Any reasonable investor would not have been misled by offer documents for a contributory mortgage issued by Lombard Financial Services, the company's lawyers told Wellington District Court on Friday.
Lombard Financial Services and its directors, former cabinet ministers Bill Jeffries and Hugh Campbell Templeton along with Alan Lawson Beddie andMichael Reeves, face 27 charges under the Securities Act relating to a contributory mortgage offer for Village Care New Plymouth.
It is alleged Lombard Financial Services inflated the value of the rest home and misled investors by basing the investment's value on the "going concern" of the business rather than on the land and buildings, and did not adequately disclose this in offer documents in 2000.
The going concern valuation gave a loan to value ratio of 66.6 per cent, which was acceptable to most investors. But the valuation for the land and buildings would resulted in a much riskier ratio of 84.17 per cent.
It is also alleged that as part of the offer, Lombard included a debt security, namely a debenture over Village Care's assets taken by the company on behalf of the investors, without the required offer documents.
All have pleaded not guilty. No capital was lost by investors.
Defence lawyer Terence Stapleton said the debenture was collateral security taken by Lombard to better protect investors in the contributory mortgage and was not part of the offer.
He questioned, why, if the offer documents were misleading, the Securities Commission had not stopped their distribution.
Lead defence lawyer, Bruce Squire, QC, said the going concern valuation was proper given the nature of the securities and potential investors would have been deprived of critical information if it had not been included.
All the information was clearly presented in the documents and investors needed only to make some simple calculations to determine the valuation of the land and buildings and the resulting loan to valuation ratio, Mr Squire said.
The value of the security had not been inflated and was accurately stated in the valuation report. The defendants had no case to answer.
A decision on the application to dismiss the charges as well as the prosecution's application to amend some of the charges from "issuer to promoter" is expected in the coming week.
