Receivership last straw for angry investor

Rowland Crone, with wife Marvyn, invested thousands in Strategic Finance. Photo / Mark Mitchell

A Kapiti Coast retiree has been left fuming by Strategic Finance's receivership and poor prospects of getting his investment back.

Rowland Crone, formerly a manufacturing business boss, is one of the 13,000 people owed $417 million by the business.

Strategic is New Zealand's second-largest finance company receivership after Bridgecorp collapsed in July 2007 owing 18,000 investors $458.7 million.

Strategic went into receivership on March 12, unable to meet the terms of its debt scheme.

Crone, who invested thousands with Strategic, fretted just before it got into trouble about renewing a big investment. But advice from staff at Chris Lee Sharebroking of Marine Parade at Paraparaumu Beach convinced him to renew, resulting in a big financial loss and poor prospects of getting his money back.

Chris Lee, the managing director, wrote to Crone six months before it went into moratorium, saying Strategic "remains one of our preferred providers and their rates are competitive given the reinvestment bonus offered. We rate Strategic as an A-. Strategic has a very high liquidity, an investment grade rating, low bad debts and is well-placed to withstand the difficult conditions in financial markets," Lee wrote on June 13, 2008, in a letter signed by Edward Lee. Strategic defaulted on August 7, 2008.

By December, the full extent of Strategic's troubles had emerged and it froze all funds and repayments. Crone said he was left extremely hurt by the situation so he made a submission to the parliamentary finance company failure inquiry.

"We were never told that the bulk of our lending would be channelled into large property developments, with large loans, with higher percentages of second and some third mortgage security, and unpaid interest capitalisation. We were lending on the basis of first ranking debenture stock, but finance companies were on-lending on second, third and sometimes unsecured loans," Crone's submission said.

"Many of the owners/key people in some finance companies were responsible for past investor losses, some going back to the 1980s.

"We think more than one company had lent to the same failed property development. The companies and/or proprietors were incestuously intertwined in lending to or developing projects," he said, complaining about too much undisclosed inter-company lending between companies with basically the same shareholders. "To assess the real risks, investment statements did not give much updated meaningful information for investors to be aware of the above items.

"We were never fully informed by the finance company or the adviser," he said.

Crone also had money with rival property financier St Laurence and he complained about its activities too.

Edward Lee, Chris Lee's son, said yesterday his firm was reassured about Strategic's direction in 2008 when the financier said Bank of Scotland was buying into it, providing a $150 million credit line.

Edward Lee said when the deal did not eventuate, his business was as surprised as the investors about the direction taken and Strategic's collapse.

Edward Lee said: "When the bank pulled out of the deal, it changed Strategic's future, really."