SFO silent so far, despite criticism of its South Canterbury probe

The scab over one of New Zealand's biggest corporate sores has been picked off yet again - and the Serious Fraud Office isn't rushing to cauterise the wound.

SFO director Julie Read had nothing to say this week in response to fresh criticism that the organisation mismanaged its investigation into South Canterbury Finance.

It's not the first time that claim has been made.

The contention emerged during the marathon trial of former SCF chief executive Lachie McLeod and directors Ed Sullivan and Bob White. It gained further cachet in October 2014, when only Sullivan was found guilty of any criminal wrongdoing.

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However, the most damning commentary came more then a year later, when Justice Paul Heath added his authoritative view last Friday.

"Regrettably, I find that the Serious Fraud Office's investigation was deficient in material aspects," said the judge when awarding $240,000 in legal costs to McLeod.

Justice Heath said the investigation team lacked an "experienced leader" and that "insufficient attention was paid to the need to provide a reliable narrative of the way in which South Canterbury Finance's business operated".

That judge said the standard of investigation on the most serious charge in the case was poor.

That charge had alleged the trio was complicit in deceiving the Crown into allowing South Canterbury to enter the retail deposit guarantee scheme, which led to a $1.5 billion taxpayer bailout of the company when it failed in 2010.

No documents were obtained from Treasury or the Reserve Bank, nor were interviews done to ascertain whether the guarantee document would have been signed if material misrepresentations had been discovered, the judge said.

The investigation team's "fundamental error" in not obtaining evidence from former Treasury secretary John Whitehead was one reason why McLeod should never have been accused of that particular offending, Justice Heath said.

We'll get back to you

Although the "deficient" probe didn't happen on her watch, Read is still entitled to reject Heath's criticism - if she believes it is unfounded.

That's the stance she took when former SFO assistant director Gib Beattie criticised the office's "inept investigation" on the day of the verdicts in October 2014.

"We have failed to satisfy the court to the required standard in relation to Mr McLeod and Mr White but I consider that the case was investigated thoroughly and that our counsel presented the best possible case to the court," Read said at the time.

However, she was not commenting on Monday. An SFO spokeswoman later said Business Insider's specific questions about Justice Heath's comments had been passed to its Official Information Act team, which is likely to meet next week to discuss a response.

Though that response could continue to downplay any fault in the SCF probe, Business Insider thinks Read would be wiser to accept that her predecessor made mistakes, say the organisation has learnt from them and that it will now review its procedures.

Such an admission would go some way to repairing the reputational damage the SCF case (and Heath's comments) have caused it.

Words rebound

When Adam Feeley was SFO boss, Business Insider found him ready to shoot from the lip, but he did not reply to phone messages this week, seeking comment on SCF.

It was Feeley's own words from December 2011 that came back to bite in Justice Heath's decision.

"In the context of what the director [Feeley] announced publicly to be the 'biggest fraud in New Zealand's history' and one that was 'the most resource intensive and time consuming in recent history', the standard of investigation on [the guarantee scheme] charge fell well below that which the public is entitled to expect," the judge said.

Costly case

With McLeod getting back $240,000 from the Crown for his legal bill, Business Insider thought it would be timely to remind the taxpaying public just how much the SCF investigation and prosecution cost.

The payout pushes that bill to more than the $1.5 million the Financial Markets Authority spent investigating and prosecuting the five guilty Bridgecorp directors.

Excluding the expense of Queen's Counsel Colin Carruthers heading back to Timaru to defend McLeod's costs application, Crown Law spent in excess of $1.2 million on the case.

And on top of the 12,000-plus hours the SFO spent on its probe, more than $200,000 was spent on external counsel and more than $61,000 on travel and expenses.

This, however, is only a tiny sliver compared to the hundreds of millions of dollars the taxpayer was left out of pocket after bailing out SCF investors.

More red ink?

The costs ledger could bleed a little more red ink if Sullivan decides to push on with his own bid to get back some of his legal bills.

Business Insider has been told such a bid was presented last November, but put on hold pending the result in McLeod's case. It is understood that no decision has yet been made on whether to march on with Sullivan's claim or let sleeping dogs lie.

Sullivan was sentenced to 12 months' home detention after being found guilty of five charges of making false statements in offer documents and obtaining by deception.

However, the septuagenarian was acquitted on the accusations concerning the company's entry into the guarantee scheme.

It was because of the costs of defending that charge that McLeod was awarded $225,000 of the $240,000 he got back on his $1.4 million legal bill.