A property developer's plan to buy a finance company and transfer assets to it was allegedly "from the beginning a conspiracy to commit criminal offences", the High Court heard today.
Paul Bublitz and his co-accused, the court heard, allegedly stole or permitted the theft of capital from two now-failed finance companies - Viaduct Capital and Mutual Finance.
These companies went into receivership in 2010, owing investors a total of $17 million.
Bublitz - with co-defendants Bruce McKay, Richard Blackwood and Lance Morrison - on are trial in Auckland and have pleaded not guilty to the charges they face.
Bublitz, McKay and Blackwood have denied charges of theft by a person in a special relationship, making false statements in a prospectus and making false statements to a trustee.
Morrison, Bublitz's long-time accountant, has denied charges of theft by a person in a special relationship and making false statements in a prospectus.
McKay and Blackwood served as directors of Viaduct Capital while Morrison and Bublitz were on Mutual's board.
Crown prosecutor David Johnstone alleged during the trial's opening this morning that Bublitz bought and used the two finance companies to support his property investments.
The other defendants in the case allegedly helped him, the Crown lawyer told Justice Mark Woolford
The men deliberately misled investors and potential investors of Viaduct and Mutual by failing to disclose a series of related party transactions entered into for their benefit rather than the benefit of the finance company, Johnstone alleged.
The defendants, Johnstone alleged, each either stole or permitted the theft of a substantial part of finance companies' capital.
Bublitz, a property developer, built up a portfolio of assets during the early-to-mid 2000s, which were held by a group of companies and trusts, called Hunter Capital.
By 2007 when the global financial crisis hit, Bublitz - "asset rich but cash poor" - found himself with an illiquid asset portfolio, Johnstone said.
The following year, Bublitz allegedly began working with Nick Wevers. Wevers was initially charged alongside the other accused but died suddenly only days after these were laid in 2014.
Wevers and Bublitz allegedly discussed creating a distressed asset fund, Johnstone said, which potentially involved the purchase a finance company that they would jointly own.
Hunter Capital would sell some of its assets to the finance company and money from public investors would provide the cash-flow Bublitz needed to develop his property projects, Johnstone alleged.
It was essential that the finance company in question was part of the Government's Crown Retail Deposit Guarantee Scheme, which could bail out investors if a company failed.
"Inherent in their plan was concealment of related-party transactions," Johnstone said.
Wevers and Bublitz allegedly knew about negative attitudes toward related-party deals and they wanted to buy a finance company, transfer Hunter Capital's assets but not disclose the nature of the transactions, Johnstone told the court.
Johnstone alleged that from the beginning the plan amounted to a conspiracy to commit criminal offences.
McKay, Johnstone said, became party to the alleged conspiracy in December 2008, the month when Wevers and Bublitz were looking to purchase Christchurch-based Priority Finance.
To achieve this purchase a shelf company called Phoenix Finance Holdings was set up, the court heard.
Because this shelf company had no assets, Bublitz' Hunter Capital would loan it money. Because Hunter Capital had poor liquidity, it would get that money by selling some of its assets to Priority, Johnstone alleged.
After the transaction settled in February 2009, Priority's name was changed to Viaduct Capital. Wevers and McKay became directors of Viaduct. Blackwood began working for Viaduct in March 2009 and took over as a director when Wevers resigned in September 2009.
Bublitz, Johnstone alleged, was not a named director of Viaduct and was described as a consultant. He earned $240,000 a year, the court heard. This was the same as Wevers, who was Viaduct's chief executive.
The Crown alleges Viaduct's prospectuses and investment statements issued in 2009 were all "fundamentally deficient" and did not reveal important parts of the company's operation.
In April 2009, Treasury withdrew its guarantee under the Crown's scheme from Viaduct.
After that happened, Bublitz, McKay and Blackwood further developed their conspiracy to involve the purchase of another finance company which still had the backing of the Crown scheme, Johnstone said.
Hunter Capital purchase Mutual Finance in December 2009, the court heard.
The judge-alone trial, before Justice Woolford, continues and is expected to take up to 12 weeks.
This morning, just before the trial was to begin, another defendant Peter Chevin pleaded guilty to 10 charges of theft by a person in a special relationship.
He will be sentenced next month and will not be called as a Crown witness.