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50 charges: will Hubbard survive them?

Allan Hubbard, the shrewd, conservative, Timaru accountant, built his reputation on trust – often borrowing from and lending to people on the basis of an old-fashioned handshake.

That trust was shattered in the space of a heartbeat when authorities began probing his company, Aorangi Securities, last June and later Hubbard Management Funds (HMF).

Yesterday the Serious Fraud Office laid 50 charges of fraud against Mr Hubbard, 83, while sparing his wife Margaret (known as Jean) and former or current directors of the two companies.

For more than 30 years Aorangi Securities was one of Mr Hubbard’s lending vehicles for his wealthier clients.

Yet besides its now hapless investors, few people outside his inner circle knew anything about it.

Nor did many people know about HMF, an investment management business with funds in several NZX-listed companies.

Indeed, it wasn’t until statutory managers got hold of Mr Hubbard’s books did the SFO learn about HMF, which by all accounts turned into a basket case when the global financial crisis hit.

Even Mr Hubbard’s investors didn’t know HMF existed in its current form until March 2010, when their investment statements arrived on freshly printed HMF letterheads.

Aorangi took in $96 million of investor funds while HMF managed about $80 million.

Certainly, thousands of South Canterbury Finance investors had no idea of these sideshows as they flocked to place their money in the finance company based on Mr Hubbard’s reputation.

It has since become clear that the same “peculiar” approach to business shown in the statutory management reports also took place at South Canterbury Finance.

The infamous Hyatt Hotel shenanigans, for example, venture capital loans to start up biotechnology companies, and Mr Hubbard’s personal management of South Canterbury’s “B Stock ledger” stacked full of related party loans, did not make good reading for the taxpayer owed more than $1.5 billion under the retail deposit guarantee.

Perhaps most telling of charges laid yesterday was the alleged theft by a person in a special relationship.

SFO chief executive Adam Feeley made it clear that Mr Hubbard's frugal lifestyle did not amount to a defence.

“We have to consider matters such as whether deceit has occurred; the losses caused by that deceit; and whether the facts meet the prescribed elements of one or more criminal offences,” Mr Feeley said.

This is an extremely sad day for Mr Hubbard and his followers, for he truly is an altogether different creature from some of his other finance company director counterparts.

Mr Hubbard was born into an impoverished home in North Dunedin on March 23, 1928, and started work as an office boy at Trustee Executors in 1944, where he stayed eight years.

He founded chartered accountancy firm Hubbard Churcher and Co in the early 1950s, and formed South Canterbury Finance in about 1960 – after buying a Timaru finance firm – and in the same year bought his first farm.

He famously got about in an old green Volkswagen car he bought in 1968, while he and his wife lived in a modest house in Timaru. They still do.

Last year Mr Hubbard was dropped from the National Business Review Rich List, having had his wealth estimated at $550 million in 2009.

He was the majority shareholder of Southbury Group, which owned South Canterbury Finance, but the 82-year-old was forced out of the chairmanship of South Canterbury in late May 2010.

Southbury Group and a related company Southbury Corporation were both placed in receivership following South Canterbury’s demise last August.

Together the two companies owed South Canterbury $184 million. Difficulties recovering these loans and other related party lending were a key factor in the Treasury recently increasing the government’s provision for losses under the retail deposit guarantee scheme by $310 million to $1.2 billion.

In South Canterbury’s last week, Prime Minister John Key, conspicuously absent yesterday, as he was last June, would make this point:

“The degree of back office book keeping and general observance of standard accounting practices at South Canterbury was in line with Mr Hubbard’s other private companies, currently in statutory management and subject to a Serious Fraud Office inquiry”.

In relation to South Canterbury Finance, the Serious Fraud Office is currently talking to witnesses with some interviews pencilled down for next month.

More by Duncan Bridgeman

Comments and questions
38

Firstly Aorangi and HFM are basically private companies looking after funds for either long term family clients or high net worth individuals.

Investors did not invest $96M into Aorangi and $80M into HFM. they invested far less than that and the balance was made up with profits that Hubbard generated.

None of the investors complained except the one mysterious Geraldine based potential investor - who to this day remains a mystery.

Hubbards investment strategy was not mainstream with these funds - ie Aorangi had a huge rural angle and also involved funding new dairy farmers - so high risk and high return. It also had fractional ownership structures where some investments were very much minority investments in farms. HFM invested in equities etc - some very early stage and high risk.

There is no crime for this investment strategy and in fact NZ relies on these investment funds to get new farmers and companies up and running. This strategy is no different than the Governments own NZ Venture Investment Fund http://www.nzvif.com/

In fact Hubbards funds have been very succesful compared to the $200M invested in the NZVIF funds where most of the Governments money has been lost or is still in dysfunctional early stage companies that have no show of a return to the Government. Meanwhile many of the Seed Co Investment Fund partners feed off these funds for their daily income. The difference here is that these people are not accountable when in effect they are rorting the Government fund for personal gain.

And finally Hubbards accounting methods are obviously old fashioned but if none of the investors are complaining why all the fuss??

