The public reinvested with Nathans Finance more often than they did with competitors because the staff at Nathans did a good job reassuring them, a court heard yesterday.
Former Nathans directors Mervyn Doolan, Donald Young and Kenneth (Roger) Moses are on trial for six alleged breaches of the Securities Act.
The directors pleaded not guilty on Monday to the alleged breaches.
A fourth director, John Hotchin, younger brother to Hanover's Mark Hotchin, pleaded guilty to similar charges in February and was sentenced earlier this month.
A prosecution witness, Marion Short, who worked for VTL - Nathans' parent company - as the sales and marketing co-ordinator, told Crown lawyer Nicholas Williams that when people called the finance company, a person answered the phone rather than an automated messaging service.
Short said the reinvestment rates with Nathans, around 70 per cent in 2006, whereas competitors were struggling with 50 per cent, were higher because the team had done a good job reassuring investors in the company.
Short was part of a team that "picked over and discussed" the company's 2006 prospectus and she asked for advice on parts she did not understand because she was not an accountant or lawyer, she said.
"I was the gauge. If I understood it then investors would."
Williams asked Short whether the directors studied the prospectus, to which she answered "not that I specifically recall".
Defence counsel David Jones, QC, asked Short whether an investment statement was a core document.
Short answered that it was, and it had to ensure investors knew how their investments worked "overall".
She added that Nathans' statement encouraged investors to read all the documents, such as prospectuses and financial results, very carefully and seek independent advice before committing money to Nathans.
Jones asked Short whether this was done to enforce the need to read all documents and to reiterate the importance of the investment statement before a decision was made.
She answered "that's correct".
When Nathans collapsed it owed $174 million to about 7000 small investors.
Nathans was mainly set up as a funding vehicle for VTL, and its associated entities which purchased vending franchises from VTL.
The group operated in the United States, Europe, Australia and New Zealand.
The directors are defending allegations that the statements they issued concerning related party lending (to VTL), the quality of its loan book, its loan management practices and its management of liquidity were untrue.
The commission claims the directors made untrue statements in the company's registered prospectus and investment statement of December 13, 2006.
It further alleges the directors made untrue statements when they signed a prospectus extension certificate on March 30, 2007. The case is being held at the High Court at Auckland and is expected to last eight weeks.
* Defendants: Mervyn Ian Doolan, chartered accountant; Kenneth Roger Moses, chairman and director; Donald Menzies Young, chartered accountant.
* Directors have been charged with six breaches of the Securities Act.
* Pleaded not guilty.
* Nathans placed into receivership in 2007.
* Criminal charges laid by the Securities Commission in 2008.
* Trial started on Monday.