up the Serious Fraud Office are being hailed as long overdue - but not by everyone. Karyn Scherer reports.

Adam Feeley believes now is the time to turn the SFO around, after years of neglect, and rebuild its reputation with the public. Photo / Dean Purcell
Adam Feeley believes now is the time to turn the SFO around, after years of neglect, and rebuild its reputation with the public. Photo / Dean Purcell

It may or may not be a comment on the state of the construction industry, but prior to running the Serious Fraud Office, Adam Feeley was in charge of ensuring Auckland got a decent stadium to host the Rugby World Cup.

There is more than a touch of nostalgia in his voice as he recalls the experience from the somewhat tatty surroundings of his current office in a nondescript building on the outskirts of Auckland's CBD.

"I must admit it was quite fun going to stadiums and watching sport and getting paid for it," he muses. "Eden Park seems a long way away now."

Indeed. A lawyer by training, Feeley admits to having had a "pretty random" career. But it's clear his stint as chief executive of the Eden Park Redevelopment Board was one of his favourite jobs so far. Why on earth did he want to give it up and take on the utterly thankless task of heading the SFO?

"The subject matter is inherently interesting," he replies. "And the timing.

In the words of my Minister, the SFO has had years of neglect, so it was an opportunity to turn it around."

In fact, he is prepared to go much further than that. Feeley says he was well aware of what "a lot of people's" perceptions were of the office before he took on the job.

"Certainly the people I speak to in the business community say its reputation has been a bit battered. It still is... I thought the reality wouldn't be so bad. Whereas the reality was probably worse. To walk in on day one and find there'd been a case sitting there for seven years - it's been a nightmare to sort out."

Seven years? To some people, that may come as a shock. Some cynics, however, will probably roll their eyes. White collar crime has never been taken seriously enough in this country, they claim.

Since it was created in 1990 in the wake of the sharemarket crash, the SFO has come under fire from all sorts of people for all sorts of reasons. It has even been criticised for being too successful.

Its first case was the enormously complex Equiticorp trial, which eventually resulted in prominent businessman Allan Hawkins being sent to jail. But then came the Winebox fiasco, which nearly saw it implode under the leadership of colourful ex-cop Chas Sturt.

Its next boss, highly regarded bureaucrat David Bradshaw, was a cool and stubbornly independent customer who was wary of the media and of the political games that are a way of life for many Wellingtonians.

Under his watch, the office investigated several MPs and even the Auditor-General. But it also had some high-profile failures.

In 2007 Bradshaw was replaced by lawyer Grant Liddell, who found out after he applied for the job that the Labour Government wanted to scrap the office and some of its more draconian powers, and place it under the aegis of the police. Staff were devastated and many left - at exactly the same time as the finance companies began to fall like dominoes. Even though the proposal to scrap the office never went ahead, Liddell decided not to stay.

Although National opposed Labour's plan, it obviously wasn't entirely happy with the status quo. In his short time as the SFO's latest boss, Feeley has made no secret of his views that the office had become "calcified". In his own words, he has overseen a "fundamental overhaul" of its operations, which has included drastically reducing its caseload and concentrating on the cases involving the largest number of victims.

Feeley's fans, who include many of the country's top lawyers, insist he is making long overdue changes. They are impressed at his determination to prioritise the office's workload, speed up its investigations, and work more effectively with other agencies and the private sector.

But others insist the jury is still out. They cite the loss of many of its most experienced staff, and the way it has handled its investigation into Timaru businessman Allan Hubbard, as examples of bold calls that have yet to be vindicated.

Just last month the office found itself in a stoush with the media which, perhaps unfairly, gave some people the impression it was relying on journalists to do its own job.

Former staff are outraged at what they see as a rewriting of the office's history by Feeley, and some wonder how long he will stick around. There is concern that his decision to outsource some of its work could compromise its independence, and that "quick and dirty" investigations could lead to more financial cowboys getting away with the economic equivalent of murder.

According to Feeley, such criticisms simply come with the territory. "It's frustrating. But you've got to bite your tongue," he says.

In his first annual report to Parliament, Feeley has described his shake-up of the SFO as probably the biggest in its 20-year history.

