Press Release – Serious Fraud Office
The Serious Fraud Office (SFO) announced today that it has laid a total of 92 criminal charges against the three directors of failed Gisborne finance company Rockforte Finance Limited (Rockforte).26 January 2012
SFO lays charges against directors of failed Gisborne finance company
The Serious Fraud Office (SFO) announced today that it has laid a total of 92 criminal charges against the three directors of failed Gisborne finance company Rockforte Finance Limited (Rockforte).
Nigel Brent O’Leary and Colin Mark Simpson each face 34 charges, and John Patrick Gardner faces 24 charges under the Crimes Act.
The alleged offences include theft by a person in a special relationship, false accounting, obtaining by deception, and false statements by a promoter. The charges carry maximum sentences of between seven and ten years imprisonment.
SFO Chief Executive Adam Feeley said the case was the penultimate finance company investigation to be concluded by the SFO, with only Hanover Finance still under investigation.
“We are pleased that there is now some clarity around this and most other finance company failures. We will be putting all necessary resources into managing our eight current finance company prosecutions through to an appropriate conclusion this year.”
Rockforte Finance was established in 2003 as a provider of consumer and commercial financial services The majority of its investors were from the Poverty Bay region. It operated under a trust deed that prohibited it from using investors’ funds to make loans to related parties in excess of 2% of its total tangible assets without the consent of the trustees.
The SFO allege that the directors allowed a significant portion of investors’ money to be used as a source of funding for their personal business interests in two companies – Gisborne Haulage and Michael Ward 1969 Ltd, which operated the “Jean Jones” label throughout New Zealand.
The MED’s National Enforcement Unit and Financial Markets Authority also provided support and assistance to the SFO on this case.
Mr Feeley said that the allegations underpinning the SFO charges were similar to many of its finance company investigations.
“Rockforte Finance is yet another finance company where people have endeavoured to make prudent investments in a company they believed made arms-length commercial loans and operated under the watchful eye of an independent trustee, but the reality has been something very different.”
He added that while the investors’ losses, at $3.86 million, were small compared to other finance companies and the majority were ultimately covered by the Crown Retail Deposit Guarantee Scheme (CRDGS), there was still significant public interest in the prosecution.
“The failure of Rockforte Finance, and the consequential failure of several other businesses, had a significant impact on the Gisborne community. It is important for investor and business confidence that the persons responsible for that failure are held to account.”
Mr Feeley said that while the investigations into finance companies were nearing a conclusion, the SFO were still dealing with a significant number of new cases, including 21 new investigations in the first half of the financial year, and a further 31 cases under prosecution.
1. Background to investigation
Rockforte Finance Limited was incorporated on 20 June 2003 and placed into receivership on 10 May 2010.
The SFO opened its investigation into Rockforte on 6 December 2010, following discussions with its Receivers, Indepth Forensic Limited. Rockforte was placed into liquidation on 15 February 2011. The Official Assignee was appointed liquidator.
Its predominant activity was financing the purchase of second-hand motor vehicles (primarily Japanese imports) with loans secured against the vehicles.
In February 2009, Rockforte obtained approval for acceptance into the CRDGS for a period of two years, however, the Crown Deed of Guarantee was withdrawn effective from 1 January 2010.
Rockforte operated under a Trust Deed which prohibited:
• The company providing financial accommodation to related parties with the trustee’s prior written consent, unless the funding was provided in the ordinary course of business, in writing, involved arms-length consideration, and during any 12 month period the aggregate value of related party transactions did no exceed 2% of total tangible assets (TTA); and
• The company from allowing the amount owing to Rockforte under financing receivables by any one debtor to exceed 10% of TTA, without the trustees prior written consent.
The SFO alleges that Rockforte applied investors’ funds in breach of those limitations.
2. Status of SFO finance company investigations and prosecutions
Waipawa Finance: Warren Pickett, former Director Waipawa Finance and Waipawa Holdings, was convicted of six Crimes Act charges relating to false statements by a promoter and misapplication of investor funds, and two charges under the Securities Act. Mr Pickett was sentenced to five years imprisonment.
National Finance: Trevor Allan Ludlow, former director of National Finance 2000 Limited, was convicted of six charges relating to misapplication of investor funds and sentenced to five years and seven months in prison.
John Gray, company accountant, pleaded guilty to three charges relating to misapplication of investor funds and was sentenced to 18 months imprisonment. Sentence was reduced on appeal to nine months home detention.
