Business Editor for the NZ Herald

No charges against Hanover - SFO

Hanover Finance collapsed in 2008 causing significant losses to depositers. Photo / NZPA
Hanover Finance collapsed in 2008 causing significant losses to depositers. Photo / NZPA

The Serious Fraud Office is not laying criminal charges against anyone associated with Hanover Finance following a 32-month investigation.

The office has spent longer mulling over whether to lay charges in the wake of the Hanover collapse than in the case of any other finance company it has probed.

The Hanover probe was " by far the most extensive and challenging of the finance company investigations undertaken by SFO" said acting chief executive Simon McArley today.

"While many may view the conduct that occurred at Hanover Finance as egregious, that alone is not sufficient for me to commence a prosecution," McArley said.

"SFO's prosecution decisions must also be made within the context of the Solicitor-General's Prosecution Guidelines. These require me to be satisfied that there is a reasonable prospect, based on credible and admissible evidence, that an impartial jury could be satisfied, beyond reasonable doubt, that the person prosecuted has committed a criminal offence.

On the basis of the evidence currently available, SFO is not able to reach that threshold. As a result it is unable to commence any criminal charges in relation to Hanover Finance and its related companies."

"This is a case that has attracted huge public attention and is of significant public interest. I believe that this justifies the vast time and resources that SFO has dedicated to it. However, we have now exhausted every available avenue of enquiry and the time has come to move on and focus our resources elsewhere." McArley said.

"While this has been an extremely difficult decision to make, I'm convinced that it is not only the right one but the only possible decision on the basis of the available evidence. The decision has not been reached in a vacuum. I have consulted with the Crown Solicitors, leading criminal Queen's Counsel, and the Deputy Solicitor-General," he said.

Today's announcement brings an end to the SFO's finance company investigations, which saw 23 people charged by the fraud body.

In April last year, a Court of Appeal judgment said Hanover failed in mid-2008, causing substantial losses to depositors.

About 16,000 people with investments totalling more than $500 million lost most of their money following the failure of Hanover and related companies, and the sale of assets to Allied Farmers. After receiving complaints the SFO launched an investigation in September 2010.

Since September 2010, it has analysed more than 107,000 pages of documentary evidence and interrogated over 3,730 gigabytes of electronic data, the SFO said in a statement today.

"Fifty-four interviews have been conducted over 120 hours, and more than 30 individual loans or other transactions of interest have been identified and reconstructed. Overall, around 12,700 hours have been spent analysing that evidence. Expert opinion advice has also been considered from eight external advisors," the statement said.

Despite not laying charges, the SFO believes that serious questions arose during its investigation as to the:

* The consistency between the overall view of the nature and financial condition of the companies disclosed to investors in the period from December 2007, and the actual position of the companies.

* The solvency of the companies at the times that dividends were paid during the six months immediately prior to the suspension of payments to depositors in July 2008.

* The propriety of a number of transactions entered into in the three months immediately prior to the suspension of payments to depositors that appear to have provided little or no benefit to the companies, while conferring some significant benefits on the related parties;

* The accuracy of the valuation of the companies' assets in the financial statements supporting the Debt Repayment Proposal put to investors in November 2008.

Separate to the SFO investigation, the Financial Markets Authority is taking civil action against six former Hanover directors and promoters over allegedly misleading or untrue statements made in offer documents.

Proceedings under the Securities Act have been filed against Mark Hotchin, Eric Watson, Greg Muir, Sir Tipene O'Regan, Bruce Gordon and Dennis Broit.

The FMA is seeking compensation for investors who put $35 million into Hanover Finance, Hanover Capital and United Finance between December 2007 and July 22, 2008.

The market watchdog is also seeking penalty orders against the defendants, and if the claim is successful, the former directors and promoters could each face fines of up to $5 million.

See the SFO release here. And background to the case here.

- NZ Herald

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