Home detention for finance company owner Clegg

Photo / Rotorua Daily Post.

Finance company owner Brian Clegg has been sentenced to 12 months home detention after pleading guilty to misleading investors, the company's trustee and the Securities Commission.

It is the first sentencing in a raft of prosecutions being brought by the authorities following the collapse of the finance company sector. The receivership of the Clegg & Co group in October 2007 has left 500 investors at least $6.5 million out of pocket.

The 68-year-old will only be allowed to leave his Kingsland apartment with the approval of his probation officer.

Clegg admitted breaching the Securities and Companies Acts by signing untrue prospectuses, giving false or misleading reports and quarterly returns to Clegg & Co Finance's trustee, and attempting to deceive the Securities Commission.

The charges related to $2 million of lending to the group's parent company Clegg & Co, wholly owned by Brian Clegg. Clegg & Co Finance's trust deed banned it from any related party lending, except at arms length with the terms in writing and with the transactions not exceeding 5 per cent of the company's assets in any given year.

However, lending to Clegg & Co repeatedly breached this limit.

None of the advances to Clegg & Co were supported by written loan agreements, and were not backed by any security. Despite this situation, the August 2005 and 2006 prospectuses both said the company had complied with the requirements of its trust deed, and all related party transactions were at arms length.

Over 2006 and 2007 Clegg & Co Finance continued to give monthly and quarterly reports to the trustee that understated the true level of related party lending, in some cases by almost half.

In August 2007 the Securities Commission wrote to all finance companies requesting confirmation that they were in compliance with their obligations.

Mr Clegg wrote back on August 29 saying his company was compliant, and no circumstances had arisen which would materially affect the trading or profitability of the company.

Judge Field said up to $2.4 million had been lost as a result of the related party lending. He had seen a victim impact statement from one retired investor who invested $80,000 on the basis of the 2005 prospectus.

Aggravating factors in the offending were the "significant premeditation" and the extent of the losses. In their latest report the receivers anticipated that of $15 million deposited with the finance company around 55-60 cents in the dollar would be returned to investors.