SFO caned as four men get costs of nearly $1m

The Serious Fraud Office has been criticised over a failed prosecution of four businessmen and ordered to pay almost $1 million towards their legal costs.

After a five-week trial in the High Court at Auckland last year, the men were acquitted of conspiracy to defraud and money-laundering charges over tax schemes involving $18 million of investors' money.

Investment banker John Anthony Reid, former accountancy firm partner Peter William Russel, lawyer and accountant John Donald Currie, and Peter Michael Connolly were accused of conspiring to "dupe" investors through alleged fictitious transactions.

Justice John Fogarty said that while he never doubted the schemes, Digi-Tech and NZIL, were tax-avoidance structures, he was not persuaded of a conspiracy to defraud investors.

Inland Revenue investigated the schemes and after initial concerns about a loan, it became "comfortable" with the transactions.

But Justice Fogarty said the SFO "seemed to ignore" the shifting position of the IRD and kept its investigation "in-house".

"One can understand SFO investigators, not being tax experts, thinking they were looking at a fraud."

Justice Fogarty was "troubled" by the SFO decision to pursue the case independently of the IRD and did not think the prosecution was "reasonably and properly pursued". "Had it been, I do not think that the SFO would have pursued a case contrary to the position being taken by the IRD."

But the SFO was justified in investigating the schemes and it might have had a case if the charges had been directed at deceiving the Commissioner of Inland Revenue, rather than the retail investors.

"The prosecution elected deliberately to lay the charges on the basis that the accused deceived the investors and 'consequentially' the Commissioner of Inland Revenue."

Justice Fogarty said the SFO appeared to think the court would have no sympathy for a case alleging deceit of the commissioner, or perhaps thought that kind of case was impossible.

He said the case could have focused on the contention that the transactions were not those promised to investors.

Justice Fogarty said Mr Connolly and Mr Currie should not have been charged, and awarded them full costs for the entire proceedings.

Mr Reid and Mr Russel were awarded partial costs.

Mr Connolly said he was grateful for the judgment but the costs did not take into account the "immense damage" caused by the SFO to his professional and personal reputation.

John Billington, QC, representing Mr Russel, said the judgment showed the men should never have been charged.

The SFO said yesterday it was considering an appeal.