SFO confirms charges in South Canterbury investigation

07 December 2011

SFO confirms charges in South Canterbury Finance Limited investigation

In response to media reports and a statement by the Financial Markets Authority (FMA) regarding charges filed today in the Timaru District Court, the Serious Fraud Office (SFO) has confirmed that it has laid charges following its investigation into South Canterbury Finance Limited (SCF).  

SFO Chief Executive, Adam Feeley said that, following a fourteen-month investigation into a variety of transactions involving SCF, the SFO had laid 21 charges against five individuals involved with the company’s affairs.

“However, until such time as the charges are first heard before the Court, and any issues regarding suppression have been fully dealt with, it would not be appropriate to make any comment on which individuals have been charged.”

Mr Feeley, however, confirmed that the charges allege a variety of offences, including theft by a person in a special relationship; obtaining by deception; false statements by the promoter of a company; and false accounting. The offences carry maximum penalties of between seven and ten years imprisonment.

“The collapse of SCF was one the most significant of all the failed finance companies. The value of the fraud alleged to have been committed exceeds anything in the history of white-collar crime in New Zealand, and the time we have taken to complete this matter is a reflection of that scale.

“It is not appropriate at this point to comment on details of the allegations, but the investigation itself has been one of the most resource-intensive and time-consuming in recent history.”

The SFO said that it could not confirm the details of the allegedly fraudulent transactions, or who was alleged to have been involved in each of them.

“However, the total estimated value of allegedly fraudulent transactions is approximately $1.7 billion, which includes an estimated $1.58 billion from entering the Crown Retail Deposits Guarantee Scheme (CRDGS).

“Given the number of commercial transactions SCF was involved with, we have not investigated all transactions concerning SCF.

“We have not ruled out the possibility of investigating other matters, but our priority will be to progress the current charges through the Court.”

Mr Feeley noted that, as with other investigations into failed finance companies, the SFO had worked closely with FMA on the case and that FMA would provide support in relation to some charges. 

FMA Chief Executive Sean Hughes said FMA was also examining avenues to take civil proceedings in order to recuperate some of the money paid out to SCF investors under the CRDGS. 

For further information

Sarah Knowles
Serious Fraud Office
Phone: 021 675 998

Note to editors

Case summary

South Canterbury Finance Limited (SCF) was placed into receivership on 31 August 2010 owing approximately $1.8 billion. As the company participated in the Crown Retail Deposit Guarantee Scheme, any eventual loss will be borne by the Crown.

On the basis of investigations completed by the Intelligence and Detection Team, the Director determined that an investigation into the affairs of SCF may disclose serious or complex fraud. An investigation under Part I of the Serious Fraud Office Act was commenced on 18 October 2010. This was elevated to a Part II investigation on 28 October 2010.

Crimes Act offences

Section 220: Theft by person in special relationship

(1) This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person—

(a) to account to any other person for the property, or for any proceeds arising from the property; or

(b) to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.

(2) Every one to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.

(3) This section applies whether or not the person was required to deliver over the identical property received or in the person's possession or control.

(4) For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements.

Section 240: Obtaining by deception or causing loss by deception

(1) Every one is guilty of obtaining by deception or causing loss by deception who, by any deception and without claim of right,—

(a) obtains ownership or possession of, or control over, any property, or any privilege, service, pecuniary advantage, benefit, or valuable consideration, directly or indirectly; or

(b) in incurring any debt or liability, obtains credit; or

(c) induces or causes any other person to deliver over, execute, make, accept, endorse, destroy, or alter any document or thing capable of being used to derive a pecuniary advantage; or

(d) causes loss to any other person.

(2) In this section, deception means—

(a) a false representation, whether oral, documentary, or by conduct, where the person making the representation intends to deceive any other person and—

(i) knows that it is false in a material particular; or

(ii) is reckless as to whether it is false in a material particular; or

(b) an omission to disclose a material particular, with intent to deceive any person, in circumstances where there is a duty to disclose it; or

(c) a fraudulent device, trick, or stratagem used with intent to deceive any person.

Section 242 - False statement by promoter

(1) Every one is liable to imprisonment for a term not exceeding 10 years who, in respect of any body, whether incorporated or unincorporated and whether formed or intended to be formed, makes or concurs in making or publishes any false statement, whether in any prospectus, account, or otherwise, with intent—

(a) to induce any person, whether ascertained or not, to subscribe to any security within the meaning of the Securities Act 1978; or
(b) to deceive or cause loss to any person, whether ascertained or not; or
(c) to induce any person, whether ascertained or not, to entrust or advance any property to any other person.

(2) In this section, false statement means any statement in respect of which the person making or publishing the statement—

(a) knows the statement is false in a material particular; or
(b) is reckless as to the whether the statement is false in a material particular.

Section 260: False Accounting

Every one is liable to imprisonment for a term not exceeding 10 years who, with intent to obtain by deception any property, privilege, service, pecuniary advantage, benefit, or valuable consideration, or to deceive or cause loss to any other person,—

(a) makes or causes to be made, or concurs in the making of, any false entry in any book or account or other document required or used for accounting purposes; or
(b) omits or causes to be omitted, or concurs in the omission of, any material particular from any such book or account or other document; or
(c) makes any transfer of any interest in a stock, debenture, or debt in the name of any person other than the owner of that interest.

Additional questions

(a) What is a “related party transaction”?
Information about related party transactions can be found on the New Zealand Institute of Chartered Accountants website: www.nzica.com   

(b) What were the investment restrictions in the Crown Retail Deposit Guarantee Scheme?
Information about the Crown Retail Deposit Guarantee Scheme can be found on the Treasury website: www.treasury.govt.nz

Status of SFO finance company cases

(a) Under Investigation:
• Rockforte Finance
• Hanover Finance

(b) Charged:
• Bridgecorp Finance
• Capital + Merchant Finance
• Capital + Merchant Finance (second charges)
• Belgrave Finance
• Dominion Finance
• South Canterbury Finance

(c) Convictions obtained:
Waipawa Finance
• Warren Pickett; former Director Waipawa Finance and Waipawa Holdings; sentenced to five years in prison

National Finance
• Trevor Allan Ludlow; former director of National Finance 2000 Limited;  convicted and sentenced to five years and seven month in prison
• John Gray, company accountant, convicted and sentenced to 18 months imprisonment, reduced on appeal to 9 months home detention.

Five Star Finance:
• Nicholas Kirk; former Director Five Star Finance; sentenced to two years and eight months in prison
• Marcus McDonald; former Director Five Star Finance; sentenced to two years and three months in prison
• Anthony Bowden; former Director Five Star Finance; sentenced to nine months home detention and 300 hours’ community work (Securities Act charges)
One further individual awaiting trial. 

Role of the SFO

The Serious Fraud Office (SFO) was established in 1990 under the Serious Fraud Act in response to the collapse of financial markets in New Zealand at that time.

The SFO operates three investigative teams:

·      Fraud Detection & Intelligence;

·      Financial Markets & Corporate Fraud; and

·      Fraud & Corruption.

The SFO operates under two sets of investigative powers.

Part 1 of the SFO Act provides that it may act where the Director “has reason to suspect that an investigation into the affairs of any person may disclose serious or complex fraud.

Part 2 of the SFO Act provides the SFO with more extensive powers where: “…the Director has reasonable grounds to believe that an offence involving serious or complex fraud may have been committed…”

The SFO’s Annual Report 2011 summarises its performance for the past year. The Statement of Intent 2011-2014 sets out the SFO’s three-year strategic goals and performance standards. Both are available online at: www.sfo.govt.nz