The $17 million fraud case involving the former heads of a Wellington gas retail company has begun today.
E-Gas' former managing director Ronald Rosenberg and former general manager Sydney Lio Hunt both appeared at a judge-alone trial in the Wellington District Court.
Each has been charged by the Serious Fraud Office (SFO) with 41 counts relating to the dishonest use of documents.
The SFO laid the charges in July, 2012 after an investigation alleged that between April 2005 and October 2008 the two men deliberately under-reported the quantity of gas supplied to its retail customers.
E-Gas allegedly under-reported its gas consumption to the tune of about $8.74 million and penalties were avoided to the figure of about $8.67 million.
The charges carry a maximum sentence of seven years' imprisonment.
Crown lawyer John Upton QC told the court Rosenberg and Hunt were in charge of telling an employee how much gas had been bought by their customers, which that employee passed on to their gas allocation agent Tom Tetenburg.
"Accurate, honest and complete information was critical to the proper functioning of the allocation process,'' Mr Upton said.
The system was "particularly vulnerable'' to cheating and under-reporting by companies, he said.
For a "sustained period'', except for February 2006, Rosenberg and Hunt under-reported how much gas the company sold each month, and therefore were getting some gas for free, he said.
The under-reporting also resulted in the company avoiding extra gas fees and distribution charges.
"Putting it bluntly, they were rorting the system.''
The scheme worked by the company billing their customers for their actual usage, but reporting a lesser figure to their allocation agent, their distributor and to the agent who collated reconciliation figures at the end of the year, Mr Upton said.
"Because they would under-report false usage/billing figures at all three points in the above process, no apparent differences would show up. No alarm bells would ring.''
The company ultimately became insolvent and went into liquidation.
Mr Upton plans to call 11 witnesses during the trial, which is set down for four weeks.
Defence lawyers for Rosenberg and Hunt declined to give an opening statement today.
The trial continues.