Press Release – Serious Fraud Office
The Serious Fraud Office (SFO) today laid charges against former Datasouth Group Director Gavin Clifford Bennett (53), alleging that he orchestrated a $103 million fraud involving a Ponzi-style scheme and false accounting.10 November 2011
Former Datasouth Director accused of $103 million fraud
The Serious Fraud Office (SFO) today laid charges against former Datasouth Group Director Gavin Clifford Bennett (53), alleging that he orchestrated a $103 million fraud involving a Ponzi-style scheme and false accounting.
Mr. Bennett is facing six representative charges under the Crimes Act relating to approximately 900 separate incidents of alleged misuse of a document, and a further two charges of false accounting.
The Datasouth Group offered IT services, including consultancy and the lease of IT equipment, to business customers in Christchurch. The group was made up of a number of companies, including Datasouth Finance Limited (Datasouth Finance), on which the SFO investigation focused.
The SFO alleges that between April 2005 and March 2011, Mr. Bennett created false documents relating to the lease of IT equipment to fraudulently obtain funds from South Canterbury Finance totalling approximately $65 million
He is also accused of falsifying entries in Datasouth Finance financial statements by an estimated $38 million in order to retain the ongoing finance facility.
The SFO alleges that Mr. Bennett used the dishonestly obtained funds to repay earlier false lease agreements in a manner similar to a Ponzi scheme and to meet business expenses. He also allegedly used a significant amount of money for his own personal benefit. Ultimately, the resulting financial loss to South Canterbury Finance was an estimated $26 million.
As a direct result of the alleged offending, the Datasouth Group went into liquidation in March 2011, leaving all 42 staff without employment.
SFO Chief Executive Adam Feeley says “The findings of our investigation allege a very sustained and large-scale fraud that not only had a very significant financial impact on South Canterbury Finance, but also, ultimately, on the staff of Datasouth.”
The SFO opened its investigation into Datasouth Finance Limited on 21 March 2011.
The SFO investigation into Datasouth is entirely independent from its investigation into South Canterbury Finance, which is ongoing.
1. Background to investigation
In the mid-1990s Mr. Bennett established a business which came to be known as the Datasouth Group. It was made up of a number of companies, including Datasouth Finance Limited (Datasouth Finance). The Datasouth Group of companies was owned by Mr Bennett alone.
The group was based in Christchurch and provided a variety of IT related services, including network design and integration; data management solutions; consultancy; and hardware leasing. The latter was the area of focus for the SFO’s investigation.
Customers of the Datasouth Group wishing to lease IT equipment would enter into a “Hire Agreement” with Datasouth Finance to acquire specific equipment. The purchase of the equipment to be leased was then financed by South Canterbury Finance Limited (South Canterbury Finance) and was arranged pursuant to a finance agreement between Datasouth Finance and South Canterbury Finance.
The SFO alleges that Mr. Bennett falsified agreements between Datasouth Finance and its customers, and then presented these, as if genuine, to South Canterbury Finance in order to secure funding.
In addition, the SFO is alleging that Mr Bennett prepared and submitted false financial statements to South Canterbury Finance in order to retain the on-going finance facility.
2. What is a Ponzi Scheme?
A Ponzi scheme is typically an investment fraud that involves the payment of purported returns to existing investors from funds that have been contributed by new investors, rather than genuine returns from the investment scheme.
In a lending scenario, it involves soliciting new, larger loans from new or existing funding sources to pay off earlier loans that have fallen due, along with using a portion of the funds for personal expenses.
3. Crimes Act offences
Section 228: Dishonestly taking or using document
Every one is liable to imprisonment for a term not exceeding 7 years who, with intent to obtain any property, service, pecuniary advantage, or valuable consideration,—
(a) dishonestly and without claim of right, takes or obtains any document; or
(b) dishonestly and without claim of right, uses or attempts to use any document.
Section 260: False Accounting
Every one is liable to imprisonment for a term not exceeding 10 years who, with intent to obtain by deception any property, privilege, service, pecuniary advantage, benefit, or valuable consideration, or to deceive or cause loss to any other person,—
(a) makes or causes to be made, or concurs in the making of, any false entry in any book or account or other document required or used for accounting purposes; or
(b) omits or causes to be omitted, or concurs in the omission of, any material particular from any such book or account or other document; or
(c) makes any transfer of any interest in a stock, debenture, or debt in the name of any person other than the owner of that interest.
4. Role of the SFO
The Serious Fraud Office (SFO) was established in 1990 under the Serious Fraud Office Act in response to the collapse of financial markets in New Zealand at that time.
The SFO operates three investigative teams:
• Fraud Detection & Intelligence;
• Financial Markets & Corporate Fraud; and
• Fraud & Corruption.
The SFO operates under two sets of investigative powers.
Part 1 of the SFO Act provides that it may act where the Director “has reason to suspect that an investigation into the affairs of any person may disclose serious or complex fraud.”
Part 2 of the SFO Act provides the SFO with more extensive powers where: “…the Director has reasonable grounds to believe that an offence involving serious or complex fraud may have been committed…”
The SFO’s Annual Report 2011 sets out its achievements for the past year, while the Statement of Intent 2011-2014 sets out the SFO’s three year strategic goals and performance standards. Both are available online at: www.sfo.govt.nz