FMA reviews disclosure processes after aborted Viaduct Capital and Mutual Finance case
The Financial Markets Authority says it will review its disclosure processes after its long trial against the directors of failed finance companies Viaduct Capital and Mutual Finance was aborted.
Earlier this month, the judge presiding over the case against the four men involved in the two companies — Paul Bublitz, Bruce McKay, Richard Tim Blackwood and Lance Morrison — ordered a mistrial because of late disclosure after nine months in the Auckland High Court.
In Justice Mark Woolford's judgment outlining his reasons, he said the FMA had disclosed an “unprecedented” amount of late information — more than 14,000 documents (some duplicates) the market watchdog had deemed irrelevant or subject to litigation privilege.
However, responding to the judgment, the FMA argued the late disclosure issue was inadvertent.
“There is no suggestion of any bad faith. We will consider our processes concerning disclosure in light of the issues that have arisen during the course of this trial,” a spokesman says.
Viaduct Capital and Mutual Finance collapsed in 2010, owing a total of about $17 million but, because they held deposits insured by the government’s retail deposit guarantee scheme, investors were bailed out.
Messrs Bublitz, McKay and Blackwood are linked to both companies and were accused of theft by a person in a special relationship, making false statements in a prospectus, and making false statements to a trustee.
Mr Morrison also faced charges of theft by a person in a special relationship and making false statements to a trustee but only for Mutual Finance.
The FMA alleges Mr Bublitz and his co-defendants deliberately misled investors in the finance companies over the extent of related-party transactions for their benefit and for Mr Bublitz’s property company, Hunter Capital.
The defendants denied the charges.
Unfairness to defendants
In his judgment, Justice Woolford said the documents were only provided to the defendants in March, seven months after the trial started, which stalled the trial.
More than 5500 documents were given to the defendants after they argued many were disclosable.
It would have taken another two months just to resolve the disclosure issues, the judgment says.
The Crown admitted there were “considerable errors” in the late disclosure but said the scale of the problem of late disclosure was exaggerated.
Justice Woolford said there was no suggestion the breach arose out of bad faith.
“I do not consider and I do not understand the defence to have submitted that the Crown held back any documents or any lists in an attempt to derive benefit for themselves at trial. Non-compliance was inadvertent,” he said.
“I appreciate that the burden of disclosure on the prosecution is enormous in a case of this kind.”
But he said the scope of non-disclosure was extensive and “seemingly unprecedented in New Zealand.”
The judge said there was a real possibility of unfairness to the defendants if the trial were to proceed.
“It is not the defence’s responsibility to enquire further about lists or documents if not provided, especially given the defence may not be aware of the documents they do not have,” he said.
The judge said although the documents themselves may not have affected the outcome of the trial, the cumulative effect of them may have.
“Additional adjournments, followed by the recall of witnesses and disjointed revisiting of evidence will provide further obstacles in the trial. By that stage the trial will have been beset by a range of errors and anomalies contrary to good practice for a fair trial,” he said.
Justice Woolford said the timing of the late disclosure was a large factor in aborting the trial.
Had the documents been disclosed in the first three months, the situation could have been rectified, he said.
He also considered the “unnecessary length,” complexity and complications of the trial.
Justice Woolford said it was regrettable to grant the defence’s application to abort the trial but the breaches gave rise to a danger or apprehension of a miscarriage of justice.
He ruled the Crown must say before July 5 whether it intends to proceed against the defendants. The FMA has not disclosed the cost of the case.
The documents at issue
Among the lately disclosed documents was information from Deloitte, the lead investigator for the FMA. They included the FMA’s bid to have Deloitte forensics leader Barry Jordan’s appointment as an independent expert in the case and a draft report from Deloitte to the FMA about Viaduct.
Also at issue was a brief of evidence by the receiver and/or liquidator of many companies connected with Mr Bublitz, Watersone Insolvency principal Damien Grant.
Emails about Peter Chevin, a property developer associated with Viaduct Capital and Mutual Finance who was sentenced to home detention for his involvement, were also mentioned. They included enquiries by the FMA as to whether Mr Bublitz told Chevin to destroy documents.
Read the judgment here.