Hanover director Mark Hotchin was duped by a Ponzi scam described as "Looney Tunes investments" - but he gained a court order to keep the information secret from investors.

Mr Hotchin was a victim, in his private capacity, of sham get-rich-quick schemes in 2002. The director and co-owner of the Hanover group of companies this week withdrew his opposition to a legal challenge by the Herald to overturn the suppression order.

Rotorua man Bill Papple, along with his wife Lee, and Tina Marie West were jailed in 2005 for defrauding investors of more than $15m.

Kerry Finnigan, a director and chief executive of the Hanover group at the time, was also a personal victim of the scam which was prosecuted by the Serious Fraud Office. Mr Finnigan had also succeeded in having his name suppressed.

Together they invested more than $680,000 of their own money in the scams.

Both men provided affidavits for the prosecution, Mr Hotchin gave evidence at depositions and Mr Finnigan at depositions and the trial. They were among only four of two dozen victims who gave evidence to be granted final name suppression.

In giving up their opposition to the Herald's application this week, their lawyer said it should be made clear the men were "victims of a serious crime".

When the Hanover bosses successfully argued for permanent name suppression, their lawyer, Bruce Stewart, QC, described the scam as "Looney Tunes Investments".

Mr Stewart said his clients worried about how public knowledge of their involvement in "Looney Tunes investments" would impact on their businesses, according to a Rotorua Daily Post report of the January 2005 hearing.

If business confidence in the men dropped, Mr Stewart said it could result in their businesses failing and staff members being made redundant.

They gained interim name suppression in March 2004 and permanent suppression on 17 February 2005.

Hanover advertisements have emphasised trust, reliability, prudence, care and sound decision-making.

Mr Hotchin said in his 2003 affidavit requesting name suppression that he believed if the facts of his having invested in the scams became known:

- "There would be concern over the investment strategies adopted within the Hanover organisation because of the loss of credibility and damage to my reputation."

- "Investors and third parties with whom Hanover and its entities deal could well come to the conclusion that if one of the directors of Hanover was making inappropriate investment decisions personally then he could well be doing the same for the group. This in turn could cause a lack of investor confidence and support potential for a run on funds, the possible collapse or restructure of the Group with obvious impact on its 600 employees."

- "The commercial relationship Hanover has with commercial partners would also be placed under stress. In those circumstances I anticipate that my fellow shareholder [London-based Eric Watson] and director could well request my resignation as a director."

Mr Finnigan filed an almost identical affidavit.

The SFO did not oppose the request. The local paper argued name suppression should be refused as other witnesses who applied did not get name suppression and the applicants had not given compelling reasons.

But there is no indication in the decision by District Court judge James Weir that the judge considered that investors and potential investors were entitled to the information to make a balanced assessment of their capabilities.

Mr Hotchin and Mr Finnigan were prominent figures in finance companies which failed. Together the ventures had a billion dollars of investors' money at risk.

Millions of dollars were invested in Hanover after name suppression was granted and at a time when its advertising was based on claims of prudence, careful strategies and the experience of its managers.

By suppressing an example of poor judgement by a co-owner and director and an executive director, Hanover investors were denied means to measure its claims of prudence and care.

Hanover was the largest privately-owned finance company in New Zealand when it failed in 2008, freezing $554 million affecting 13,000 investors. The investment is now worth a fraction of that amount.

Mr Hotchin and Mr Watson received $91m in dividends before the company collapsed, although Mr Hotchin has claimed they put in more than that.

After leaving Hanover, Mr Finnigan became chief executive of Strategic Finance and was in that role when it fell over in 2008 owing $452 million to 13,000 investors.

The Ponzi scam the Hanover pair fell prey to lured victims with the prospect of returns as high as 100 per cent a month and promises that principal invested was guaranteed.

The deals were characterised by poor explanations of how they worked (investors were told the schemes were confidential) and a lack of paperwork, the SFO told the court.

In September 2002 the Securities Commission banned the companies operating the scam from advertising, stating that the adverts were illegal and "had all the hallmarks of prime bank instrument schemes, which are known to be fraudulent" and soon after closed down the companies.

By then Mr Hotchin and and Mr Finnigan had already made their investments.

They were recruited by a business acquaintance, Lloyd Johns, who was a relative of one of the fraudsters.

Mr Johns gave evidence that he had thought the investments were real but when asked about one of the deals offered which had involved US$10 million and 120 per cent interest over two months, he told the court that he now considered it "absurd".

Referring to the Hanover pair and another businessman he recruited, Mr Johns said his acquaintances had commented that there was "bugger all information" but that had not stopped them from handing over the large sums of money.

The SFO told the court the scams attracted $14.6 million of which $8.3 million was lost.

Half the money was used to make bogus interest payments to investors, a quarter was spent by the scam operators on personal items such as jewellery, overseas travel and real estate, and a quarter was put into "crazy schemes that failed miserably" that were found on the internet.

An example was an investment with Golden Financial Specialists Inc in Latvia, said prosecutor Philip Morgan, QC. "It's like taking it to the casino and putting it on number one on the roulette wheel and crossing their fingers.".

In cross-examination one of the Hanover businessmen admitted he was not your "average Joe Bloggs" but denied he was a professional investor.

"My expertise is in business management. I position myself as a professional director rather than a professional investor."

Asked why he did not seek advice on his investments from his expert colleagues, he said he considered himself expert and qualified enough to make decisions about his private affairs.

The other Hanover businessman, asked why an executive of a large financial institution would "chuck half a million or so" at schemes offering unbelievable returns and which he didn't fully understand, told the court he was used to people honouring their contracts and their word.

"That's how you survive in business."

By the time Mr Finnigan left Hanover it had become clear to them that they had been duped in a Ponzi scam. But Mr Hotchin told the Herald in February that he remained friendly with Mr Finnigan and it was "quite likely" they would team up again.

What is a Ponzi scheme?

- Named after Charles Ponzi who became notorious for using the technique in early 1900s.

- A fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organisation, but from their own money or money paid by subsequent investors.

- Usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. It requires an ever-increasing flow of money from investors to keep the scheme going.