In the year to the end of June, the office lost nearly a third of its staff. Five chose to leave or retire, and another seven were made redundant. It is not immediately obvious in its accounts how much this has cost in redundancy payments or other employee payouts.

As a result of the restructuring, Feeley now has three general managers to help him run the office, as well as a new position of general counsel, which has been filled by former Crown Prosecutor Deborah Marshall.

He notes that amid all this upheaval, staff still managed to deal with more than 200 queries and more than 100 cases of suspected fraud. For an agency with fewer than 30 operational staff, that is an impressive workload, he suggests.

However, it's also a workload that is not sustainable, he argues, which is why he decided to take a hard look at the 69 cases it still had on its books and get rid of 22 of them.

In his report, Feeley pays tribute to Liddell for managing to steer the office through a particularly tough time, and for initiating a "stakeholder stock-take" which revealed some unhappiness about the way it went about its work. But he also makes it clear further changes will be required.

In the past, the office has been too secretive, reactive rather than active, and has ignored the option of outsourcing some of its work, he says. He also criticises his predecessors for taking on "an increasing percentage of cases with relatively low dollar value", for having "poor case management processes", "a lack of clear accountabilities", and for taking on more cases than the office could handle.

"I guess in a nutshell the SFO was not seen as a particularly good team player with other agencies. It got probably pretty isolated, which is easy to do when you're the only government department with a head office in Auckland. In some respects it quite liked being isolated - it gave it a sense of mystique, but probably a false sense of mystique," he suggests.

Feeley has noted that under his leadership, the SFO has managed to reduce the time for an average case from 15 months to just eight months. At the same time, it has still managed to successfully prosecute one of the many failed finance companies (Waipawa), lay charges against several others, and nail New Zealand's largest case of employee fraud - the $17.8 million stolen by ASB Bank employee Stephen Versalko.

He has also boasted about the return of "several former staff", and a new media strategy aimed at "allowing the public to see the office's responsiveness on potential fraud", in the hope they will have more confidence in the financial markets. "They will also learn that when significant fraud is detected, it will be dealt with expeditiously," he suggests.

If Feeley regrets being so critical, he isn't showing it. In his modest office on Mayoral Drive, he happily recounts various run-ins he had with former staff, which convinced him they weren't open to a better way of doing things.

He refuses to discuss anything about Hanover Finance, but admits he was horrified to discover that the Bridgecorp file was ignored for nine months.

"Prioritisation was the problem... The SFO had taken on more than it could handle and so its timeframes went out."

He admits some staff were upset at the suggestion that more work be outsourced. But he also says he was "staggered" to discover that senior prosecutors were being excluded from investigations until they were ready to go to court.

"It puts the prosecution panel in an incredibly invidious position, because they had no ownership of it. By bringing them in on day one now... we get the infinite benefit of their wisdom in terms of what to look for, and what to focus on."

While Feeley concedes such top advice doesn't come cheap, he insists it's worth it. The recent guilty pleas in the National Finance and Five Star Finance cases are a good example, he says.

While he concedes both cases pre-date his own involvement, he does credit the input of QCs John Billington and Nick Davidson as being a "direct factor" in their successful resolution.

As previous directors have also noted, the SFO is New Zealand's smallest government department by far. For many years its budget has remained at a paltry $5 million a year - a tiny fraction of its counterpart in Britain, which deals with not even double the number of cases as here, and last year managed only six more prosecutions.

By handing over its responsibility for recovering the proceeds of fraud to the police, the New Zealand SFO has managed to find another couple of million to help it do its job. But while it may have more money, it does not appear to have any more staff.

For most of its existence, the SFO has had around 34 staff, but it is now down to around 28.

Feeley admits balancing its budget has been particularly difficult in the wake of the finance company collapses, and that outsourcing some of its work has added to that pressure.

According to information obtained by The Business under the Official Information Act, the office has spent just over $250,000 on prosecution services so far this calendar year - and that is only for costs prior to cases going to court. Its court costs are met by the Crown Law Office.

In addition, it has spent nearly $150,000 on accounting and investigative services from private firms such as Deloitte, HFK, Indepth Forensic, PricewaterhouseCoopers and CB Richard Ellis.

