SFO Charges Result In Guilty Plea On $103 Million Fraud

Press Release – Serious Fraud Office

Former Datasouth Group (Datasouth) director, Gavin Clifford Bennett (53), today pleaded guilty to charges brought by the Serious Fraud (SFO) Office relating to a $103 million fraud involving a Ponzi-style scheme Mr Bennett was convicted on six representative …1 March 2012

Former Datasouth Group (Datasouth) director, Gavin Clifford Bennett (53), today pleaded guilty to charges brought by the Serious Fraud (SFO) Office relating to a $103 million fraud involving a Ponzi-style scheme

Mr Bennett was convicted on six representative charges under the Crimes Act relating to approximately 900 separate incidents of dishonestly using a document, and a further two charges of false accounting.

SFO Chief Executive, Adam Feeley, welcomed the guilty plea saying, “The collapse of Datasouth was a significant event in the Christchurch business community and caused widespread losses. Mr Bennett’s guilty plea brings to a satisfactory end one of SFO’s largest investigations in recent times.”

The Datasouth Group offered technology hardware for lease through Datasouth Business Solutions Limited, and provided finance for the technology leasing solutions through Datasouth Finance Limited.

The SFO alleged 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.

It was further alleged that Bennett falsified entries in Datasouth Finance financial statements by an estimated $38 million in order to retain the ongoing finance facility.

Mr Bennett used the dishonestly obtained funds to repay earlier false lease agreements in a manner similar to a Ponzi scheme.

Loan funds were also applied to meet business expenses and personal expenses.

Between April 2005 and March 2011 a total of approximately $7.8 million was paid either to personal New Zealand and Australian bank accounts controlled by Mr Bennett or applied to business credit cards that Mr Bennett used for personal expenses, though a small portion of that amount was used for genuine business expenses.

Significant areas of personal expenditure by Mr Bennett include:

• the rental for two luxury residential apartments in the Rocks, Sydney (A$463k);
• Regular payments to various female companions totalling (A$900k);
• Food and beverages (A$429k), a significant amount of which was spent at Hemmesphere bar and restaurant Sydney);
• International air travel for Bennett and on occasions various companions totalling (A$161k) including to Argentina, New York, Hong Kong, Las Vegas, New Caledonia, Rio de Janerio, San Francisco, Paris and London;
• Jewellery and flowers (including purchases at Tiffany & Co) (A$16k);
• Corporate car taxi expenses (A$53k); and
• Clothes and apparel (including purchases at Louis Vuitton, Cartier, Chanel, Giorgio Armani, Barney’s and Bloomingdales New York, Victoria’s Secret, Paul Smith, Gucci, Jimmy Choo, Harrods London) (A$163k).

The resulting financial loss to South Canterbury Finance was at least $23 million.

Datasouth went into liquidation in March 2011, leaving all 31 staff without employment.

Mr Bennett was remanded in custody for sentencing on 3 May 2012.

Mr Feeley said that while the guilty pleas in the Datasouth case avoided the time and cost of a trial, the SFO still faced the prospect of an extraordinarily busy year of fraud trials.

“We currently have 28 cases before the Courts, with a further 31 cases under investigation.”

“The volume of cases underscores the need for SFO to continue to work closely with other agencies and receivers and liquidators to ensure that the public has confidence that fraudsters are being brought to account.”

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Notes

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.

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, Mr Bennett prepared and submitted false financial statements to South Canterbury Finance in order to retain the ongoing 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

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ENDS

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