Lombard directors may face jail terms

Douglas Graham and the three other directors do not accept the allegations. Photo / Paul Estcourt

The Securities Commission has laid criminal charges against Lombard Finance & Investments directors Sir Douglas Graham, Michael Reeves, Bill Jeffries and Lawrence Bryant. The charges carry a maximum of five years' imprisonment or fines of up to $300,000.

Graham, former chairman of Lombard Finance, was a former justice minister, minister in charge of treaty negotiations and attorney-general in the National government of the 1990s, while Jeffries was justice and transport minister in the preceding Labour government.

The criminal charges relate to the same allegations as the civil proceedings announced earlier this week and were laid in the District Court at Wellington on Wednesday.

The directors do not accept the allegations of the commission and will be defending all the proceedings.

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 financial position, commission chairman Jane Diplock has said. The commission alleges statements made in the prospectus dated September 7, 2007 and amended on December 24, 2007 and investment statements dated December 28, 2007 about the company's financial position not changing materially or adversely since the company's last balance date were false.

Diplock said the commission had undertaken an extensive probe and its main reason for the civil action was to allow people who invested under the September 2007 prospectus to access compensation.

If the directors were found liable, it would open the way for either the commission or investors to make claims.

Graham this week questioned the time it had taken for the allegations to be made and the fact its prospectus had not previously raised any concerns. "The prospectus was prepared by management, commented on by the auditors and solicitors and then accepted by the Company Office. The document was sent to the trustee. None of these advised the board of any concerns with the final wording."

Graham also said in the three months between the prospectus being issued and the receivership the company received only $8.5 million in deposits and exactly how many investors had relied on the prospectus was unknown.

Regarding the civil proceedings, the commission said it had applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each of the four directors under the Securities Act. The proceedings were filed in the High Court at Wellington on April 1.

The commission acknowledged the assistance of PricewaterhouseCoopers, the Lombard Finance & Investments receivers, with the investigation.

Lombard Finance & Investments went into receivership in April 2008 owing about $127 million to 4400 investors. According to the receivers, secured debenture holders would likely receive up to 30 per cent of their investment back. Unsecured creditors would likely receive nothing.