While Feeley notes that members of its prosecution panel are paid "considerably less" than their normal commercial rates, he concedes it's "considerably more" than an SFO staff member. And he admits it's increasingly difficult for the office to compete with private sector salaries.

"We can't recruit to our full numbers because salaries in this market have gone up more than budget has. Right now, we're competing with the big [accountancy] firms. And they're expensive."

Nevertheless, he has been careful in his public comments about its resources, and insists he doesn't necessarily agree that more money would automatically produce better outcomes.

"What I've also said is one cannot have expectations of 50 to 60 cases on that budget, so we've significantly reduced the number of cases we're taking on. We're committed to taking on 20 new cases this year as part of our budget. The trouble is, Dominion Finance is our unlucky 13th case and we're barely a quarter of the way through the year. So that's the challenge for now."

As a result, it is being far more picky about the cases it takes on. "That said, in the last six months we've taken on some reasonably big cases that people have wanted us to take on, we've laid charges in respect to some pretty big cases, and we've got some convictions in some pretty big cases. So I think in one sense the SFO is doing pretty well and getting some good results. We could probably do more if we had more money, but would we necessarily do better?"

New Zealand's legal community is a small one, and some of Feeley's critics are reluctant to be named for fear of jeopardising their careers. But several told The Business they were yet to be convinced he was making a difference.

Two former staff have been so angered by Feeley's public statements that they have decided to speak out.

Gib Beattie is a former merchant banker and forensic accountant who joined the SFO at its inception. He was its assistant director for many years and is widely respected for his skills and his institutional knowledge. He left the office last year.

According to Feeley, it was Beattie who decided he'd had enough. "I didn't say goodbye to anyone - they said goodbye to me," he insists. But former colleagues insist Beattie was pushed, and say his loss was a major blow for the organisation.

Beattie refuses to get into a slanging match, but is keen to outline what he observed during his long career at the SFO.

Like other former staff, he is annoyed at claims that the office went through a period where it regularly dropped the ball. While it's true it had some high-profile losses, such as the Digitech, Auckland Regional Helicopter Trust and Tuariki Delamere cases, the fact remains that it consistently maintained a 90 per cent success rate for many years, he notes. And even when it did lose the odd case, it was very rarely required to pay costs.

"The reason we won the percentage of cases we won is because it was thorough and it was professionally prepared and we left as little as possible to chance. If we believed there was a huge hole in our case and we had significant doubt that we could prove it, how appropriate would it be to take it into a courtroom and waste the taxpayers' money?"

He denies the office was sometimes too thorough with its investigations. While staff were encouraged to take a "prudent and practical" approach, it was also important that any offending disclosed was representative of the true scope and nature of the crime, he says.

"The SFO is not in the business of ignoring the bank robbery and charging the getaway car with being parked illegally."

Beattie believes the perception of its aloofness may be partly due to the fact that it was reluctant to spend money on airfares to fly to meetings in Wellington, unless they were particularly important. But in fact, it got on well with the key agencies it dealt with regularly, like the Securities Commission, he says.

It is also untrue that the office was "calcified", he says. "I can tell you the SFO continuously changed and evolved over its lifetime. I was there from day one and I viewed considerable change and was involved in considerable change over many, many years."

Beattie is also sceptical about using "arbitrary timeframes" as a measure of success. Some cases are naturally more complex than others, and sometimes you just have to face the fact that you're going to need to spend more time on them, he says.

Former director David Bradshaw admits to being deeply offended by some of Feeley's comments in his annual report.

Bradshaw insists he has no problem with Feeley wanting to do things his own way. "After all, I wanted to do things differently than Chas Sturt," he acknowledges. But he isn't convinced that having more managers and fewer staff is going to solve more crimes. "It's a very Wellington, public service approach," he observes.

Bradshaw also has reservations about Feeley's decision to be more upfront about the cases the office is investigating. His own "neither confirm nor deny" policy was aimed at ensuring that mud didn't stick where it didn't belong, he says.

It bothers him that a business once went bankrupt when word spread that the SFO was sniffing around - even though the investigation was eventually abandoned.

And he is particularly concerned at Feeley's willingness to outsource work to private firms.

The major firms made it clear during his own tenure that they wouldn't mind more work, he says. He resisted because he was concerned about potential conflicts of interest with their own clients.

