A now-bankrupt insurance broker allegedly shared a kickback with a senior manager at Bunnings Warehouse in order to keep the hardware chain's business, a court heard yesterday.
Grant Herbert has denied 18 Crimes Act charges of theft by a person by a special relationship. The former boss of failed insurance broker Herbert Insurance also pleaded not guilty yesterday to eight charges under the Secret Commissions Act for allegedly corruptly gifting to an agent.
In 2003, Herbert allegedly approached a close friend who was a manager for Bunnings Warehouse, Serious Fraud Office lawyer Todd Simmonds told the Auckland District Court yesterday as the four-week trial began.
One of this man's responsibilities related to Bunnings' insurance.
It is alleged Herbert proposed an arrangement where the pair would share a secret commission or "kickback" in return for Bunnings using Herbert Insurance's services, Simmonds said in his opening address to Judge Brooke Gibson and a jury.
The Bunnings manager provided "sham" valuation surveys to Herbert Insurance, as a front for receiving the secret commissions, the Crown lawyer alleged.
When the Bunnings employee submitted invoices for these surveys to Herbert Insurance, the insurance boss would incorporate the fees into the insurance premiums which were then charged to the hardware chain, Simmonds said.
When those inflated invoices for premiums from Herbert Insurance were received by Bunnings, they went to Herbert's friend for approval for payment, Simmonds told the court.
The indictment against Herbert alleges he paid the Bunnings manager $159,000 between 2003 and 2010.
Herbert was managing director of Herbert Insurance from 1991 until it collapsed in March 2011.
As an insurance broker, the company was paid clients' premiums and forwarded the money on to insurance companies, taking a commission from it.
The company was required to keep these customer premiums in a separate account, Simmonds said.
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, the Crown lawyer said.
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.
Defence lawyer Peter Davey told the jury that the Crown opening wasn't evidence and this trial wasn't judging ethics or morals.
"There's a lot of water to go under the bridge in this trial ... please keep an open mind," Davey said.