Hotchin comes out swinging on 'ill-conceived' FMA case
BUSINESSDESK: Former Hanover Finance boss Mark Hotchin is challenging the Financial Markets Authority to prove the failed finance company’s investors lost out for any other reason than the collapse in the New Zealand property market and the global financial crisis.
Mr Hotchin took the unusual step of releasing a press statement which he said summarised a Statement of Defence filed with the Auckland High Court on July 31, in response to charges laid by the FMA from an investigation that began more than four years ago.
Hanover froze repayments in July 2008 on $296.5 million of investors’ funds, at a time when it claimed $550 million of assets.
The FMA action only pursues redress for depositors who invested $35 million with Hanover between December 2007 and July 2008.
Mr Hotchin has become a target of investor anger, in part because of the lavish lifestyle he was pursuing before the collapse – including the construction of a $43 million home in one of Auckland’s most exclusive harbourfront streets, Paritai Drive – and his role in a failed bailout deal with Allied Farmers in which investors swapped Hanover debt for Allied Farmers shares.
“The defence records that investor claimants would each need to show they invested on the faith of the relevant offer document and in reliance on particular statements FMA has alleged as untrue, and that any loss or damage was a result of the specific statements and not intervening events such as the GFC, deterioration in New Zealand property markets, the Hanover debt restructure or the Allied Farmers transaction.”
Mr Hotchin helped Allied Farmers principals tout the ill-fated sale of Hanover’s assets to Allied as a rescue plan for investors in late 2009. However, subsequent write-offs on the value of the Hanover assets saw the deal turn sour.
He will argue in court that “the facts of this case are completely different from other finance companies that have come before the courts, and the directors are confident they will not be found liable”.
“The boards of Hanover issuer companies actively monitored liquidity levels at every board meeting and, until mid-July 2008, were at all times satisfied with actual forecast cash levels and liquidity buffers and that the Hanover companies were being managed and assessed in a prudent and satisfactory way.”
Mr Hotchin said Hanover directors believe the FMA is relying “on incorrect information in a forensic accountant’s report that the FMA refuses to release to the directors”.
“This is resulting in an ill-conceived and expensive piece of litigation,” he said.
Successful prosecutions of the directors of a range of failed finance companies are mounting up, with some directors still arguing they fulfilled their fiduciary duties to investors at a time when market conditions were changing very rapidly.
Convictions against the directors Lombard Finance, including former Justice Minister Sir Doug Graham, are being appealed.