The only answer can be that Hubbard pissed off a few Government officials over time and these weasels have set up a master plan to screw the old boy.

All the feed back you hear from the Accounting profession about Hubbards old fashioned practices and investment strategies don't stack actually. These same professionals at the big 4 accounting firms were the accountants and auditors at Hanover finance, Strategic Finance and many more failed finance companies which lost 90 to 100% of the investor funds.

For the record on a worse case scenario the Hubbard companies and SCF have lost an average of 50% and that is after the accounting firms took control and liquidated assets i the wrong investment cycles.

These same accounting firms all collectively joined in the great Hubbard rape and have all been allocated jpbs whereby they have full access to the trough for their fees.

If Hubbard is guilty then they are more guilty

And finally Hubbards accounting methods are obviously old fashioned but if none of the investors are complaining why all the fuss??

Perhaps the fact that the government is on the hook for $1.5billion could be what the fuss is about? All 4 million of us are now investors.

Are you a retard or what??

He has been charged for Aorangi and Hubbards Fund Management offenses.

Think before you speak sonny and you might not continue being a sheep and regurgitate crap.

And that accepting 'old fashioned accounting methods if investors didn't complain' sets a slippery slope for the future. The guy holds a position of trust and is subject to standards just like the rest of us. If he doesn't want to be held accountable then he shouldn't have got i8nto the business in the first place.

Yeah a bit like the Accounting professions double standards - except they are immune from prosecution.

You won't see the big 4 accounting firms being held accountable for their incompetence with Hanover Finance and Strategic Finance and the other 50 failed finance companies will you??

Why is that??

Their incompetence has cost hundreds of millions of investors dollars. If they had of done their job properly ( which by the way they were handsomely rewarded for ) the finance companies would not have gone on to rort the investors as badly as they have

You sound as if you're defending him. "Johnny did it first" is something we used to say when we were children. Alan was a crook: end of story. New Zealanders got sucked in through a niave a pathetic cultural bias for the 'thrifty'. Alan was nothing of the sort. In fact, driving the same car for 43 years, when you can well afford to replace it is extravagant, flamboyant and irrelevant. I wonder how often he asked the mirror 'who is the fairest of them all'?

I'm sad for you, but you've been had. Alan un derstood the small minded meanness of the New Zealander and took advantage of you. Get over it. That's all.

Now that Feeley is attacking the big guys instead of the minnows he has targeted to date, one assumes that the next cab is Hotchin and Hanover Finance followed quickly by Strategic Finance.

Unless ofcourse the big 4 accounting firms have done a better job of hiding the facts than Hubbards accountants and auditors did.

The partners of the accounting firms responsible for these finance companies accounts and audits should be experiencing sphincter problems for the next few years

Hubbard is too strong and stoic for this to kill him

He has been consistent all the way through that he is innocent and his story has never deviated. He will just see this as his next challenge. This will just make him stronger and he will want to see it through.

Famous last words.

Famous last words!!!

Just like his Beetle Bug, Hubbard should be stepped on and squashed.

Better ensure the electricity to the dialysis machines is backed up.

If the SFO and FMA had something on Hanover they would have moved as quickly as they have on Hubbard. Perhaps its because this guy ended up costing New Zealand taxpayers over $1billion.

Better ensure the electricity to the dialysis machines is backed up.

If the SFO and FMA had something on Hanover they would have moved as quickly as they have on Hubbard. Perhaps its because this guy ended up costing New Zealand taxpayers over $1billion.

You say .."this guy ended up costing New Zealand taxpayers over $1billion." - No he hasn't... the "$1billion" is to investors because a government wouldn't let them burn and die when SCF etc collapsed.
But in any case this amount is before loans are repaid, the final amount will likely be much less.

Blogger Cactus Kate has an interesting perspective on this ...

http://asianinvasion2006.blogspot.com/2011/06/hubbard-now-public-enemy-1.html

Cactus K is spot on. But I think even she would say fraud is fraud irrespective of whether there was a taxpayer bailout and irrepsective of whether or not the fraudster had clever lawyers doing a bang up job papering over the fraud. Hotchin is the worst kind of disgrace - the fact that he was smarter about it than Hubbard doesn't excuse it - quite the opposite.

Coooeee, Tribeless, we know you are out there, we are still waiting, time to man up........

$310m runs a VW beetle for a millenium

These defenders of Hubbard remind me of Columbian villagers scrambling to protect their drug overlord benefactor. I mean so what if he had an ego and was generous and was kind and was philanthropic etc? All dictators exhibit those characteristics to their chosen ones. If the funds for his way of life were extracted fraudulently he needs to go down. The problem though is he was probably an arrogant man who believed he was above dotting i's and crossing t's. Therefore an easy target. His wrongs may pale into insignificance alongside Strategic's or Hanover's, the difference though is their owners knew what they were doing and where it would end up and planned their affairs to fit. The real test for the SFO if they want to catch the real uber bad guys will be joining the dots or at least allowing a judge to do so. It won't be in the paper trail. It will be in understanding the timing and rationale of transactions.

