Five Star duo first directors to face prison

Nicholas Kirk. Photo / Steven McNicholl

Two directors of the failed Five Star group are the first finance company directors to be jailed following the wave of collapses in the sector.

A judge declined Five Star's Marcus MacDonald and Nicholas Kirk's plea for home detention and the pair will spend Christmas in jail.

They were sentenced in the Auckland District Court for their part in the $90 million downfall of the Five Star group.

Fellow Five Star Finance director Anthony Bowden was sentenced to nine months' home detention and 300 hours of community work for breaches of the Securities Act.

Judge Roderick Joyce sentenced MacDonald, 70, to two years and three months' and Kirk, 65, to two years and eight months' for offences under the Crimes, Securities and Financial Reporting Acts.

Both directors' sentences were reduced by half for pleading guilty to the charges and for co-operating with the Ministry of Economic Development (MED) and the Serious Fraud Office (SFO).

SFO chief executive Adam Feeley said he was pleased with the sentence.

"This is the first sentencing in relation to a major finance company collapse and continues the clear messages from the courts as to the seriousness of white collar crime."

The SFO charges related to the theft of $50.1 million by a person in a special relationship and arose out of the operation of Five Star Consumer Finance, one entity in the group, that was placed into receivership in August 2007 owing investors $46 million.

Judge Joyce dismissed the directors' plea for home detention and stated that although they had shown "genuine remorse" the seriousness of the offending and the amount of money lost could not go unpunished.

Joyce said investor protection was vital to the wider economy and community and those that had "breached the faith had to be held accountable".

He said investors had trusted Kirk, an accountant, and MacDonald, a commercial lawyer, with their life and retirement savings, and the scale of loss had left a huge impact on the investing community.

"Investors are reliant on the information they get from financial companies."

The directors pleaded guilty to issuing misleading statements and advertisement that distorted the financial position of the company. They were also sentenced on charges brought by the MED for breaches of the Securities and Financial Reporting Acts.

Joyce said many prudent investors would not have invested or continued to invest in the group had they known its true financial position and been aware of the high-risk related-party lending.

Crown lawyer Brian Dickey said the collapse of companies such as Five Star Finance had led to the complete loss of faith in the market, and that sentencing the directors to a custodial term would be an opportunity to send out a "very direct message" that such activity would not be tolerated.

"It had the worst hallmarks of related-party lending."

Dickey said the collapse of Five Star has had a devastating effect on those who lost money.

Investor Joe Tregerthan invested more than $1 million in the Five Star group and has recovered very little.

He said the sentence was expected but it would not bring any closure as an investor.

"Most people are more concerned with trying to recover some money.

"I suppose it is a form of closure that people don't have to keep waiting for justice to be met. But the only real closure would be for people to get some money," Tregerthan said.

Exposing Unacceptable Financial Advice (EUFA) spokesman Gray Eatwell said there was "some comfort" in the sentence as it vindicated the investors in the group.

"When you look at the people who have lost money, in many cases it's been absolutely life destroying for many, many people. I would have to say that any penalties that are laid down would not be viewed as harsh enough when you compare them to the dishonest practices that were involved," Eatwell said.

MacDonald and Kirk will give evidence against another Five Star Finance defacto director, Neill Williams, in March next year under the Securities Act.

Bowden and Williams also face charges under the Crimes Act laid by the SFO. A trial date has not been set for these proceedings.

They have pleaded not guilty.

FIVE STAR WEB

* Five Star Consumer Finance traded as a finance company accepting money from the public and investing it in consumer and commercial lending.

* It was founded on October 9, 1998.

* It was placed into receivership on August 29, 2007, owing $46 million.

* The directors were Marcus MacDonald, Nicholas Kirk and Anthony Bowden.

* Five Star Finance, Five Star Debentures and Antares Finance Holdings were related companies of the group.

* MacDonald pleaded guilty to SFO charges in October. Kirk pleaded guilty to SFO charges in November.

* MacDonald and Kirk also pleaded guilty to Securities Act breaches in October.