While the directors argued there had been no criminal intent in their actions, Judge Dobson said that was not a relevant issue from a legal perspective.
"The alleged offences are ones of strict liability so the Crown is not required to prove any form of mental intent to distribute documents that were false or misleading," he said in his 100 page judgment. "Nor is it any part of the Crown's case that the conduct by the directors ... was other than honest."
"In the relevant respects, the law has created criminal liability for what may be no more than a material misjudgement about the accuracy and adequacy of the description of the state of financial health of the company, as directors authorise it in offer documents," he said.
Indeed, if the Financial Markets Conduct Bill, currently before Parliament, had been in place at the time, the Lombard directors "may have avoided guilty verdicts," said Roger Wallis, a senior partner at law firm Chapman Tripp, after the judgment was released.
"The Bill reserves criminal sanctions for misconduct which is deliberate and reckless," he said. Judge Dobson had made it clear that was not at issue with the Lombard directors.
The judgment outlines in detail how Lombard rushed in the lead-up to Christmas 2007 to get an extension on a prospectus it had issued in March 2007 so that it could continue to raise money from retail investors into 2008 without completely rewriting and registering new investment documents.
That was done despite evidence from internal communications that directors had become increasingly concerned about the company's reliance on a few, large property development loans, some of which started not to be repaid on schedule. Borrowers included the failed Blue Chip property development company.
The trustees had raised concerns in September, which had led to establishment of greater oversight of the loan book by an audit sub-committee of the Lombard board, and the chief executive, Reeves, referred in September board minutes to the growing lack of investor confidence "following the failure of so many finance companies."
By February 2008, when Lombard was still taking both secured and unsecured deposits, Reeves was noting that "a managed, well-orchestrated wind down of Lombard Finance is an inevitable reality."
In November 2007, Graham said in an email to Reeves that Lombard was "sailing very close to the wind now and the next two or three months will be critical" and that the company risked "running out of cash."
Judge Dobson accepted that, at Christmas 2007, it may not have been clear that a pattern of under-collections and reduced cash holdings was becoming a pattern, but that directors should have recognised that trend by early 2008.
