An insurance broker accused of using client funds to prop up his business was running a "money-go-round", comparable to a Ponzi scheme, the Auckland District Court heard today.
Former Herbert Insurance boss Grant Herbert faces 18 charges under of theft by a person in special relationship and eight charges under the Secret Commissions Act. He pleaded not guilty to these charges this morning.
Herbert was the managing director of Herbert Insurance since 1991, Crown lawyer Todd Simmonds said this morning.
As an insurance broker, Herbert Insurance was paid clients premiums and forwarded this money on to insurance companies, taking a commission from it.
As part of this, the company was required to keep these customer premiums in a separate account.
However, between February 2009 and when the company went into receivership in March 2011, customer premiums were transferred into Herbert Insurance's operating account and used to meet a variety of Herbert's and the business' expenses, Simmonds said.
The Crown lawyer said this was an unlawful and illegitimate use of the premiums and that Herbert knew and instructed it to happen.
When the company came under "real financial pressure" and was struggling to stay afloat, Herbert Insurance used a "very significant amount" of insurance premiums paid in by clients to "prop up the business in an unlawful way", Simmonds said.
"In order to cover up offending, Mr Herbert in many cases arranged for Herbert Insurance to make late payments to insurers who were waiting on funds," Simmonds said.
The Crown case was that Herbert was operating a "money-go-round" - which Simmonds said was something similar to a "Ponzi scheme" - where money was coming in from certain customers and being used to make payments which should have already been made with other client funds.
In some cases, Herbert's paying customers had no insurance cover in place, the Crown lawyer alleged.
"It was an ongoing calculated course of deception on the part of the accused Mr Herbert...It was deliberate," Simmonds said.
"Mr Herbert in many instances was basically pocketing that money and using it for his own purposes or the purposes of his company," Simmonds said.
When the company "went belly up in March 2011" there was a shortfall in the premium trust account to the tune of around $2.5 to $2.6 million, Simmonds said.
"That money was just not there...Mr Herbert is the person who is responsible for that shortfall," Simmonds said.
The Secret Commissions charges that Herbert faces allege he corruptly gave an agent employed by Bunnings payments for referring that firm's property insurance requirements to Herbert Insurance.
The indictment in the case alleges Herbert gave this man $159,000 between 2003 and 2010. The biggest payment in a year was $30,000 in 2007.
It is also alleged in the indictment that Herbert made personal receipts of about $30,000.
Herbert's trial is expected to take 3 to 4 weeks in the Auckland District Court before Judge Brooke Gibson and a jury. The Court is expected to hear from more than 50 witnesses.