Nathans Finance documents divorced from reality, court told

Nathans Finance directors facing criminal charges linked to the financier's collapse pleaded not guilty to all charges at Auckland's High Court this morning.

Mervyn Doolan, Roger Moses and Don Young are in the High Court as the first of the big finance company trials begins.

The Securities Commission has bought six charges against the trio for breaches of the Securities Act.

It is alleged the the directors made false statements in the investment statements of Nathans Finance, which collapsed into receivership in 2007, owing about $174 million.

Fellow director John Hotchin admitted the charges a fortnight ago, after plea bargainign between his lawyers and the Crown. He was sentenced to 11 months home detention and is expected to bring evidence against his former director colleagues during what is set down as an eight-week trial.

The maximum penalty the directors could receive is a five-year jail sentence of $300,000 fine.

What is alleged to be false information was presented in the Nathans Finance December 2006 prospectus and related to statements about bad debts, the lending book, loan approval and processes around credit assessment and corporate governance.

Crown Prosecuter Curruthers said if the Crown was to suceed in prosecuting the three men it needed to prove, beyond reasonable doubt, the prospectus contained untrue statements.

If defence lawyers were to successfully defend the three directors they needed to prove, beyound reasonable doubt, that the directors believed each investment statement was true.

In his opening address to Justice Paul Heath this morning, Mr Curruthers said the story of Nathans Finance prior to receivership was familiar in the wake of a string of finance company collapses. The company was rolling over loans and capitalising interest,with no cashflow returning to Nathans.

Lead Crown prosecutor Colin Carruthers said that Nathans' prospectus in December 2006 contained untrue statements, either overtly or by omission, about the nature of related party lending, bad debt, corporate governance and management of loans, diversification of its lending, and its liquidity.

Mr Carruthers said an extension certificate to the prospectus in March 2007 contained a further untrue statement that Nathans' financial position had not materially and adversely changed since June 2006, when it had in fact deteriorated considerably.

He said three further letters, dated May 14, July 12 and August 6 2007, incorrectly made a number of glowing statements as to its financial worthiness.

"By August 6 2007 its financial position was on any objective measure quite hopeless. It was placed into receivership on August 20 2007," he said.

Mr Carruthers said the interests of the accused in Nathans' parent company VTL seemed to have blinded them about the company's state, and their "unreasonable belief" in the business mode had meant they relied on the hope that the business might be saved until the point of receivership.

Divorced from reaility
"What was said to Nathans' investors was completely divorced from what was actually happening. Their unreasonable belief clouded their judgment when acting as Nathans' directors, and was to the extreme detriment of Nathans' investors."

When Nathans Finance went into receivership it owed about $174 million to about 7000 investors.