CORRECT: The story behind the collapse of Allan Hubbard's financial empire
(Corrects details of Humphry Rolleston's sale of his company to Southbury in par 13)
By Jenny Ruth
May 6 (BusinessDesk) - Government officials wrongly decided after a flying visit to his Timaru headquarters that financier Allan Hubbard had stolen money from Aorangi Securities, an investment scheme he had been running.
And John Key’s cabinet put him, his wife, Jean, and Aorangi into statutory management based on this false premise, in June 2010.
That decision was effectively the nail in the coffin for Hubbard’s South Canterbury Finance which went into receivership in August 2010 and ended up costing taxpayers almost $1 billion and one group of stranded investors $120 million.
These are key facts in financial advisor Chris Lee’s very readable self-published book, The Billion Dollar Bonfire, detailing how and why SCF collapsed.
Lee’s portrayal of Hubbard makes no bones that he had deep flaws, including operating the same kind of Ponzi scheme that brought down famous fraudsters, New Zealand’s own David Ross and New York’s Bernie Madoff, both of whom are still serving lengthy prison sentences.
But Hubbard’s financial empire ran on one crucial difference: whereas Ross and Madoff used new investors’ money to pay off existing investors, Hubbard used his own money to make good any losses his investors suffered.
For unlike those fraudsters, Hubbard was no thief. The losses investors suffered occurred after the government had wrested control of his affairs and came at the hands of managers, such as former SCF chief executive Sandy Maier, Trustees Executors, receivers McGrathNichol and inept Treasury officials.
The profile Lee paints of Hubbard, who was born into poverty in Dunedin in 1928 and rose to control a billion dollar empire, only to see it fail catastrophically, doesn’t gloss over Hubbard’s many warts and idiosyncrasies.
And much of the way Hubbard wished to be perceived was untrue: “He saw a brand value in being taciturn, thrifty, homely, religious and secretive while projecting wisdom, kindness, loyalty and extreme, although undefined, wealth,” Lee writes.
That image was bolstered by Hubbard’s apparently frugal habits. He drove a mustard-coloured Volkswagen Beetle he bought in 1973 right up until his death in September 2011.
But Hubbard was actually a gambler and prone to excessive risk-taking while projecting an image of omniscience and infallibility.
Hubbard had teamed up with well-known businessman Humphry Rolleston, who now chairs tourism operator ANZCRO New Zealand and sits on the Infratil and Property for Industry boards, in the early 1980s.
Rolleston had sold Canterbury Finance to Hubbard’s Southbury, which owned SCF and other assets, in exchange for 23 percent of Southbury and effectively became the chief executive of the enlarged business. Rolleston grew it “with outstanding success” through to 2003 when he stepped down and sold out in 2004, Lee writes.
He says the lending SCF did after that was "mostly clueless,” and yet Hubbard helped so many people that he became revered.
“Hubbard was guilty of many illegalities, but theft of investor money was not one of them, as far as my research has revealed,” Lee writes.
If he had lived and had to face charges, he would have been lucky to avoid being convicted of fraud, Lee says. He was charged with about 50 fraud offences in July 2011.
“Yet I do not classify him as a thief. He behaved as though he was above the law, guided by a higher morality, and was genuinely committed to using his wealth to repay, with interest, every investor.”
But Hubbard’s sense that laws were to be obeyed by lesser men extended to refusing to wear a seat belt, as on the day he died in an accident as a passenger in Jean’s Honda.
Hubbard wasn’t guilty of the fraud a team of Securities Commission and Companies Office officials had accused him of in June 2010, although that didn’t become known until a court case in 2018. The statutory manager, Grant Thornton, which had been appointed on June 21, 2010, told the Companies Office on July 5, 2010 it had been mistaken.
Nevertheless, Grant Thornton published a report on July 10 of that same year continuing to allege Hubbard owed Aorangi tens of millions of dollars. Then-Commerce Minister Simon Power continued to allege Hubbard had been confirmed as stealing from Aorangi in a letter to a Hubbard supporter.
The revelation of the opposite came when former Aorangi director Duncan Brand successfully appealed the Companies Office action to bar him from acting as a director for four years.
The officials had believed Hubbard had taken money from Aorangi to buy farms; he had actually done the opposite, tipping farms he owned into Aorangi, discounting their valuations by about a third, to bolster its assets and subordinating his own interests to those of the other investors.
That was why by 2014, Grant Thornton was able to report that Aorangi’s investors had been repaid all their capital and that it had returned much of the $42 million Aorangi owed Hubbard’s estate, minus the roughly $23 million the statutory management had cost.
Lee knew Hubbard for 30 years, both professionally and later as a friend, and his portrayal of the man, as well as the details of Hubbard’s business affairs, honour a notable Kiwi, a flawed and complex eccentric with good intentions and a man who left his stamp for both good and ill on the history of New Zealand business.