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Nathans Finance director John Hotchin and two of his co-directors made their first appearance in the Auckland District Court yesterday on criminal charges relating to the failed finance company.
The Securities Commission alleges that Hotchin (the brother of Hanover founder Mark Hotchin), Donald Young and Kenneth Moses misled investors by making untrue statements in the company's December 2006 registered prospectus and investment statement.
Nathans Finance went into receivership in August 2007 owing $174 million to 7000 investors. So far just 2.5 cents in the dollar have been repaid.
Hotchin faces three charges under the Securities Act. Young and Moses face six charges each. The charges carry a maximum penalty of a $300,000 fine or five years in prison.
Proceedings have also been filed against a fourth director, Mervyn Doolan, who has not yet been located. He is believed to be in Australia.
In addition, the directors face civil proceedings under the act that could see them each forced to compensate investors up to $500,000.
The Securities Commission alleges the directors claimed Nathans had no bad debts, it had adequate liquidity, its lending was diversified, and that it made loans and managed them in accordance with robust policies. The commission also has concerns about statements on related party lending.
Paul Davison, QC, appearing for Kenneth Moses, said his client denied the charges.
The Serious Fraud Office (SFO) is also conducting an investigation into Nathans following a complaint by the company's receivers Pricewaterhouse-Coopers.
The SFO says Nathans' largest debtor is its parent, vending machine franchise company VTL, which is also in receivership.
Nathans advanced funds sourced from the public to VTL and its operating subsidiaries in Australasia and the United States. The SFO says at the time of the Nathans receivership, VTL owed it $112 million, while parties associated with VTL's business activities owed it a further $59 million.
VTL's receivers said this week that there was likely to be a "significant shortfall to the secured creditor, and it is therefore unlikely that any funds will be available for unsecured creditors".
The receivers have also notified the US Securities and Exchange Commission about "matters of concern relating to dealings in the US".
In court yesterday, the three Nathans directors' lawyers pointed out what they saw as the Securities Commission's "utilisation"of the media in announcing the charges and details of its case. Hotchin's lawyer said his client was in the United States and learned about the charges from reading the newspaper, as did his elderly mother.
Charges were laid on December 12. The Securities Commission did not put out a press release until December 23.