Something I have been disappointed not to see debated is the extent to which a private citizen can take risks around regulations in cases of emergency.
Private citizens dont always have the luxury of changing the formal laws as quickly as changes in times might require.
Even if Hubbard is proven to have breached laws is there a possibility this was done under the increased pressure of the world financial crisis in an effort to get a 'better than collapsing' result.
There is factual evidence of benevolence and integrity around his operating style including issues with paperwork.
After all, any argument that Hubbard is responsible for losses to taxpayers is immediately trumped by the fact that our own government which we voted for chose to guarantee the group.

We know Paul Francis = Paul Carruthers, and we know you're barking up the wrong tree again with this misinformation. Hubbard charge with fraud, not paperwork failures.

Sorry buddy. I have no association with Mr Carruthers for no reason.
My question is speculation but I think on the facts are a fair question.
Charges are not evidence of guilt any more than the resignation of a government minister.

The sarcasism is dripping everywhere.
It appears this elderly guy was trying to save his company from the savages of today.
Why was the complaint laid in the first place? Who was behind it? Interesting Heartland Bank has now got Mr Hubbard removed.
Why were govt officials creeping round Timaru in 2009 hoping not to be noticed?
Appears from Lachie McLeod onwards that they all had their fingers in.
When will the full truth be exposed?
Can't tell me SCF is not part of the problem.
Not saying Mr Hubbard is not lily white but he is not a thief.
Look to other companies that were leading the high life and the SFO can't get a conviction!
Blue Chip/Bryers appear to be one of the worst. Maybe the Aussies will get him.
Good on Hubbard supporters. Think a lot pretty jealous because they don't have supporters like them. NZ used to stand up for each other but today, it's give me, give me, give me.

Investment statements issued prior to March 2010,were headed either Aorangi Securities Limited,or Hubbard Funds Management.
Nothing changed.

Where is the evidence of fraud in Duncan's story? I can't see it.

The story is that the SFO have brought 50 charges. The rest can wait for a courtroom.

Accepted - but innocent until PROVEN guilty,

You are right. But that's very different from advocating his innocence as many of his disciples do without thought.

The detail was foreshadowed a year ago with diagrams, company names, representations, undertakings and transactions. Chances are those exact transactions are included in the 50 charges, along with some of the transactions and issues reported by the Statutory Managers in the time since then.

Paul Francis seems to think "factual evidence of benevolence" is relevant? Good grief. All that matters is the objective evidence the SFO can bring before a Court and what Mr Hubbard has to say to that. His age, kindliness to his neighbours cat and "benevolence" are irrelevant. Likewise, if he was an angry, punchy, ostentatious prick...that should also be irrelevant.

I think evidence of his benevolence and integrity are relevant 'fabric' to any charges that include factors such as Mr Hubbards intentions.
However my comments were intended towards the context of the general community where we are evaluating these events.
It is a critical part of this story that Hubbard is not just any man going to trial but a man with an unusual reputation strictly at odds with the charges being laid.
I have never advocated his innocence but I have attempted to defend him.
At the end of the day we took his stuff without charging him first. On the first day his wife couldnt buy food.
Weve held him for a year financially without bail still without any charges laid.
Now when charges are finally made public after evidence of conflict of interests and officials resigning, I do want to reiterate that there is evidence of his benevolence and integrity.
And Single Malt, if he goes down on some or all charges Im keen to find out whether in reality his crime was technical only - the financial equivalent of the kind of breaches of the health and safety act we have all applauded around the Canterbury Earthquakes. You know the type - hero takes illegal risk to save others in danger?

You seem well intentioned proponent of integrity and benevolence. But seriously, instances of those characteristics are distractions only. What sort of a message would it send if a Bernie Maddoff for example was defended on the basis of the millions he gave to charitable causes (he did) in order to keep the fiction of his Ponzi and ego alive and well? How is this different? If Hubbard is innocent he presumably has the means to defend himself successfully - I hear a major NZ law firm is engaged by him.

AI, agree entirely. Somehow many people want to believe Hubbard was a good man. He may well have been to some. People who rob peter to pay paul, redistribute wealth and keep passing the money around never having to finally account for it are very likely running ponzi schemes.

People loved getting the high(er) returns from Hanover, especially those who got out before the music stopped playing and everyone realized there were not enough chairs.

Hubbard created a myriad of companies, probably in the first instance to run different investments / strategies, but that myriad tangled web finally caught him out, and the taxpayers of NZ are going to wear the consequences of letting him expand his paper based good faith lending and tithing outfit into a $1B plus juggernaut destined to crash and burn.

Bless his soul, Hubbard is doomed and will probably succumb long before justice is served either way.

How prophetic and how unfortunate that we didn't get to see his performance in court. Nothing like a comedy to lift the spirits.

Good to have a trial to clear the air.

All those complaining about poor old Mr Hubbard and how the evil Big Four are never taken to the courts should check out what happened with a certain EY partner following the Feltex case.

Hubbard may or may not be guilty, but Bryers certainly was. Anyway, Hubbard need not worry as he'll get a fine and community service just like Bryers did and never have to do it. In the meantime his little followers like Garry Schultze continue to ply their trade in New Zealand and nobody cares.