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The Serious Fraud Office will have its work cut out investigating allegedly fraudulent investments that have left Kiwis around $600 million out of pocket.
After months of speculation, late yesterday SFO director Grant Liddell announced the agency has launched investigations into both failed finance company Bridgecorp and property investment scheme Blue Chip.
Earlier this month the Weekend Herald reported that if a Blue Chip investigation went ahead it would be among the biggest the SFO had ever undertaken.
Now it has launched two major investigations at one time. Last night Liddell said both were likely to be lengthy. "We're putting not just the usual teams on these files, they warrant extra resource."
Sources close to the SFO were surprised that the office had revealed the investigation. Former SFO boss David Bradshaw took a prominent stance of neither confirming nor denying any probes.
On Tuesday, the first reading of a proposed law to merge the SFO into the police is due to be heard. The Serious Fraud Office (Abolition Transitional Provisionals) Bill is due to go before the House then and some people were wondering last night if the Bridgecorp/Blue Chip announcement was timed so the Government's case for the new act was strengthened.
Opponents of the bill fear it will weaken the SFO although the Government says police already deal extensively with fraud.
Twenty-two companies of the Blue Chip group went into liquidation between February and April, owing more than $80 million to 2000 investors.
The SFO has said it has been examining the scheme since the first liquidations, and has had complaints from a large number of investors.
Liddell said the case raised a wide variety of issues, including allegations that misrepresentations were made to investors about the security of their funds, and that the money was used in ways contrary to the terms of the investment.
Deposits that Blue Chip investors put down on yet-to-be built apartments were not held in solicitors' trust accounts and now can't be accounted for.
Other investors have found that apartments they thought they invested in are owned by other people, while another large group are being required to settle on properties they never had any intention of buying.
Most took out mortgages through Blue Chip-related companies to make the investments, and now stand to lose their homes.
Bridgecorp, founded by former 1980s high flyer Rod Petricevic, went into receivership in July 2007 owning about $500 million to 18,000 investors. Liddell said the SFO had information suggesting Bridgecorp's records had been "dishonestly manipulated" to give investors a false impression of the finance company's position. The investigation had been launched as a result of liaisons with the receivers, Liddell said.
He believed the office had enough resources to handle two big investigations at once.
The SFO's functions are about to be absorbed into the police's new Organised Crime Agency, but Liddell said it would move to the new agency "intact".
"We will carry on from our present premises doing our present business, before picking up the augmented functions that will come from being part of the agency."
He said both Bridgecorp and Blue Chip were likely to be investigated under the Crimes Act.
"In terms of serious and complex fraud it's almost inevitable that the offences are those serious offences under the property part of the Crimes Act."
Other sources said charges could be laid against the two financiers under three laws: the Crimes Act, Fair Trading Act or the Commerce Act.
Sentences could vary from a financial penalty to home detention to jail, sources said.
The maximum penalty available if the SFO succeeds could be a 10-year jail term although early guilty pleas might lessen any sentences.
NEWLAND, INVESTORS DELIGHTED
Olly Newland, an Auckland property specialist helping Blue Chip victims, was last night preparing to get his first good sleep in eight months.
Since late last year, he has been gathering documents on the failed apartment investment specialist for the Commerce Commission and Serious Fraud Office.
So he was delighted to hear an investigation had begun, saying it was the best news he'd heard all year.
"That's a huge relief. The SFO will take the burden off the victims of Blue Chip and lead legal representation," Newland said.
Distraught investors have beaten a path to his door since things went wrong late last year and Newland said he was particularly interested in exactly how Blue Chip operated.
"I want the whole paper trail tracked to see how it is possible for elderly pensioners to end up with a million-dollar mortgage and no income," Newland said.
Greta Norman, the investor who first spoke out against the company, said she was delighted and hundreds of others would be too.
Blue Chip investors have also been assisted by two Auckland barristers, Paul Dale and Daniel Grove, who have advised them how to mount a case against the business and spoken at large investor rallies, encouraging them to band together into smaller groups and collect evidence.
James McFarlane, a Wellington barrister, greeted the Bridgecorp probe with delight, saying it was an extremely positive development.
He hopes the Government will provide funding to enable the SFO to undertake its work.
Auckland Bridgecorp investor Ken Gilmour received the news of the investigation "with some elation, equally tempered by some realism. It depends on what they're going to turn up".
He said he had lost a substantial amount in the finance company collapse. "I never stop thinking about it, never, and of ways in which I may be able to get my money back."
Chris Lee, a sharebroker and analyst, said even if the SFO succeeded, people would still have lost a fortune. "This does nothing about the issue of compensation. It's good news from the point of view of retribution," he said, but people would not get their money back.
BRIDGECORP
What: Financier which specialised in lending to property developers.
Who: Founded by Rod Petricevic, a high-profile Aucklander.
Collapse: Receivership in July last year.
Damage: Owes about $500 million to 18,000 investors.
Now: Experts at PricewaterhouseCoopers are still investigating.
Recovery: Investors might get back 16c of every $1 they put in, bringing total losses to $390 million.
BLUE CHIP
What: Apartment investment specialist which assisted older people to borrow against their homes to buy units.
Who: Founded by Mark Bryers and Bob Bangerter, both of Auckland.
Collapse: Liquidations between February and April this year.
Damage: Owes more than 2000 investors over $80 million although total could be much higher.
Now: Hundreds of older investors could lose their houses and millions of dollars they are owed.
Recovery: No predictions yet.
