Four in court on fraud charges

By PAM GRAHAM

Four professional men pleaded not guilty in the High Court at Auckland yesterday to fraud and money laundering charges that carry jail terms of five to seven years.

John Reid, Peter Russel, Peter Connolly and John Currie were involved in a scheme marketed to rich individuals that offered tax-deductible expenses during its 10-year life with the bulk of the investment paid in the last year.

Unlike the Trinity tax case, also being heard in the High Court, which contests tax liabilities, this case is criminal and explores whether the investment plan was implemented as pitched to investors.

Up to 75 loss-attributable companies were set up by investors to tap the scheme and $16 million was invested.

"What might have been a legitimate, if marginal, tax scheme was, however, rendered a fraud on the investors by the fact that insurance and loan transactions were entirely fictional," said Mike Ruffin, for the Serious Fraud Office.

There were two schemes. One was to buy shares in technology company Digi-Tech and another for New Zealand Investments Ltd.

Investors were to buy $1 million of shares over 10 years, but paid more than 80 per cent in the last year.

They took out an insurance policy guaranteeing the shares would be worth $3 million at the end of the period.

The premiums were mostly paid with borrowed money, providing deductible expenses on both the loan and premiums.

The SFO alleges that there was no genuine bank and no reputable insurance company behind the scheme.


Investors unwittingly filed false tax returns to the Inland Revenue.


"The Crown alleges that Messrs Reid, Currie and Connolly were in de facto control of the offshore entities. They were the ones giving the instructions," Ruffin said.

The court is hearing two charges of conspiring to defraud and 19 charges of money laundering.

Reid was a principal of investment bank Milloy Reid Wong. Russel is a chartered accountant and was a principal of Gosling Chapman. The scheme was marketed to the firm's client base.

Currie is a lawyer and accountant working in Hong Kong. Connolly came from Britain.

The Crown alleged that the overseas-based men helped provide the appearance that there was an independent insurer and bank behind the scheme.

The investment plan had three components. The first was the purchase of shares over 10 years through a loss-attributing company. The second was a "loss of profits" insurance policy, and the third was the $1 million of premiums payable for the policy.

Investors paid $40,000 of their own funds for the insurance policy and borrowed the rest.

The case is being heard before Justice John Fogarty and is expected to take six weeks.