Investors waiting for answers

Rod Petricevic of Bridgecorp is accused of using investors' money to fund services that were unrelated to the company. Photo / Kenny Rodger

This year several former finance directors such as Bridgecorp's Rod Petricevic and Nathans Finance's John Hotchin will face trial, accused of Financial Reporting Act breaches under the Securities Act.

These defendants and others, who took down millions of dollars when their finance companies collapsed, are defending charges that could lead to them being jailed.

Many of the directors are also facing civil proceedings which are on hold until the criminal trials have been heard.

Some are also facing Serious Fraud Office charges.

The SFO alleges that Bridgecorp directors Petricevic and Rob Roest used investors' money to fund services that were unrelated to the company.

No trial has been set for this case but the directors will defend the charges.

Last month two former Five Star Finance directors, Marcus Macdonald and Nicholas Kirk, were jailed after pleading guilty to Securities Act and SFO offences.

When the Five Star Finance Group collapsed it took down $90 million.

The pair are the first to be jailed in a wave of collapses that brought the finance sector to its knees.

Between 2006 and last year, 50 finance companies were either placed into receivership or liquidation, or froze payments to investors.

The Securities Commission said last month that it generally did not comment on the progress of investigations, but it did want to keep the public, and especially investors who lost significant sums of money, informed about the investigations.

The powers the Securities Act has relates to documents such as prospectuses and investment statements that finance companies are obliged to prepare when issuing public offers.

Such documents must disclose a product's features and risks so investors can weigh the risk they are willing to take against the offered return.

The commission's job is to ensure these documents accurately disclose everything they should - such as the financial position of the company and the risk level involved.

The commission said if all the electronic data managed by an inspector in a 2010 case had been printed and stacked it would have stood as high as the Sky Tower.

To complete an investigation into one of these collapsed finance companies it would have taken two experienced forensic accountants, a financial analyst and a data/electronic discovery manager more than 900 hours (or 21 weeks).

FACING THEIR DAY IN COURT

FIVE STAR FINANCE
Directors Marcus Macdonald, Anthony Bowden and Nicholas Kirk were sentenced in December on Securities Act breaches and SFO charges.

Macdonald and Kirk are the first directors of a finance company to be sent to jail following the wave of collapses in the sector.

They were sentenced in the Auckland District Court for their part in the $90 million downfall of the Five Star group. Macdonald, 70, was sentenced to two years and three months and Kirk, 65, to two years and eight months for offences under the Crimes, Securities and Financial Reporting Acts.

BRIDGECORP AND BRIDGECORP INVESTMENTS

High Court trial set for July 4.

Defendants: Rodney Petricevic, Robert Roest, Bruce Davidson, Gary Urwin and Peter Steigrad.

The commission alleges the directors made untrue statements in the investment statements and registered prospectuses of Bridgecorp and Bridgecorp Investments.

These are criminal charges, and if convicted the directors face maximum penalties of five years in jail or fines up to $300,000.

The commission has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each of five directors.

Bridgecorp collapsed in 2007 owing 14,500 investors almost $460 million.

NATHANS FINANCE

High Court trial set for March 14.

Defendants: John Hotchin , Donald Young, Kenneth Moses and Mervyn Doolan.

The commission alleges the directors made untrue statements in the registered prospectus and investment statement of Nathans Finance to December 13, 2006.

The statements concern lending to related parties such as Nathans' parent company, VTL Group.

These are criminal charges and the same penalties apply here as to the Bridgecorp directors if they are found guilty.

When Nathans was placed into receivership it owed about $174 million to about 7000 investors.

The defendants deny the charges.

The commission has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each of the directors.

NATIONAL FINANCE

High Court trial set for August 22.

Defendants: Trevor Ludlow, Carol Braithwaite, Anthony Banbrook.

It is alleged the defendants made untrue statements in the registered prospectus for National Finance dated September 2005.

The defendants deny the criminal charges. The same penalties apply.

National Finance was placed in receivership in May 2006, owing 2000 investors $24 million. Its core business was car finance.

CAPITAL + MERCHANT

No trial date set.

Defendants: Neal Nicholls, Owen Tallentire, Colin Ryan, Robert Sutherland and Wayne Douglas.

The commission alleges that Capital + Merchant Finance's offer documents and advertisements misled investors by misrepresenting the investment risks, especially in relation to related party lending, insurance cover and liquidity. It also alleges that the directors made untrue statements in the registered prospectus and investment statement of August 15, 2006.

These criminal charges carry the same penalties as Bridgecorp's.

Civil proceedings have also been filed against Neal Nicholls, Owen Tallentire, Colin Ryan and Robert Sutherland. The commission has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each director (bar Douglas).

Capital + Merchant owes 7000 investors $167.1 million.

LOMBARD FINANCE & INVESTMENTS

No trial date set

Defendants: Sir Douglas Graham, Michael Reeves, William Jeffries and Lawrence Bryant.

The commission alleges that Lombard Finance & Investments' offer documents and advertisements misled investors by misrepresenting the investment risks, especially in relation to liquidity, the quality

of the loan book, adherence to credit policies and the company's overall financial position.

The commission has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each director.

Lombard Finance was placed in receivership in 2008.

It was estimated then to have $127 million of debenture stock and notes on behalf of approximately 4400 investors and had a loan book comprising a total of about $137 million.