Criminal charges laid against Capital + Merchant Finance directors

Criminal charges have been laid against four directors of Capital + Merchant Finance – one day after the Serious Fraud Office launched an investigation into the failed finance company.

The Securities Commission said it has laid criminal charges and issued civil proceedings against company directors Neal Nicholls, Owen Tallentire, Colin Ryan and Robert Sutherland.

Criminal charges have also been laid against former director Wayne Douglas, who resigned in February 2007.

The Securities Commission has been investigating Capital + Merchant since it went into receivership in November 2007, owing $167 million to about 7000 investors.

The company’s receivers Grant Thornton have said it is unlikely any of these funds will be recovered.

The Commission alleges investors were mislead by Capital + Merchant Finance’s August 2006 prospectus and advertisements, which misrepresented the investment risks, especially in relation to related party lending, insurance cover and liquidity.

It says the current four directors made similar untrue statements about liquidity and cashflow in the registered prospectus and investment statement dated 10 September 2007.

The Commission also alleges advertisements distributed during 2007 contained false statements about insurance cover for capital secured debenture stock. These claims do not apply to Mr Douglas who had resigned as a director by then

Most of the criminal charges are laid under section 58 of the Securities Act and carry a maximum penalty of five years imprisonment or fines of up to $300,000.

Mr Nicholls and Mr Ryan face further allegations of knowingly misleading the Commission. The charges laid under section 59A of the Securities Act carry a maximum fine of $300,000.

The men are due to appear in court on April 8.

The Commission said the charges are the first step towards compensation for investors and it will consider pursuing compensation claims in due course if it is in the public interest.

Capital +Merchant Finance was the 12th finance company to go into receivership in 2007 – one year after it was given a four-star rating by Property Investment Research for its capital secured debenture stock.

It ran into strive when its trustee Perpetual Trust learned it had breached general security agreements with Australian company Fortress Credit Corp.

Investors were initially told they could receive less than 60% of their money back, but this soon dropped to 10% and by November 2008. They were told there were no assets left to help them recoup the $167 they were owed.

In February last year, Grant Thornton uncovered a $41 million chunk of related party loans not recorded on the company’s books, with just $1.75 million reclaimed from those loans and the rest written off.

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