The resignation of Justice Bill Wilson has clearly demonstrated the difficulties that can arise in such a small country, he says. "What happens if you need to investigate Fonterra or something and you didn't have enough people on your own staff? That would be a nightmare situation."

His personal belief is that good lawyers do not necessarily make good investigators. And he worries about what will happen to all the "minor" frauds the SFO has now lost interest in, and whether the police will pick up the slack.

Likewise, it also bothers him that the office is now using early guilty pleas as one measure of success. Getting someone to admit to a lesser charge "if the price is right" might be efficient, but in Bradshaw's opinion "it sacrifices the integrity of the criminal justice system".

Other lawyers are also uncomfortable about who is benefitting from the outsourcing. "In my view it's just the old boys' network," says one.

As for the case that was seven years old - that was hardly the SFO's fault, former staff say. They believe the case he is referring to is one involving a law firm, which has been very successful in delaying the case with numerous legal challenges and hearings in various courts.

For his part, Feeley seems content to be judged by the office's achievements.

On the same day it made the shock announcement that it would not be laying charges against anyone involved in Blue Chip, it revealed that it would be investigating related party transactions undertaken by Dominion Finance and North South Finance. Feeley confirms more announcements are imminent.

"Between now and Christmas it's kind of scary how much work we've got to get through."

Privately, he admits the office hasn't always lived up to his own expectations. He will even publicly admit that it may have mishandled its recent clash with NBR, for instance.

Some believe Feeley was also foolish to declare in January that decisions would be made about all the finance company cases by the end of March. The deadline proved impossible to meet. But he remains upbeat. "We're not quite at the end of the year, but it's not been a bad year for the SFO," he insists. "The poor old staff are very tired. A year like this has a bit of burnout. We'll be encouraging everyone to have a decent summer holiday."

By definition, almost all the office's decisions will upset someone, he believes, but he can't understand why anyone would think any of the SFO's staff would want to let any potential criminals off the hook. The reality, he notes, is that not every company collapse can be blamed on criminal intent.

But in the case of Blue Chip, the lesson is probably that it is crucial to blast a big case with plenty of resources as early as possible, he says. He admits he was tempted to close the case within a month of joining the SFO, but persisted with it in order to be thorough.

"Everyone else is convinced Blue Chip was a crime. At most, if it was a crime then we simply can't find sufficient evidence to prosecute."

It is far more frustrating, he claims, to be convinced a crime has been committed and not be able to find sufficient evidence or get witnesses to cooperate, than it is to feel that victims have not been helped by the law.

"Those kinds of cases bother me more than the cases where we say: 'It feels like a crime but we can't prove it and so in our justice system we don't prosecute'. The ones where you go: 'Maybe if we'd moved earlier, or done this or that' - those ones hurt."

At least the staff will have something to look forward to when they come back from their New Year break. Early next year, the office will move into new premises above the Downtown shopping centre in the heart of the CBD.

He is keen to point out the move will actually save money. The new location will also be much more handy to Auckland's law and accountancy firms, and will be "great for just going out and having a coffee and bumping into people", says Feeley. It will also be a chance to make a fresh start.

He points to the well-worn furniture in his office, which has been there since Chas Sturt's day. "It's time to move on," he enthuses.

In the long term, Feeley believes the SFO's standalone status could still come up for discussion.

He has his own view as to what should happen, but is reluctant to share it. However, it has not escaped many people's notice that Britain's SFO has already been amalgamated with other crime and financial agencies, and some suspect that National or whoever is next in Government might be tempted to consider whether there are any synergies between our SFO and the new Financial Markets Authority which is due to replace the Securities Commission next April. Or maybe the police will come wooing once again.

"In the big scheme of things, it's about doing the right cases and getting the right results. It's about getting a sense of scale that makes the SFO viable. The Minister has said that for the moment it is not being disestablished, but it's probably good to operate on the basis that there is still a questionmark there," he agrees.

In the meantime, he will be arguing that not only should the office keep its unique powers which allow it to compel people to provide information and answer any questions, but it should also use them far more often, particularly once its workload eventually settles down. He would also like to see it work more closely with organisations like the FMA on identifying potential crimes at an earlier stage.

