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Lombard Finance sentencing part of efforts to protect investors, Crown says

Tougher sentences handed out to former directors of Lombard Finance & Investments were part of a regime to protect investors, and a major factor in underlying the seriousness of the case, according to the Crown.

Former Justice Ministers Doug Graham and Bill Jeffries, former PR man for the Queen Lawrie Bryant and Lombard's ex-boss Michael Reeves were appealing to the Supreme Court over the tougher sentences imposed by the Court of Appeal, though they weren't granted leave to appeal the actual convictions.

Counsel for the Crown, Colin Carruthers QC, told the Supreme Court in Wellington today that the Court of Appeal was right to impose stricter sentences on the former directors.

"Harm in the context of a strict liability regime is designed to protect investors as the primary consideration - that's a major factor which makes this a serious case," Carruthers said.

He refuted an argument put forward by opposing counsel, Jim Farmer QC, that the introduction of the Financial Markets Conduct Act last year, reserving criminal sanctions for only the most egregious offending, effectively nullified the need for custodial sentences for their milder offending.

"It is an entirely different concept, disclosure concept, from the previous regime," Carruthers said. "If you want to compare the Securities Act and strict liability penalty regime with the Financial Markets Conduct Act, you need to look at the whole of the section, not just a piece of one."

Farmer had earlier said the new law undermined the impact of the Lombard directors' sentences deterring similar behaviour, because what they were convicted of wouldn't attract criminal sanctions under the new act.

"The question of deterrence and denunciation in relation to this offence simply can't be something that can properly be said to have any great weight because the law has changed," Farmer said. "Nobody is going to be deterred by thought of going to prison if they honestly made a mistake."

All Lombard directors four avoided jail time when sentenced in 2012, when Justice Robert Dobson said the offending was much less serious than that involving other failed finance companies, such as Bridgecorp. They had been found guilty of making untrue statements in investment documents and advertisements in late 2007 and early 2008 and the Crown had initially sought jail terms.

The Appeal Court imposed custodial sentences after determining the original penalty didn't reflect the gravity of offending and didn't give sufficient weight to accountability, denunciation and general deterrence.

Jeffries was sentenced to eight months' home detention and 250 hours community work and Reeves was sentenced to nine months' home detention and 250 hours community work, having both initially been sentenced to 400 hours community work.

Graham and Bryant were each sentenced to six months' home detention and fines of $100,000 apiece. Graham had his sentence of community work reduced to 200 hours from 300 hours.

The 4,400 Lombard Finance investors owed $127 million at the time of the receivership have been repaid 13 cents in the dollar, and are looking at an estimated recovery of between 15 percent and 20 percent.

Chief Justice Sian Elias, and Justices Terence Arnold, William Young, Susan Glazebrook and Peter Blanchard reserved their decision.


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Comments and questions

Jim Farmer QC, advocating his clients cause, argues "Nobody is going to be deterred by thought of going to prison if they honestly made a mistake." This is surely untrue. An incompetent person not fit to be a director ought to be deterred from becoming a director in the first place if there is a real risk of strict liability criminality as a result of their incompetence. Most idiots, in their hearts, know they are idiots - the challenge to to have them focus on the risk of their idiocy rather than the competing ambition to be a member of a "club" and receive a provately funded pension - aka board fees. A significant "governance" issue in NZ is exacerbated by a population of incompetent "professional directors" (often identifiable by previous careers in politics, the public service, failed business careers of their own or their membership on an honours list) who by their network appoint one another to Board positions. This group already has limited fears as to consequences to themselves if they are exposed in fact to have no clue by losing investors money through their incompetence or failing to grow wealth through their lack of talent. A law change diminishing the risk of criminality will only encourage the breed. If anything the law change should be for harsher consequences and strict liability for a wider array of wealth drestructive beahviour by Boards to stamp out this breed of trough feeders who for so long have unwittingly sucked the life out of our capital markets and sucked the savings out of our retired population. Scaring such "would-be old boys" away from the board room should be a goal and the law should send a clear message to that effect. The new law does the opposite by removing strict liability criminality.

Get Real

What are you on ? These gentleman sought the very best of advice
the whos who of NZ, they were found to be honest and diligent
what else can any one Sane ask for. Lets get real all these Four did was be Directors of a finance Company along with 66 that failed with the CFC and following property crash.

Im am sure you have never been a Director as an issuer with all the skills required ?...... Clearly a few Judges are missing the same
skills, Where is the Institute of Directors : Wimps i am Sure...

The world is full of Know all Lite weight Arm Chair critics like you, who achieve JS

And what did these people achieve other than fueling the fire that started the whole credit crunch in NZ. This lack of accountability along with the arrogance of them is honestly disturbing.

If JS is to blow 100 million and blame it on the GFC god help us all!

One of the main judgement in law is,"Intent". These gentlemen I believe would have had no intention whatsoever to defraud contributors of their funds. In fact the situation was completely outside their control.

It is no defence to be ignorant of the law.

It is no defence to not realise the importance of certain sections of the prevailing Securities regime, the very regime that allowed these (convicted criminals) to solicit public money.

It is no defence to say "but I paid the best lawyers I could find to tell me this is ok ", or " that I can get [probably] away with this". And you dont see those lawyers joined to the offence, but perhaps they should be.

It is pretty clear to us all that these directors stayed in their roles because they wanted the money they were paid, and for no other reason. That comes with consequences.

And they have been convicted of making untrue statements so hardly the upstanding people some are trying to make them out to be