In doing so, the directors breached the requirement to make adequate disclosure to the public when seeking money for investment in their company. As the law stands, that requirement is backed by criminal sanctions for failure to comply.
When passing sentence, the judge said their offending was at the lower end of moral culpability. There was no intention to mislead and the non-executive directors (Douglas, Jeffries and Bryant) were concerned to deal with potential investors absolutely honestly and therefore were not reckless or grossly negligent.
But the omission of disclosure of concerns about Lombard's liquidity was a material misjudgment and was not a decision that they "could reasonably have come to".
As the offence is one of strict liability they were guilty notwithstanding the absence of intent.
The crucial point is there is an inherent conflict of interests, between the directors who naturally wish to see a continuation of the company's business and investors who wish to assess the risk of their investment and act accordingly.
Since then, Graham has disclosed that he had a $2 million shareholding in Lombard.
What impact did that have on his judgement as an independent non-executive director?
Was it actually a case of wilful blindness. The directors ignoring the obvious and convincing themselves that no disclosure was required to investors of the liquidity issues? The judge did not need to go there because of the strict liability nature of the offence.
There is a wider question to be asked: Is the criminal law the right response to this sort of conduct?
Certainly, as the judge observed, the fact of conviction is of itself a potent form of deterrence regardless of what sentence might follow.
But it is a very blunt instrument to influence behaviour, particularly when there is no criminal intent involved, and a costly and time-consuming one at that, with the prospect of appeals against conviction where the individuals may acknowledge an error of judgment but not the commission of a crime.
Notably, the law may be about to change in this regard. The Financial Markets Conduct Bill, currently before the Commerce Select Committee, proposes an escalating hierarchy of liability, with increased emphasis on civil liability, including civil fines, and reserving criminal consequences for intentional or reckless behaviour.
This would bring the law into line with developments in bigger markets, for example, in London the market abuse regime is being used to good effect to impose substantial civil fines on big market players who trade on inside information without having to prove they knew it was inside information at the time.
Of course this is all bottom of the cliff stuff, seeking to enforce standards of behaviour after the fact, necessary but ultimately unsatisfactory.
What else can be done to influence behaviour before the edge of the cliff is reached, when decisions are being made in the boardroom?
Critical to that is good corporate governance, a point reinforced by the Group of Thirty report, Toward Effective Governance of Financial Institutions published last month: "In the wake of the [global financial] crisis, financial institution (FI) governance was too often revealed as a set of arrangements that approved risky strategies (which often produced unprecedented short-term profits and remuneration), was blind to looming dangers on the balance sheet and in the global economy, and therefore failed to safeguard the FI, its customers and shareholders, and society at large."
In the UK finance sector, the regulator now interviews key directors before approving them to perform that function.
The conclusion drawn from the financial crisis is that you cannot leave it to the market alone to get those settings right.
Cronyism leads to poor choices and ultimately to poor judgments taking businesses, and investors, over the cliff.
Over the last two years, 39 applicants have withdrawn due to serious concerns identified by the regulator's interview panel.
Similarly, the market disciplines inherent in the disclosure-based investment product regime failed to protect either the integrity of the financial system or the interests of consumers.
UK regulators are therefore developing more intrusive tools, set to challenge firms over, for example, business models raising prudential issues, or the design of products likely to be detrimental to consumers.
The success of such judgment-based regulation, as it is termed, will depend on the capacity and capability of regulators to engage with the industry at that level.
A degree of skepticism would be wise at this juncture.
An alternative to regulatory mission creep is to put in place structural barriers to prevent, for example, conflicts of interests arising.
Coming back to the Lombard example, should non-executive directors be prevented from holding shares in the company in whose business they are inviting the public to invest?
It is thought sensible for executives to "have skin in the game" in order to moderate their appetite for risk.
But where the non-executives are relied on by investors to look to their interests as well as the company's,does it muddy the waters unnecessarily if they have too much to lose by calling a halt to the activities of the executive?
Another structural approach might be to prevent finance companies from raising money from retail investors, except by way of an approved collective investment scheme.
That would of course require the regulator to approve, at least, the management of the scheme.
Encouragingly, the Financial Markets Conduct Bill proposes the licensing of fund managers. Should it go further in order to prevent a repeat of the Lombard story?
Implicit in this debate is the recognition that a thriving market economy requires competent and active government , including regulators, working in partnership with business.
To deny that is to ignore the evidence and simply to cling to the wreckage of a free market ideology based on the now discredited economic theory of the efficient market.
Active government also requires good governance practices to avoid the charge of cronyism or, worse still, corruption. But that is another story.
David Mayhew is a barrister in London. In 2010/11 he was the Commissioner for Financial Advisers and a member of the Securities Commission.
