SFO Concludes Finance Company Investigations
30 April 2013
SFO Concludes Finance Company Investigations
The Serious Fraud Office (SFO) has completed its investigation of Hanover Finance Limited, bringing to an end its investigations into the 2007/08 finance company collapses. That process, which saw SFO investigate 15 separate companies, resulted in criminal prosecutions in relation to nine companies. Overall, 23 individuals have faced charges laid by SFO.
The last of the investigations, into Hanover Finance Limited and related companies, took 32 months. SFO today announced it will not be proceeding with criminal charges in this case.
“This has been by far the most extensive and challenging of the finance company investigations undertaken by SFO,” said Acting SFO Chief Executive Simon McArley.
Since September 2010, SFO has analysed more than 107,000 pages of documentary evidence and interrogated over 3,730 gigabytes of electronic data. Fifty-four interviews have been conducted over 120 hours, and more than 30 individual loans or other transactions of interest have been identified and reconstructed. Overall, around 12,700 hours have been spent analysing that evidence. Expert opinion advice has also been considered from eight external advisors.
From that evidence and advice, SFO believes that serious questions arise as to:
The consistency between the overall view of the nature and financial condition of the companies disclosed to investors in the period from December 2007, and the actual position of the companies;
The solvency of the companies at the times that dividends were paid during the six months immediately prior to the suspension of payments to depositors in July 2008;
The propriety of a number of transactions entered into in the three months immediately prior to the suspension of payments to depositors that appear to have provided little or no benefit to the companies, while conferring some significant benefits on the related parties;
of the valuation of the companies’ assets in the financial
statements supporting the Debt Repayment Proposal put to
investors in November 2008.
However, in order for criminal charges to be successful it is necessary not only to prove beyond reasonable doubt that these circumstances occurred and that they breached the companies’ legal obligations, but that identified individuals in control of the companies had both knowledge of the circumstances and caused them to occur with dishonest intent.
“Recent decisions relating to other failed finance companies have highlighted how difficult it is to satisfy this standard,” said Simon McArley.
“SFO’s prosecution decisions must also be made within the context of the Solicitor-General’s Prosecution Guidelines. These require me to be satisfied that there is a reasonable prospect, based on credible and admissible evidence, that an impartial jury could be satisfied, beyond reasonable doubt, that the person prosecuted has committed a criminal offence. On the basis of the evidence currently available, SFO is not able to reach that threshold. As a result it is unable to commence any criminal charges in relation to Hanover Finance and its related companies.”
Simon McArley said SFO remains open to reconsider its decision if fresh evidence as to the actual knowledge and intent of those in control of the company becomes available.
“While many may view the conduct that occurred at Hanover Finance as egregious, that alone is not sufficient for me to commence a prosecution,” he said.
“This is a case that has attracted huge public attention and is of significant public interest. I believe that this justifies the vast time and resources that SFO has dedicated to it. However, we have now exhausted every available avenue of enquiry and the time has come to move on and focus our resources elsewhere.”
“While this has been an extremely difficult decision to make, I’m convinced that it is not only the right one but the only possible decision on the basis of the available evidence. The decision has not been reached in a vacuum. I have consulted with the Crown Solicitors, leading criminal Queen’s Counsel, and the Deputy Solicitor-General,” he said.
SFO has coordinated its activities fully with the civil claims being pursued by the Financial Markets Authority (FMA), and will provide all the information and evidence possible to assist FMA in those claims for compensation of the investors.
“The vast majority of the information we have accumulated has already been shared with FMA, but if there is any additional material we can provide to assist we will do so,” said Simon McArley.
“We will now be reviewing the evidence we have gathered to see if other referrals are appropriate,” he said.
Finance Company Investigations:
Since 2010 SFO has investigated the affairs of 15 separate finance companies that collapsed between 2007 and 2010.
Criminal charges have been laid in nine of the cases investigated and convictions have so far been obtained in seven of those cases. Overall, 23 individuals have faced charges.
Of the six cases SFO did not proceed with, four have been the subject of proceedings or regulatory action brought by FMA or other agencies.
Four cases remain in prosecution, with the prosecution phase likely to continue until April or May 2014. The remaining prosecutions comprise:
· One remaining defendant, Neill Williams, faces charges relating to Five Star Group;
· One remaining defendant, Hugh Hamilton, faces charges relating to Belgrave Finance Limited. The trial is set down to commence on 10 February 2014, in the High Court at Auckland. A fourth defendant, Raymond Schofield was granted a stay of prosecution on the grounds of terminal illness in December 2012, conditional upon review in July 2013;
· All defendants, being John Gardner, Nigel O’Leary and Colin Simpson, face charges in relation to Rockforte Finance Limited. The trial is set down to commence on 30 September 2013, in the High Court at Gisborne;
· All defendants, being Graeme Brown, Terry Hutton, Lachie McLeod, Edward Sullivan and Robert White face charges in relation to South Canterbury Finance Limited. The trial is set down to commence on 12 March 2014, in the High Court at Timaru.
