Auditor's report cites SPI breaches

Murray Alcock.

A property fund that last year did not have the money to fully pay investors owed $1.5 million failed to comply with the Securities Act by not keeping investor funds in a separate trust account, an auditor's report says.

The Financial Markets Authority says it knows of the report, but can't comment because its inquiries are still in progress.

The directors of the SPI Property Fund, Murray Alcock and Allister Knight, face eight FMA charges of filing company statements late.

These charges, alleging breaches of the Financial Reporting Act, carry a maximum penalty of $100,000.

After they were filed, SPI Property Fund on July 9 lodged annual accounts with the Companies Office for the 2011 to 2013 financial years.

The SPI Property Fund, owned by SPI Capital, was envisioned as a vehicle to buy mainly commercial, industrial and retail properties in New Zealand, offer documents said.

Promotional material from 2007 said the fund was aiming to raise $75 million and was "an incredible investment vehicle" in which money was secured against assets.

The reports now filed with the Companies Office say the fund raised $1.8 million from investors in 2008, of which $905,214 had been returned by the end of March last year.

The $1.8 million was not allocated to capital, as less than $4.75 million - the minimum amount required for the offer to proceed - was raised.

Almost $900,000 had yet to be repaid as at March 31 last year. As well, close to $580,000 of interest has accrued on investors' funds by March 31 last year.

The 2013 accounts were audited by Auckland accounting firm William Buck Christmas Gouwland.

In their report, dated July 1, the auditors said there were "insufficient resources in the company to enable the full repayment of these funds and the accrued interest".

The auditor's report said the company's board had not complied with the Securities Act, the Companies Act and the Financial Reporting Act.

"As at March 31, 2013, the company had funds held on behalf of investors totalling $894,786 from subscriptions received relating to a prospectus issued in 2008.

"The board has failed to comply with s36A of the Securities Act 1978 to hold those funds in trust until they were returned to investors."

According to the accounts, SPI Property gave $730,000 in 2008 and 2009 to Treble Investments, which is also directed by Alcock and Knight.

This money was for the purchase of the building which now houses the Waitakere District Court and a Hamilton property.

Originally recorded as non- refundable deposits, the $730,000 was later converted into unsecured advances.

But the $1.09 million of principal and interest on this related-party advance is listed in SPI Capital's 2013 accounts as fully impaired.

SPI Property's 2013 accounts record its assets as $5280. Its $1.5 million of liabilities, are mostly principal and interest owed to investors.