Loans disclosure focus of South Canty inquiry

Adam Feeley. Photo / Brett Phibbs

The Serious Fraud Office investigation into South Canterbury Finance will focus on four or five related party loans which may not have been disclosed to either investors or the Crown.

The SFO yesterday announced it was investigating Allan Hubbard's failed finance company. The company was put in receivership on August 31 resulting in a $1.775 billion payout by the Government.

The move comes as the SFO nears completion of its investigation into Aorangi Securities - another Hubbard company which was placed under statutory management by the Government in June.

SFO chief executive Adam Feeley said the investigation had come after inquiries by its new Fraud Detection Unit - set up by the SFO in March as part of its restructure in a bid to be more proactive about investigations.

"It was a fairly obvious case that we needed to follow up before SCF went into receivership and when it went into receivership we contacted the receiver," he said.

Feeley said he would not comment on the details of the specific transactions it was interested in as that could identify people that were either suspects or witnesses.

But the SFO was focused on four or five transactions where loans appear to have been made to related parties including that of the Hyatt Regency hotel sale.

While related party lending in itself was not a criminal act, if it was made without being disclosed either to investors or the Crown through its obligations under the trust deed or Crown deposit guarantee scheme it could be fraudulent.

"That requirement to disclose to investors or the Crown and any deliberate omissions could give rise to fraud," he said.

Feeley said the SFO was also looking at whether the transactions were undertaken on an arms-length basis - a requirement under the deposit guarantee scheme.

Feeley said the transactions occurred between 2005 and 2009, although it was possible there were others before 2005.

In a further twist, the National Business Review last night reported the SFO had visited its offices and demanded it hand over information relating to the Hyatt deal by 9am today.

South Canterbury appointed chief executive Sandy Maier at the end of 2009, as well as three new directors and new auditors.

Asked why it had taken the SFO so long to investigate South Canterbury Finance, Feeley blamed it on the organisation's workload.

"Bridgecorp, Capital + Merchant, Aorangi, Blue Chip - it has been a struggle. The volume is a big part of it.

"This is something where you could say we could have acted sooner - the reality is the volume of work we are facing now ... it's been tough."

Feeley said it was too soon to say how long the investigation would take but it could be between six and nine months.

He hoped to complete the Aorangi investigation soon.

Feeley said he had received a second report on Aorangi two weeks ago and it was now being reviewed with a number of small follow-up cases being chased.

Kerryn Downey, of McGrathNicol - the receiver for South Canterbury Finance - said that although he had been focused on stabilising the business he had come across some transactions which had been reported to the SFO and the statutory managers of Aorangi.

While he could not give details they involved the flow of funds from investors being misdirected.

"I can't comment on who is involved or who they were misdirected to," he said.