Directors of Capital + Merchant face further SFO charges

The Serious Fraud Office (SFO) has today laid eleven charges under the Crimes Act against two current and one former director of Capital + Merchant Finance Limited (C+M).

The charges relate to transactions involving just over $28 million that occurred between 2004 and 2006.

The SFO alleges that these transactions were entered into in breach of the restrictions contained in the company’s trust deed, and resulted in trusts controlled by the accused receiving benefits totalling approximately $15.9 million.

Acting SFO Director, Simon McArley, said “Confidence in the integrity of our financial markets will not be restored unless New Zealand investors believe there have been thorough investigations and, where appropriate, serious criminal charges laid against those responsible for the collapse of the finance companies.”

The three accused are Neal Medhurst Nicholls (55), Wayne Leslie Douglas (57) and Owen Francis Tallentire (64).

At the time C+M was placed into receivership the company owed over $165 million to approximately 7,000 investors.

The SFO commenced its investigation into C+M in March 2010 following a complaint from C+M receivers, Grant Thornton.

Initial charges were laid against Mr Nicholls and Mr Douglas under sections 220 and 242 of the Crimes Act in December 2010. The charges relate to the alleged non-disclosure of related party lending totalling approximately $14.5 million, to a Palmerston North development known as ‘The Hub Properties’.

Mr Nicholls and Mr Douglas will appear for trial in February 2012 in relation to these charges.

The SFO has laid Crimes Act charges against persons involved with several finance companies, including National Finance; Bridgecorp; Five Star Finance; and Capital + Merchant.

Mr McArley said that every investigation into a finance company that the SFO concludes enables more resource to be allocated to its remaining cases.

“It is important that the public understand the scale of resources allocated to the finance company failures, and the commitment the of the SFO investigative teams to concluding them.”

He said that the SFO’s additional funding for 2011/12 would not only help it conclude the remaining four finance company investigations as a priority, but would also ensure that the SFO was in a position to support other agencies with new investigations in the coming financial year.

The accused have been summonsed to make their first appearance in relation to these charges on 5th August at the District Court in Auckland.

1. Background to investigation

Capital + Merchant Finance Limited (C+MF) was incorporated on 18 January 2002. It operated as a finance company providing financial accommodation and mortgage facilities for commercial and residential property development. Funds for lending were sourced primarily from the issue of securities to the public in the form of debenture stock and convertible capital notes.

Mr Nicholls and Mr Douglas were the founding directors and beneficial owners of C+MF. Mr Nicholls was a Director until the company was placed in receivership in November 2007. Mr Douglas resigned as a Director in February 2007.

C+MF was placed into receivership on 23 November 2007. At the time of receivership, C+MF owed $167.1 million to approximately 7,000 investors. C+MF was placed into liquidation under the control of the Official Assignee on 15 December 2009.

2. Crimes Act offences

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) Every one 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 242: False statement by promoter, etc

(1) Every one 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.

3. 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 Statement of Intent 2011-14 sets out the SFO’s three year strategic goals and performance standards. It is available online at: www.sfo.govt.nz

ENDS

© Scoop Media