Justice Robert Dobson would do out-of-pocket investors in Lombard Finance a favour if he simply slaps Douglas Graham and the three other directors with significant financial penalties and a community service instead of sentencing them to jail.

This is not a palatable position to take.

Right now investors are baying for the blood of Graham who is Lombard Finance's former chairman and fellow directors Bill Jeffries, Lawrence Bryant and Michael Reeves.

They have waited a long time for this judgment. Many have lost their life savings. Some - like investor Paul Wah - want to see a class action against the Lombard Four in the wake of the judgment. Others want to see court action taken to preserve the directors' assets prior to a civil case being filed.


The Financial Markets Authority also filed a civil case against the directors over the collapse of the company. That has stayed in the background while the criminal action was heard. But the market watchdog does have the ability to get a liability statement from the courts after sentencing occurs.

The upshot could ultimately be that the Lombard Four will have to stump up assets to help assuage investors' losses.

There is of course a lot of merit in sending a judicial message that former Justice Ministers Graham and Jeffries (in particular) will not be given a soft ride and will do "time" after they were found guilty of making false statements in Lombard Finance prospectuses.

The argument goes that as both these men have held the role of Justice Minister anything short of a custodial sentence would look like the establishment is favoured over lesser types.

Graham, Jeffries and Bryant in particular have all had a major fall from grace.

Both Jeffries (Labour) and then Graham (National) were Justice Ministers during a period where the NZ securities and capital markets were known as the "Wild West".

I had dealings with Jeffries during the fallout from the 1987 share market crash and Graham after the 1990 Bank of New Zealand bailout raised questions over the behaviour of some major NZ names.

I wasn't particularly impressed with either.

Both knew there were major issues and that the system was being rorted. But the sharemarket reforms that were originally signalled by former PM and Justice Minister Sir Geoffrey Palmer did not go far enough.

Both Ministers also seemed captive to forces in their respective Cabinets which opposed heavier regulation.

Bryant, a former PR man, also has cachet in top circles - particularly in Wellington where he hung out his PR shingle for many years.

After reading Justice Dobson's judgment it does appear there may be a case for a stronger punishment of Reeves, who took board directions rather lightly in one instance cited in the judgment.

Many of those commenting on various websites also want Graham stripped of his knighthood.

But while there is plenty of bloodlust in the community at large at the downfall of the Lombard Four, they should put their hard hats on and consider which particular punishment is more likely to ensure they get some of their lost savings back.

The judge found the former Cabinet Ministers, Bryant and Reeves, guilty of making false statements.

The most disturbing appeared to be with a December 24, 2007 prospectus and a later amended prospectus which omitted significant adverse liquidity issues, including the company's deteriorating cash position since September 30, 2007.

But on balance I am inclined to think that Justice Dobson was on the money when he said that the charges proven against the "Lombard Four" were "a material step away from the seriousness required for a custodial sentence".

Here's the thing.

As the judgment makes clear the offences were ones of "strict liability" so that the Crown was not required to prove any form of mental intent to distribute documents that were false or misleading. Nor was it any part of the Crown's case that the conduct by the directors in issuing the offer documents was other than honest.

Chapman Tripp's Roger Wallis points out that if the Financial Markets Conduct Bill (still working its way through Parliament) had been in place at the time, the Lombard Four "may have avoided guilty verdicts".

That's because the bill reserves criminal sanctions for misconduct which is "deliberate and reckless" . Jeffries has said he will appeal Judge Dobson's finding.

Graham has not indicated yet what his response will be.

The judge will deliver the sentences on March 29.

I doubt that John Key will strip Graham of his knighthood without a great deal of thought. But it would not surprise me if Graham tenders it up himself if he decides not to appeal.