The directors of failed Nathans Finance have been found guilty of lying to investors in a prospectus, investment statement and two advertisements - when Nathans sought $100 million from investors 2006.
The directors of failed Nathans Finance have been found guilty of lying to investors in a prospectus, investment statement and two advertisements - when Nathans sought $100 million from investors 2006.
But the three directors - Mervyn Ian Doolan, Kenneth Roger Moses and Donald Menzies Young - were found not guilty on a charge arising out of a letter to potential investors dated July 12, 2007, on the basis the letter did not meet the statutory definition of "advertisement".
Justice Paul Heath has just delivered the verdict in a full court room at the Auckland High Court.
The three directors were remanded on bail for sentence on September 2.
In the meantime, the convicted directors were to surrender their passports.
The judgment followed a 13-week trial that ended last month. As the first of the major failed finance company director trials, the judgment was expected to set a standard for similar trials in the court pipeline, such as the Bridgecorp trial due to start next month.
Mr Heath said there was a failure to disclose full extent of related-party lending.
He accepted each director held an honest belief at the time that the statements were not misleading.
But there were "no reasonable grounds to believe that was the case" and the directors has an independent responsibility to ensure the statements were correct.
Hotchin, who testified against his fellow directors during the trial, was sentenced to 11 months home detention, 200 hours community work and was ordered to pay $200,000 reparation to Nathans’ receivers.His guilty plea and co-operation with the prosecution got him off an almost certain jail term.
Nathans Finance collapsed into receivership on August 20, 2007, owing about $174 million to some 7000 investors.Most of its lending was to its listed parent company Vending Technologies (VTL), which sold vending machines, franchises and technology in the US, Australia, New Zealand, the UK and across Europe.
During the trial, Securities Commission prosecutor Colin Carruthers, QC painted a picture of a finance company investing public money in a private business venture.
Interests of the accused in Nathans’ parent company VTL seemed to have “blinded” them to the financier’s state and the directors was “divorced from reality:” Colin Carruthers QC.
But the directors repeatedly say they did not break the law and were entitled to rely on the information their management team and professional advisers had given them.
THE CHARGES
The trio denied 12 Securities Act charges of distributing an advertisement containing an untrue statement and six charges of signing a 2006 Nathans Finance prospectus that contained an untrue statement and sought $100 million from investors.
The allegedly untrue statements related to information given on related party lending, bad debts and liquidity.
THE DIRECTORS
Mervyn Ian Doolan, an accountant and the director responsible for overseeing preparation of Nathans’ contentious 2006 prospectus at the heart of the prosecution. He co-founded VTL with Hotchin in 1998 and spent time spearheading the company’s growth in Europe.
He was a former chairman of the International Association for Financial Planning and life member of the Institute of Financial Advisers.
Kenneth Roger Moses was Nathans’ chairman who, along with VTL chairman Gary Stevens, was a former director of failed contributory mortgage company Reeves Moses Hudig (later known as Harts Contributory Mortgages), which collapsed in 2000.
In 2001, both men were acquitted of 30 breaches of the Contributory Mortgage Regulations and breaches of the criminal provisions of the Securities Act.
Donald Menzies Young was an accountant and a founding investor in water cooler company AquaCool.
