Hanover director Mark Hotchin invested $560,000 in a Ponzi scheme that promised a 160 per cent return over just two months.
His ill-fated foray into what his lawyer described as "Looney Tunes Investments", is thought to have lost him about $225,000.
The investment was of his own money, but when the Ponzi scheme fraudsters were prosecuted, Mr Hotchin gained a court order to keep his involvement secret from investors and protect Hanover.
He was a victim of the sham get-rich-quick schemes in 2002 but the director and co-owner of the Hanover group of companies can only now be named after a legal challenge by the Herald to overturn the suppression order.
Kerry Finnigan, a director and chief executive of the Hanover group at the time, was also a victim investing $120,000 but ending up out-of-pocket by just a small amount. He also succeeded in having his name suppressed when the case was prosecuted by the Serious Fraud Office in 2004-05.
Yesterday, investor Tom Brosnahan, who poured a "substantial sum" into Hanover-owned United Finance in 2008, said the pair's involvement in the Ponzi scheme and then name suppression was the latest in a long line of injustices.
"If I had known that, I would not have put a cent in. I'd have pulled my money overnight.
"It makes you sick in the gut. If investors knew they were involved in this Ponzi scheme, they'd have been silly to leave their investments with them.
"Years later, the interest Hanover was offering me - 12 or 13 per cent - was similar to what that Ponzi scheme were offering."
Mr Brosnahan is part of a group of 3000 New Zealanders who collectively aim to sue Hanover this year, believing the company misled elderly investors.
Mr Hotchin and Mr Finnigan were among only four of two dozen victims who gave evidence at the Ponzi trial to be granted final name suppression.
In giving up their opposition to the Herald's court application this week, their lawyer said it should be made clear the men were "victims of a serious crime".
When the Hanover bosses had successfully argued for permanent name suppression, their lawyer, Bruce Stewart, QC, described the scam as "Looney Tunes Investments".
They gained interim name suppression in March 2004 and permanent suppression on February 17, 2005.
Mr Hotchin said in his 2003 affidavit requesting name suppression that he believed if the facts of his investment in the scams became known:
* "There would be concern over the investment strategies adopted within the Hanover organisation because of the loss of credibility and damage to my reputation."
* "Investors and third parties with whom Hanover and its entities deal could well come to the conclusion that if one of the directors of Hanover was making inappropriate investment decisions personally then he could well be doing the same for the group. This in turn could cause a lack of investor confidence and support potential for a run on funds, the possible collapse or restructure of the group with obvious impact on its 600 employees."
* "The commercial relationship Hanover has with commercial partners would also be placed under stress. In those circumstances I anticipate that my fellow shareholder [London-based Eric Watson] and director could well request my resignation as a director."
Mr Finnigan filed an almost identical affidavit.
The SFO remained neutral regarding the suppression request. In making the suppression order, District Court judge James Weir cited the reputation of the men, the financial and professional consequences and the possible consequences for their company and employees.
Judge Weir also stated that "there is a failure also to identify any person or past person who would specifically benefit by publication of the details of the case".
The Herald began preparing the challenge to the suppression order last year considering that it was in the public interest and that circumstances had changed dramatically after the collapse of Hanover.
Millions of dollars were invested in Hanover after name suppression was granted and at a time when its advertising was based on claims of prudence, careful strategies and the experience of its managers.
Through the suppression of poor judgment by a co-owner and director and an executive director, Hanover investors had been denied means to measure its claims of prudence and care.
Hanover was the largest privately-owned finance company in New Zealand when it failed in 2008, freezing $554 million affecting 16,500 investors. The investment is now worth a fraction of that amount.
Mr Hotchin and Mr Watson received $91m in dividends before the company collapsed, although Mr Hotchin has claimed they put in more than that.
After leaving Hanover, Mr Finnigan became chief executive of Strategic Finance and was in that role when it fell over in 2008 owing $452 million to 13,000 investors.
The Ponzi scam the Hanover pair fell prey to lured victims with the prospect of returns as high as 100 per cent a month and promises that principal invested was guaranteed.
The deals were characterised by poor explanations of how they worked (investors were told the schemes were confidential) and a lack of paperwork, the SFO told the court.
In September 2002 the Securities Commission banned the companies operating the scam from advertising, stating that the adverts were illegal and "had all the hallmarks of prime bank instrument schemes, which are known to be fraudulent" and soon after closed down the companies.
By then Mr Hotchin and Mr Finnigan had already made their investments.
They were recruited by a business acquaintance, Lloyd Johns, who was a relative of one of the fraudsters.
The SFO told the court the scams attracted $14.6 million, of which $8.3 million was lost. Half the money was used to make bogus interest payments to investors, a quarter was spent by the scam operators on personal items such as jewellery, overseas travel and real estate, and a quarter was put into "crazy schemes that failed miserably" that were found on the internet.
An example was an investment with Golden Financial Specialists Inc in Latvia, said prosecutor Philip Morgan, QC. "It's like taking it to the casino and putting it on number one on the roulette wheel and crossing their fingers."
During depositions Mr Hotchin was asked why a man of such financial experience and knowledge would "chuck half a million or so" into a scheme that promised returns of 160 per cent over two months. Mr Hotchin said he was used to people honouring their contracts and their word. "That's how you survive in business."
"The error was in the people not being trustworthy ... This came down to trust and I was told I could trust these people."
Mr Finnigan, in cross-examination at depositions, admitted he was not your "average Joe Bloggs" but denied he was a professional investor. "My expertise is in business management. I position myself as a professional director rather than a professional investor."
Asked why he did not seek advice from his expert colleagues, Mr Finnigan said he considered himself expert and qualified enough to make decisions about his private affairs.
Named after Charles Ponzi who became notorious for using the technique in the early 1900s.
A fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organisation, but from their own money or money paid by subsequent investors.
Usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. It requires an ever-increasing flow of money from investors to keep the scheme going.By Phil Taylor Email Phil