Two former directors and the Chief Executive of failed finance company Capital+Merchant Finance Limited (Capital+Merchant) were found guilty of fraud charges in the Auckland High Court on July 19, 2012.
The Serious Fraud Office (SFO) brought the charges against Neal Medhurst Nicholls (56), Wayne Leslie Douglas (58) and Owen Francis Tallentire (65).
Mr Nicholls and Mr Tallentire faced four charges, while Mr Douglas faced three charges in an investigation relating to transactions involving approximately $28 million that occurred between 2004 and 2006.
It was alleged that these transactions (collectively known as the ‘Clyde 1 & 2’ and ‘Numeria 1 & 2’ Transactions) were 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.
Incorporated on January 18, 2002, Capital+Merchant 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.
The Company was placed into liquidation under the control of the Official Assignee in December 2009.
Guilty and otherwise
All defendants were found guilty in respect of the charges relating to Clyde 1 & 2
Mr Nicholls and Mr Douglas were also found guilty in respect of the Numeria 1 transaction.
Mr Tallentire was found not guilty in respect of Numeria 1 & 2 and Mr Nicholls and Mr Douglas were found not guilty in respect of Numeria 2.
Mr Nicholls and Mr Douglas, also jointly faced charges under the Crimes Act of theft by person in special relationship and jointly one charge of false statement by promoter.
These charges related to the non-disclosure of alleged related party lending of about $14.4 million to a Palmerston North development known as ‘The Hub Properties.’
Both were found not guilty on these charges.
SFO Chief Executive Adam Feeley said that while the collapse of Capital+ Merchant had not received the same attention as some other failed finance companies, the two investigations into its affairs were among the highest priorities for his Office.
“Thousands of New Zealanders’ lives were irrevocably changed for the worse from the collapse of Capital+Merchant. Its failure was as bad as anything, which occurred in the industry, with $190 million invested in it by approximately 7000 members of the public. Nothing has been recovered for them, in contrast to most other finance company collapses where at least some recoveries have been made,” he said.
Mr Feeley said that the case was one of the most important commercial fraud cases in recent years.
“This was a hugely complicated case involving deeply cynical transactions. The defendants used convoluted legal structures and opaque accounting methods to fool the public into investing for one purpose and then using that money for other, unauthorised, purposes. The decision makes it clear that directors will be held accountable where they fail to act in accordance with their obligations to investors.”
The SFO’s two investigations in Capital+Merchant were conducted over a period of 16 months, followed by two trials lasting eight weeks.
Mr Feeley said that the case highlighted the complexity and scale of commercial frauds, and the skills required to successfully conclude them.
“This case involved hundreds of hours of painstaking forensic analysis and the results are a tribute to the team that worked on it,” he said.
SFO commenced its investigation into the failed finance company in March 2010 following a complaint from receivers, Grant Thornton.
Mr Feeley said that the cooperation of the Receivers was an important part of the success of the investigations and prosecutions.
“The support of the insolvency profession is critical to uncovering fraud, and we are grateful to the Receivers for their assistance to our investigation.”
Mr Nicholls, Mr Douglas and Mr Tallentire have been remanded in custody for sentencing on August 31, 2012.
A Serious Fraud Office Press Release