Hamish Fletcher

Hamish Fletcher is a business reporter for the NZ Herald

After the failures, the accusations

Financial watchdogs bring their charges against top officials of finance companies to the courts.

Former directors of the failed Dominion Finance Group are facing charges brought by the Serious Fraud Office and the Financial Markets Authority. Photo / NZPA
Former directors of the failed Dominion Finance Group are facing charges brought by the Serious Fraud Office and the Financial Markets Authority. Photo / NZPA

The wash-up from the wave of finance companies which collapsed during the global financial crisis continues this year as numerous Financial Markets Authority and Serious Fraud Office prosecutions work their way through the court system.

With branches of the High Court around the country due to begin hearing sessions on Monday, the Weekend Herald looks at the cases likely to make the headlines this year.

Five Star group

The prosecution of those associated with the failed Five Star group has been going on for more than two years.

Five Star marketed itself as a low or modest-risk finance entity which made small consumer loans for household purchases such as fridges.

Instead, it was allegedly investing large sums in complex commercial and related-party loans totalling more than $50 million.

In 2007, Five Star Consumer Finance collapsed with losses of $42 million. Five Star Finance and Five Star Debenture Nominee owe a further $43 million.

Two of the firm's directors, Marcus MacDonald and Nicholas Kirk, pleaded guilty in 2010 in the Auckland District Court to charges brought by the SFO of theft by a person in a special relationship. They also pleaded guilty to Securities Act charges.

They were sentenced to more than two years in jail in late 2010, and have since been released on parole.

Another director, Anthony Bowden, was sentenced to a total of 18 months' home detention after pleading guilty to Crimes Act and Securities Act charges.

His associate Neill Williams, who the Crown claims was a de facto Five Star director, also faces criminal charges.

Williams originally pleaded guilty to Securities Act charges but made two attempts to change his plea.

HIs application to vacate the guilty plea was rejected for a second time last year, and Williams now wants the decision reviewed in the High Court.

If this is unsuccessful, he will be sentenced in the Auckland District Court after a disputed facts hearing this month.

Williams is also due to go to trial for charges alleging theft by a person in a special relationship. This case is due to be heard in the High Court in June.

Capital + Merchant

FinanceThe SFO called its 2012 prosecution of former Capital + Merchant Finance directors one of the most important commercial fraud cases in recent years.

After two separate trials - one in which the defendants were acquitted - former C+M directors Neal Nicholls, Wayne Douglas and Owen Tallentire were sentenced in August to jail terms.

Nicholls and Douglas, the beneficial owners of the company, were each sentenced to 7 years in jail, and Tallentire was jailed for five years.

The three men's appeals against their convictions and sentences were rejected in December.

Nicholls and Douglas are due back in the High Court this month in a separate case brought by the FMA.

They will be prosecuted alongside former directors Colin Ryan and Robert Sutherland.

The FMA alleges the men made untrue statements in the company's offer documents and also claims Nicholls and Ryan knowingly misled the market watchdog.

Tallentire was facing charges in this case, but pleaded guilty this week and will be sentenced next month.

Dominion Finance

Dominion Finance Group and North South Finance were operating subsidiaries of the NZX-listed Dominion Finance Holdings. Both offered property and commercial loans.

DFG went into receivership in September 2008, and NSF went into receivership in July 2010. DFH entered voluntary administration in October 2008 and was placed in liquidation in February 2009. It is estimated the group owes creditors $400 million.

In a case brought by the SFO, former Dominion Finance director Robert Barry Whale and former chief executive Paul William Cropp and an accused with name suppression face charges of theft by a person in a special relationship.

The case is to begin this month in the High Court at Auckland and is expected to last four weeks.

Former Dominion director Terence Butler was to have stood trial with the other defendants, but was excused in late November because he has cancer.

However,Butler is due in court in June for the hearing of an FMA case against him and five other former directors of the failed finance company.

The FMA alleges Terence and Ann Butler, Richard Bettle, Vance Arkinstall, Paul Forsyth and Robert Barry Whale misled investors by misrepresenting investment risks and made false statements in the group's registered prospectuses.

Belgrave Finance

Investors in Belgrave Finance were owed about $20 million when the company collapsed in May 2008, and receivers expect they will get back only about 21c in the dollar.

The SFO and FMA have charged four men associated with the company. Shane Buckley pleaded guilty in May to 19 charges of theft by a person in a special relationship, and four of making a false statement as a promoter under the Crimes Act.

He also pleaded guilty to one Securities Act charge of making an untrue statement and one Companies Act charge of making a false statement to a trustee. He was sentenced to three years in prison in August.

Stephen Smith and Raymond Schofield also faced Crimes Act, Securities Act and Companies Act charges but Schofield was granted a conditional stay of proceedings by the High Court in December because he has a terminal illness.

Smith's trial is due to start in April.

Belgrave's legal adviser, Hugh Hamilton, was charged in November on similar counts to the other men. His trial date has not been set.

Hanover

The FMA is taking civil action against former Hanover directors and promoters Mark Hotchin, Eric Watson, Greg Muir, Bruce Gordon, Sir Tipene O'Regan and Dennis Broit over allegedly misleading or untrue statements made in offer documents.

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.

It is 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.

Hotchin said last August that the FMA's case was ill-conceived, and relied on incorrect information in a forensic accounting report.

A trial date is yet to be set.

The SFO investigation into Hanover has been open for more than two years but no charges have been laid.

According to a Court of Appeal judgment, Hanover failed in mid-2008 causing substantial losses to depositors.

- NZ Herald

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