The Serious Fraud Office is prosecuting five individuals with 21 charges relating to alleged fraud totaling $1.7 billion at the collapse of South Canterbury Finance.
The scale of the alleged offending – in dollar terms mostly related to SFO assertion deceit was involved in the company's qualification for the Crown Retail Deposits Guarantee Scheme - makes this the largest white-collar crime case in New Zealand’s history.
To put the figure into perspective, the previous largest fraud prosecution in New Zealand was the$103 million allegedly purloined by Christchurch IT company director Gavin Bennett. The case against Mr Bennett is progressing through the courts and, ironically, South Canterbury features prominently - albeit in that case as a victim.
The South Canterbury five are next due to appear in court on February 13 and while the accused were all granted interim name suppression, details of the 21 charges were made public for the first time this week.
Broadly the charges allege the South Canterbury five engaged in deceit from 2004 in prospectuses, audited accounts and correspondence that had the effect of misleading both investors and the Treasury - who oversaw the company’s participation in the government’s guarantee scheme.
Grouped around key transactions and these the charges are:
THE HYATT: The largest group of charges, eight in total, concern loans advance to purchase and redevelop Auckland’s Hyatt hotel. The National Business Review first broke news of oddities around the ownership of the Hyatt, and the SFO subsequently seized copies of notes relating to this story at the start of their investigation.
Five charges of false accounting and intent to deceive laid against two individuals concern $25 million paid by South Canterbury to Southbury Group as part of the purchase of the hotel in late 2008 by Hilltop Hotels. This acquisition is also alleged to have breached the company’s trust deed requirement to ensure transactions were undertaken at arms-length.
Three charges allege breaches of the government deed of guarantee over a $39 million loan to the Hyatt redevelopment. Three defendants are charged with breaching the government deed of guarantee by not disclosing this advance. When receivers were called in this guarantee saw the Crown pay $1.58 billion to depositors.
KELT FINANCE: Two charges of false accounting laid against two defendants relate to a purported $10 million loan from Kelt Finance to Southbury Group. The charges alleges the loan was immediately preceded by a $10 mill advance from South Canterbury to Kelt, making the material effect of the transaction a direct loan to the finance company’s parent. Kelt at the time was a non-charging subsidiary and advances from it were not required to be declared as related-party.
SHARK WHOLESALERS: One charges of false accounting against two defendants concerns $19.1 million advanced to Shark Wholesalers. The prosecution says this loan should have been disclosed as related-party in the November 2004 prospectus, and its absence was intended to induce people to invest to South Canterbury.
WOOL SERVICES INTERNATIONAL: One person is charged with gaining pecuniary advantage by deception in the May 2006 acquisition of shares in Wool Services International worth $6.9 million from Hellaby Holdings by Woolpak Holdings from Hellaby Holdings. The charge alleges the person charged lied by stating the purchaser was unrelated any other principal shareholder.
COLIN ARMER: One defendant is alleged to have breached South Canterbury’s trust deed limitations on related-party lending when a $12 million loan was made to Fonterra director Colin Armer in June 2009. The loan made its way to Dairy Holdings, a farming company part-owned by both Mr Armer and South Canterbury. Mr Armer is not facing any charges.
LYING TO TREASURY: Three charges alleged three individuals at South Canterbury gained pecuniary advantage by misleading the Treasury. The government department was responsible for ensuring terms of the retail deposits guarantee scheme were met, but the charges allege letters, audited financial statements and prospectuses provided as part of this process were misleading.
LYING TO INVESTORS: Five charges allege false prospectuses and investments statements were used to induce the public into investing with the company. Three individuals are charges with not disclosing hundreds of millions of dollars in loans to Southbury Group and Woolpak Holdings. The statements are alleged to paint a rosier picture that was actually the case by not allowing for more than one hundred million dollars of impairments.