Bridgecorp: In May 2010, the SFO laid eight charges against Rodney Petricivic and seven charges laid against Robert Roest, relating to misapplication of investor funds, dishonest use of a document and making misleading statements to the company’s trustee. Trial date scheduled for 24 July 2012.
Five Star Finance: In November 2010, Nicholas Kirk, former Director Five Star Finance, pleaded guilty to two charges relating to misapplication of investor funds and was sentenced to two years and eight months in prison.
In October 2010, Marcus McDonald, former Director Five Star Finance, pleaded guilty to two charges relating to misapplication of investor funds and was sentenced to two years and three months in prison.
Seven charges each were also laid against Anthony Bowden and Neil Williams relating to misapplication of investor funds and dishonest use of a document. The trial of Bowden and Williams is scheduled for 18 June 2012.
Capital + Merchant Finance: In December 2010, the SFO laid three charges each against Neil Nicholls and Wayne Douglas relating to misapplication of investor funds and false statements by a promoter.
In July 2011, 4 additional charges relating to misapplication of investor funds were laid against Neil Nicholls and 3 additional charges relating to misapplication of investor funds were laid Wayne Douglas. The four charges were also laid against a third individual, Owen Tallentire. The trial for all charges is scheduled for I6 April 2012.
Belgrave Finance: In September 2011, the SFO laid a total of 60 charges against Raymond Scholfield, Shane Buckley and Stephen Smith relating to misapplication of investor funds and false statements by a promoter. The charges are yet to be committed for trial.
Dominion Finance: In October 2011, the SFO laid a total of 14 charges of misapplication of investor funds against Terence Butler, Barry Whale and Paul Cropp. And one other individual, who’s identity has been suppressed by the Court. The charges are yet to be committed for trial.
South Canterbury Finance: In December 2011, a total of 21charges were laid against Lachie McLeod, Terry Hutton, Graeme Brown and two other persons whose identities has been suppressed by the Court. The charges relate to misapplication of investor funds, obtaining by deception, false accounting and false statements by a promoter. The charges are yet to be committed for trial.
Rockforte Finance: In January 2012, the SFO laid a total of 92 charges Nigel O’Leary, John Gardner and Colin Simpson] relating to relating to misapplication of investor funds, obtaining by deception, false accounting and false statements by a promoter. The charges are yet to be committed for trial.
Hanover Finance: An investigation commenced by the SFO on 8 September 2010 is ongoing.
3. Crimes Act offences
Crimes Act 1961
Section 220 – Theft by person in special relationship
(1) This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person –
(a) to account to any other person for the property, or for any proceeds arising from the property; or
(b) to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.
(2) Everyone to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.
(3) This section applies whether or not the person was required to deliver over the identical property received or in the person’s possession or control.
(4) For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements.
Section 240 – Obtaining by deception or causing loss by deception
(1) Everyone is guilty of obtaining by deception or causing loss by deception who, by any deception and without claim of right –
(a) obtains ownership or possession of, or control over, any property, or any privilege, service, pecuniary advantage, benefit, or valuable consideration, directly or indirectly; or
(b) in incurring any debt or liability, obtains credit; or
(c) induces or causes any other person to deliver over, execute, make, accept, endorse, destroy, or alter any document or thing capable of being used to derive a pecuniary advantage; or
(d) causes loss to any other person.
(2) In this section, deception means –
(a) a false representation, whether oral, documentary, or by conduct, where the person making the representation intends to deceive any other person and –
(i) knows that it is false in a material particular; or
(ii) is reckless as to whether it is false in a material particular; or
(b) an omission to disclose a material particular, with intent to deceive any person, in circumstances where there is a duty to disclose it; or
(c) a fraudulent device, trick, or stratagem used with intent to deceive any person.
Section 242 – False statement by promoter, etc.
(1) Everyone is liable to imprisonment for a term not exceeding 10 years who, in respect of any body, whether incorporated or unincorporated and whether formed or intended to be formed, makes or concurs in making or publishes any false statement, whether in any prospectus, account, or otherwise, with intent –
(a) to induce any person, whether ascertained or not, to subscribe to any security within the meaning of the Securities Act 1978; or
(b) to deceive or cause loss to any person, whether ascertained or not; or
(c) to induce any person, whether ascertained or not, to entrust or advance any property to any other person.
(2) In this section, false statement means any statement in respect of which the person making or publishing the statement—
(a) knows the statement is false in a material particular; or
(b) is reckless as to the whether the statement is false in a material particular.
Section 260 – False accounting
Everyone 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.
(1). Fraud Detection: 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.”
(2). Fraud Investigation: 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