SFO called in over First Step loan deals

Photo / Martin Sykes

The trustee of six investment trusts set up by Money Managers says it has called in the Serious Fraud Office and is preparing to take legal action over allegations of "improprieties" by some of the parties the trusts lent money to.

The First Step trusts were closed to new investors in 2006 and around 7000 investors were told the trusts would be wound down and the money paid back.

Since then investors have received just $223.5 million of the $457 million that was originally locked up.

Yesterday trustee Calibre Asset Services said the trusts had been forced to write-down another $73 million this financial year bringing the total since 2006 to $170.7 million.

Calibre chairman Edward Russell said while some of the write-downs were attributable to loan defaults from the crash in property values, an independent investigation had also found other defaults appeared to be directly attributable to "improprieties on the part of the borrowers".

"These alleged improprieties have now been reported to regulatory authorities, including the Serious Fraud Office and we are now awaiting advice from them before moving on other actions," Calibre said in a statement yesterday.

Russell would not say how much of the $170 million was linked to the alleged improprieties or who the borrower was.

But in a recent letter to investors, Russell said it was waiting to hear back from the SFO regarding car finance business Club Finance to which the trusts started lending in 2004.

Club Finance struggled to find additional funding and in 2007 Calibre appointed Korda Mentha to the business.

Of the $73 million written-off this year, Russell said the bulk of it stemmed from loans made to a geothermal project in Taupo.

Investors were told $55 million was attributable to the project and a further $13.5 million had been written off due to its loans to Structured Finance.

The trustee had hoped to find a buyer for the geothermal development earlier this year but said offers had evaporated in the wake of the global financial crisis.

It was now trying to sell the drilling rig separately. Russell said the trusts' remaining assets were still expected to be worth around $70 million and significant efforts were being made to realise those loans.

But the investor letter also revealed a loan book littered with problems.

Loans made to finance company Structural Finance appear unlikely to be repaid soon as the company is in the process of asking for a moratorium agreement with its investors.

First Step property loans face a raft of issues including council compliance problems for some Parnell townhouses while the guarantor of an Onehunga development has been made bankrupt. Russell told investors he was confident of making further repayments but could not say when investors would get their money back.

He hoped to make another payment in the first half of 2010 but warned not all investors would receive money back because of the different trusts.