"The question is: 'Should more emphasis be put on protecting people earlier', and that's something the SFO has to do more of. The SFO was set up... with 'draconian' powers but the fact is it very rarely uses them in an active sense."

As for his own future, Feeley acknowledges it's unlikely he'll still be head of the SFO in another 20 years. However, he confirms he's signed a five-year contract.

"I've always had a goal that you go into an organisation and leave it in a better state than when you arrived. If you've got three people who can do your job when you're still there and it's running really well, then it's probably time to give someone else a chance at it."

But clearly that time has not come yet.

"I guess the thing we're trying to say at the moment is: 'We're starting to get some results, we're getting a measured step up each time with some of our cases, we're turning things around faster, and we're trying to get better relationships with a whole bunch of people'. I'm painfully aware of what we're not doing that people want us to do and hopefully in time we'll start to attend to some of those things as well."

The alternative view?

"He'll be judged on his results and I just hope he'll be around long enough to be held accountable," says one observer. "Blue Chip was a surprise, and it will very, very interesting to see what happens to Hubbard."

Under Investigation

The SFO does not reveal all the cases it is investigating - not all of which will necessarily lead to a prosecution - but its current caseload includes:

Aorangi Securities: Allan Hubbard's private investment company was placed in statutory management in June 2010 owing about 400 investors $90-100 million.

B'On Financial Services: Mike and Jackie Bradley's financial advisory firm was placed into voluntary receivership in December 2009 owing about $29 million to 86 investors.

Belgrave Finance: Finance company owned by Shane Buckley and Stephen Smith, was placed in receivership in May 2008 owing about 1000 investors $20 million.

Bridgecorp: Rod Petricevic's finance company was placed in receivership in July 2007 owing about 14,500 debenture holders $459 million. In May the SFO laid seven charges against Petricevic and five against finance director Rob Roest.

Capital+Merchant Finance: Finance company placed in receivership in November 2007 owing about 7500 investors $167 million. Five directors - Neal Nicholls, Colin Ryan, Robert Sutherland, Wayne Douglas and Owen Tallentire - are already facing charges brought by the Securities Commission.

Dominion Finance: Terry and Ann Butler's finance company was placed in receivership in September 2008, owing about 6000 debenture holders $177 million, and wholesale lenders another $55 million. A related company, North South Finance, was placed in receivership in July 2010, owing debenture holders $31 million and wholesale lenders another $15 million.

Five Star Group: Finance company run by Marcus MacDonald, Nicholas Kirk, Anthony Bowden and Neill Williams was placed in receivership in August 2007 owing investors at least $46 million. In August the SFO laid more than 100 charges against the four. MacDonald has since pleaded guilty to charges of theft, but has not yet been sentenced.

Kidicorp: Wayne Wright's early childcare group has about 170 centres throughout New Zealand. In July 2009 the SFO was called in to investigate allegations of falsified time-keeping records.

Lane Walker Rudkin: The former Canterbury clothing business owned by Christchurch businessman Ken Anderson was placed in receivership in April 2009 owing around $120 million, mostly to Westpac.

Nathans Finance: Finance company linked to listed company Vending Technologies was placed in receivership in August 2008 owing around 7000 investors $174 million. Directors (Kenneth) Roger Moses, Donald Young, John Hotchin (brother of Hanover Finance director Mark Hotchin) and Mervyn Doolan already face charges brought by the Securities Commission.

National Finance: (Trevor) Allan Ludlow's finance company was mostly involved in car loans and was placed in receivership in May 2006 owing investors $21 million. The SFO has charged Ludlow and accountant John Gray. Last month Gray pleaded guilty to SFO charges of theft and false accounting.

Natural Dairy: Hong Kong listed company with big plans to invest in New Zealand's dairy industry is being investigated for several transactions involving companies linked to Auckland businesswoman May Wang. The investigation was suggested by the Overseas Investment Office last month.

South Canterbury Finance: Finance company linked to Allan Hubbard was placed in receivership in August 2010 owing $1.8 billion, which was paid out by the Crown. The SFO has been asked to investigate its related party loans.

WSD Global Markets: A futures and options dealer accredited by the NZX. Acting on complaints, the SFO began investigating the company last month.

- NZ Herald

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