Timaru to host 'Hubbard's Mob' trial
Timaru will host the country’s biggest white-collar fraud trial when well-known local businessmen involved with the city’s flawed financial darling, South Canterbury Finance, line up at the High Court next February.
‘Hubbard’s Mob’ – SCF’s chief executive Lachie McLeod, chief financial officer Graeme Brown, accountant Terry Hutton and directors Ed Sullivan and Bob White – this week had their trial elevated to the High Court, where it is expected to run for 12-16 weeks.
The five men have been charged by the Serious Fraud Office with an alleged $1.7 billion fraud.
In his decision this week to elevate the trial to the High Court Justice Paul Health said: "An allegation that a company director has made deliberately false statements to induce members of the public to invest money in a company which ends up in receivership owing some $1.58 billion to its investors is extremely serious,"
"The gravity of the alleged offending is heightened when one has regard to the allied allegation that false financial statements were used to gain entry to a guarantee scheme for which, the Crown alleges, South Canterbury was not, in fact, a qualifying applicant," he said.
To put the allegations in perspective, the previous largest fraud prosecution in New Zealand related to $103 million purloined by Christchurch IT company director Gavin Bennett, who was sentenced to eight years' jail in May 2012.
Ironically, SCF featured in that case, albeit as a victim, defrauded by Bennett to the tune of about $65 million.
The 21 charges facing the SCF five relate to the alleged disguise of related-party loans that breached the company’s trust deed and the Crown Retail Deposits Guarantee Scheme.
SCF ultimately cost the taxpayer an upfront bill of $1.7 billion when it failed in August 2010 and called on the guarantee.
The taxpayer burden is one point that sets this upcoming trial apart from the string of finance company trials that have been before the courts so far.
Related party lending expected to be unraveled during the trial is also understood to be among the worst examples seen.
Transactions facing scrutiny by the SFO include the infamous Hyatt hotel ownership shuffling first revealed by the NBR, the purchase of Wool Services international shares, claims of $150 million of allegedly lapsed banking facilities in prospectuses and loans involving Kelt Finance and Dairy Holdings.
Read more about these transactions here.
Top Timaru man in hot water
Some of the SFO's most serious allegations are against Mr Sullivan, a senior lawyer and long-time offsider of SCF's major shareholder and figurehead, the late Allan Hubbard.
It was Mr Sullivan who allegedly muddied related-party links of the company’s single largest debtor by making his freezing worker brother-in-law the sole owner of Auckland’s five-star Hyatt Regency hotel.
Former SCF executives pointed the finger at Mr Sullivan over the elaborate shell games that hid ownership of the Hyatt.
Mr Sullivan is a senior Timaru lawyer who was formerly a partner at the local firm RSM Law and had fingers many development projects.
In 2009, he was found guilty of professional misconduct, in relation to overcharging, in case brought against by the Canterbury District Law Society.
Mr Sullivan has been a director of a number of companies including being the first chairman of Alpine Energy.
He has served on many organisations in South Canterbury, including on the Priory National Trust Board of the St John New Zealand, for which he was made a Knight of Grace of the Order of St John.
He has also been chairman of the Canterbury Ski Association, the New Zealand Squash Council, patron of the Timaru Squash Club and had involvement with the Bidwell Hospital and Craighead Diocesan School for girls.
Broadly, the SFO alleges the five SCF directors and executives engaged in deceit from 2004 in prospectuses, audited accounts and correspondence that had the effect of misleading both investors and Treasury, which oversaw the company’s participation in the government’s guarantee scheme.
The SFO alleges Messrs Sullivan, White (a retired accountant) and McLeod used false financial statements to secure cover in the government's guarantee scheme.
The charges of theft by person in a special relationship and obtaining by deception carry maximum penalties of seven years imprisonment and false accounting charges carry penalties of up to ten years imprisonment.
The five businessmen have strenuously denied the charges and said that they intend to plead not guilty when the case comes to trial on February 10.
Ghost of Hubbard
New Zealanders will watch the trial for insight into the inner-workings of the SCF empire and the role Mr Hubbard.
The conservative, philanthropic, VW Beetle-driving accountant, adored in Timaru, died in a car crash in September 2011.
He was never charged by the SFO in relation to the upcoming trial.
However, the SFO did lay 50 charges of fraud against him as a director of his now frozen investment vehicles Aorangi Securities and Hubbard Management Funds.
The business affairs of Mr Hubbard, his wife Jean, Aorangi Securities and seven associated charitable trusts were placed into statutory management by the government in June 2010.
Mr Hubbard’s financial affairs were, to quote statutory manager Richard Simpson “confused and very complicated” and included undocumented and interest-free loans, related party lending and sweetheart rental deals.
Investors in the statutory-managed Hubbard Management Funds and Aorangi Securities are now expected to get 100% of their capital back.