Strategic kept us guessing, says investor

Rowland and Marvyn Crone say they didn't know about several controversial loans. Photo / Mark Mitchell

An investor in the failed Strategic Finance knew little about precisely where his money was going.

Rowland Crone, a Paraparaumu retiree, said he got only general information from the financier which never specified the exact projects it had loaned money on.

He and his wife, Marvyn, reinvested thousands of dollars into Strategic only a few weeks before it declared it was in trouble and just six months before it went into moratorium in December, 2008.

Rowland Crone said yesterday that the precise nature of Strategic's loans - exactly which developments it loaned on and how secure its loans were - were not aspects Strategic stressed when calling for his money.

"To assess the real risks, investment statements did not give much updated meaningful information for investors. We were never fully informed by the finance company or the adviser," Crone said.

"I don't believe we knew enough. The investment statements we got from Strategic had pie charts indicating the general nature of the loans but not giving any real details of the projects. It just showed the amount of money which went into which cities in New Zealand and Australia and the general sectors like commercial or residential," he said.

For example, he was unaware that Strategic was pouring $69 million into Ponsonby's failed Soho Square or $75 million into the stalled expansion of the Fiji Beach Resort & Spa managed by Hilton. Fiji and Ponsonby never featured specifically in the accounts, just a reference to the Pacific Islands and Auckland, Crone said.

Crone said he certainly knew Strategic was lending money to Auckland developers but he was unaware of strong local opposition to the $250 million Soho office/apartment/shop/parking project by Layne Kells. Had he known his money was being loaned on projects like this, he would never have invested, Crone said yesterday.

Nor did he know about problems developer Neville Mahon had at Fiji's Hilton, unable to pay investors regular returns and writing to them about huge financing issues.

Strategic's annual report for the year to June 30, 2004 showed four pie charts:

* Auckland loan location: CBD 31 per cent, South and east 18 per cent, fringe city 18 per cent and other 5 per cent.

* Property type: 62 per cent residential, 27 per cent commercial, 4 per cent industrial and 7 per cent non-property.

* Loan location: Auckland 58 per cent, Christchurch 10 per cent, provincial 10 per cent, Australia 9 per cent and non-property 7 per cent.

* Security class: 71 per cent second mortgage, 22 per cent first mortgage, 7 per cent other.

John Fisk, PricewaterhouseCoopers receiver of Strategic Finance, said he talked to CB Richard Ellis real estate consultants in charge of selling the Soho project. Tenders for its sale close at 4pm, April 8.

Although Fortress Capital had primary security over the six titles to this entire street block where a five-storey hole had been dug, Fisk said he wanted Strategic to get its money back from Soho.

"A receiver has an obligation to get the best price so they are first and foremost looking at Fortress but they can't avoid getting the best price for the property," Fisk said of Bruce Whillans and Richard Horne at CB Richard Ellis.

He talked to the agency "to understand what the strategy was, how they were getting on with their marketing. They say there's a lot of interest so whether that converts into hard offers, it's yet to be seen. It's difficult to get funding for these things," Fisk said of the problems buyers face.

Whillans said this month he had six parties interested, examining supermarket, retirement and healthcare buildings.

Fisk described the Strategic job as challenging and hard.

"There are some complexities to the loan book, that's for sure. A lot of the deals are not straight-forward," he said. But he rejected the idea of being replaced by a statutory manager, a move promoted by Act's John Boscawen as the best way to handle the Strategic debacle.

"There's nothing that a statutory manager can do that we can't do," Fisk said of he and fellow receiver Colin McCloy.

Herald reader David Melrose was worried about Strategic's intricate related-party record as well as big pay packages to executives and staff when it was in moratorium: 12 people on $100,000+ and chief executive Kerry Finnigan on $550,000.

"The reported salaries of certain individuals would pale in comparison to the money these people have made taking Strategic money and lending it to themselves.

"Exposing some of the related party interests in the affairs of finance companies would help a lot of investors understand exactly where their money has gone. I have always held the view that your average reader does not really appreciate what a related party is. I also think most finance companies tried very hard to avoid receivership by obtaining moratoriums simply to avoid scrutiny of their related party dealings.

"It may even be that now they have placed enough time between their related party dealings and receivership. Had they gone into receivership when they should have a receiver may have found something quite wrong with the related party transactions. I have often thought there is probably a great service to your readers available if an investigative journalist could dig into some of these companies and find out certain information about the related party transactions, as I think Strategic investors would be pretty aggrieved if they knew more about the nature of them," he said.

Strategic's accounts show a long history of extensive interrelated party lending and deals, frowned on as showing extremely poor governance and corporate responsibility.

For example, Strategic Finance's redeemable preference share prospectus show related party Strategic Investment Group - whose directors now are Jock Hobbs, Marc Lindale and Graham Jackson - got $1.83 million in loan advances in the year to June 30, 2001.

SFL Properties, a fully owned subsidiary, got $5.61 million. Trans Pacific Investments, controlled by an unnamed Strategic executive director, got an $800,000 loan advance.

Trans Pacific Carlton, controlled by an executive director, put funds on deposit of $340,000. Blueline, a shareholder in Strategic Finance, made a short-term advance of $250,000 and a deposit of $500,000. Wakefield Investment Trust did the same and for the same amounts, as did Vardon Holdings.

SCIL Properties, controlled by two unnamed executive directors, got loan advances of $1,169,360. SIG Management, controlled by an unnamed executive director, got $37,793.

Financial commentators credited former Strategic chief executive Jock Hobbs with being the financier's poster boy, his name pulling millions into the business.

"Undoubtedly Hobbs' face and name have been a big drawcard for the company when attracting money from a sports-crazed public which ranks rugby players ahead of nurses, doctors and teachers in the most admired profession stakes," wrote the Independent's Chalkie on August 14, 2002.

STRATEGIC'S STORY
* Established in 1999.
* Privately-owned financier.
* Owes 13,000 people $417m.
* Investor update in mid-April.
* First receivership report late May.