Background to investigation
Hanover Finance Limited and related companies:
On 23 July 2008 Hanover Finance Limited and United Finance Limited announced that they would be unable to meet their obligations to depositors and were proposing to put a debt rescheduling proposal to depositors. At that time the companies owed a substantial amount to secured creditors and unsecured note holders. A formal proposal was put to depositors in November 2008 and accepted by the required majority in December 2008.
Both companies were ultimately subsidiaries of Hanover Group Holdings Limited. In November 2009 both companies entered into an agreement to sell their financial assets to Allied Farmers Limited. That transaction was completed in December 2009 when depositors agreed to accept equity securities issued by Allied Farmers in exchange for the amounts owed to them by the companies.
After considering complaints received from the Securities Commission, Allied Farmers and others, the Director determined that an investigation into the affairs of Hanover Finance Limited may disclose serious or complex fraud. An investigation under Part I of the Serious Fraud Office Act was commenced on 7 September 2010.
Following the collection of further information the Director determined that there was reasonable evidence to believe an offence involving serious or complex fraud may have been completed. The investigation was accordingly upgraded to a Part II investigation on 18 November 2010.
Role of 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.
SFO operates three investigative teams:
• Evaluation & Intelligence;
• Financial Markets & Corporate Fraud; and
• Fraud & Corruption.
SFO operates under two sets of investigative powers.
Part I 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 II of the SFO Act provides 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…”
SFO’s Annual Report 2012 sets out its achievements for the past year, while the Statement of Intent 2012-2015 sets out the SFO’s three year strategic goals and performance standards. Both are available online at: www.sfo.govt.nz
Solicitor-General Prosecution Guidelines
The purpose of the Guidelines is “to ensure that the principles and practices as to prosecutions in New Zealand are underpinned by unified values. These values aim to achieve consistency in key decisions and trial practices. If these values are adhered to, New Zealand will continue to have prosecution processes that are open, fair to the defendant, witnesses and the victims of crime, and reflect the proper interests of society.”
THE TEST FOR PROSECUTION
The Test for Prosecution is met if:
(i) The evidence which can be adduced in Court is sufficient to provide a reasonable prospect of conviction – the Evidential Test; and
(ii) Prosecution is required in the public interest – the Public Interest Test.
The Evidential Test must be satisfied before the Public Interest Test is considered. The prosecutor must analyse and evaluate all of the evidence and information in a thorough and critical manner.
THE EVIDENTIAL TEST
A reasonable prospect of conviction exists if, in relation to an identifiable individual, there is credible evidence which the prosecution can adduce before a court and upon which evidence an impartial jury (or Judge), properly directed in accordance with the law, could reasonably be expected to be satisfied beyond reasonable doubt that the individual who is prosecuted has committed a criminal offence.
THE PUBLIC INTEREST TEST
Once a prosecutor is satisfied that there is sufficient evidence to provide a reasonable prospect of conviction, the next consideration is whether the public interest requires a prosecution. It is not the rule that all offences for which there are sufficient evidence must be prosecuted. Prosecutors must exercise their discretion as to whether a prosecution is required in the public interest.
PUBLIC INTEREST CONSIDERATIONS
The predominant consideration is the seriousness of the offence. Where a conviction is likely to result in a significant penalty including any confiscation order or disqualification, then there is a strong public interest for a prosecution. Factors considered in this regard include:
1. Where the defendant was in a position of authority or trust and the offence is an abuse of that position;
2. Where the defendant was a ringleader or an organiser of the offence;
3. Where the offence was premeditated;
4. Where the offence was carried out by a group;
5. Where the offence has resulted in serious financial loss to an individual, corporation, trust person or society;
6. Where there is any element of corruption;
7. Where the defendant has previous convictions, diversions or cautions which are relevant;
8. Where there are grounds for believing that the offence is likely to be continued or repeated, for example, where there is a history of recurring conduct.
Public interest considerations against prosecution include:
1. Where the Court is likely to impose a very small or nominal penalty;
2. Where the offence is not on any test of a serious nature, and is unlikely to be repeated;
3. Where there has been a long passage of time between an offence taking place and the likely date of trial such as to give rise to undue delay or an abuse of process unless:
a. the offence is serious;
b. delay has been caused in part by the defendant;
c. the offence has only recently come to light; or
d. the complexity of the offence has resulted in a lengthy investigation.
4. Where a prosecution is likely to have a detrimental effect on the physical or mental health of a victim or witness;
5. Where the defendant is elderly or a youth;
6. Where the defendant has no previous convictions;
7. Where the defendant was at the time of the offence or trial suffering from significant mental or physical ill-health;
8. Where the victim accepts that the defendant has rectified the loss or harm that was caused (although defendants must not be able to avoid prosecution simply because they pay compensation);
9. Where the recovery of the proceeds of crime can more effectively be pursued by civil action;
10. Where any proper alternatives to prosecution are available.