Shareholders' group welcomes punishment imposed on 'inept' finance company chiefs.
A shareholders' group says the punishment handed down to three Nathans Finance directors yesterday sends a clear message to board members that they must take responsibility for their actions.
In the High Court at Auckland, former chairman Kenneth (Roger) Moses was sentenced to two years and two months' jail and ordered to pay $425,000 in reparations, and former director Mervyn Doolan was sentenced to two years and four months' in jail, with reparations of $150,000.
Donald Young, considered by Justice Paul Heath to have been the least culpable of the four directors, was sentenced to nine months' home detention plus 300 hours of community work and reparations of $310,000.
Moses, Doolan and Donald Young were found guilty on five charges of breaching the Securities Act in July after a marathon 12-week trial in the High Court at Auckland.
During the trial the directors defended allegations that the statements they issued concerning related party lending to VTL (a vending machine company), the quality of Nathans' loan book, its loan management practices and its management of liquidity were untrue.
The company went into receivership in 2007, owing $174 million.
After the July verdict, the New Zealand Shareholders' Association chairman John Hawkins said the Nathans directors were commercial hazards, who had "bled investors dry".
The association would not be satisfied unless a substantial custodial sentence was handed down, he said at that time.
Yesterday, Hawkins said the judge had heard all the evidence and had chosen a "place on the scale".
"Whatever we think of it, we have to accept it," he said. "It sends a very clear message to all directors going forward that they have to take responsibility for their actions, or inaction, and I think that is possibly the most significant thing that has come out of this."
Financial Markets Authority chief executive Sean Hughes said the outcome of the Nathans trial highlighted the responsibility directors held for the content of disclosure documents.
"We'd hate to think that directors ignored this outcome and went ahead treating financial reports and disclosure documents as a nuisance - they need to understand that these documents are read and relied on by investors and we, the regulator, will hold them to account," he said.
Exposing Unacceptable Financial Advice (EUFA) spokesman Gray Eatwell welcomed the sentences.
But said the investors who lost their savings when the firm went into receivership faced "life sentences".
Hawkins said the shareholders' association was aware of some individual directors feeling the requirements being placed on them had become "unduly onerous".
"Anyone in that position should not feel obligated to continue," he said. "We ... are comfortable that there is plenty of talent available."
In sentencing the Nathans directors yesterday, Justice Heath said their offending did not involve any element of dishonesty, rather the performance of directors was inept.
It was far below the standard any investor would expect, he said.
Justice Heath said the reparations should be regarded as a sentence in itself, and not "as a way to buy someone out of a prison sentence".
"Your names are well and truly in the public domain," he told the directors. "You have faced public shame for what you have done." Moses and Doolan are seeking bail pending an appeal of their prison sentences.
Kenneth (Roger) Moses
* Two years and two months' jail.
* $425,000 reparations.
* Two years and four months' jail.
* $150,000 reparations.
* Nine months' home detention.
* 300 hours of community work.
* $310,000 reparations.
* Excused from the trial after pleading guilty to breaching the Securities Act in February.
* Avoided a jail sentence in part because he agreed to co-operate with the Crown and testify against his former colleagues.
* Received 11 months' home detention, a $200,000 fine and 200 hours of community service.