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Four charged following Dominion Finance investigation - SFO

Four charged following Dominion Finance investigation

Four people have appeared in the Auckland District Court today on charges relating to failed finance companies Dominion Finance Group Limited (DFG) and North South Finance Limited (North South), following an investigation by the Serious Fraud Office (SFO). Both companies were wholly owned subsidiaries of NZX listed Dominion Finance Holdings Limited (Dominion Finance).

Two former company Directors, Terence Maxwell Butler (64) and Robert Barry Whale (64), and former Dominion Finance CEO Paul William Cropp (48) appeared to face the charges, along with a fourth person who is subject to a non-publication order.

The defendants are facing a combined total of 14 charges under the Crimes Act of theft by a person in a special relationship.

It is alleged that between 2004 and 2008, the defendants participated in unauthorised related party lending totalling over $20 million, in breach of the trust deeds entered into by DFG and North South.

SFO Chief Executive Adam Feeley says "These charges conclude the twelfth investigation into a finance company by the SFO, with only a further three yet to be completed. Of those concluded, eight have resulted in charges being laid by the SFO, and a further one was charged by another agency.

"The remaining investigations - South Canterbury Finance; Rockforte Finance; and Hanover Finance, are well advanced and nearing conclusions."

DFG was placed into receivership on 9 September 2008 and Dominion Finance entered voluntary administration the following month. Receivers were then appointed to North South in July 2010. In total, the three entities owed approximately 6,000 investors and lenders an estimated $400 million.

The SFO opened its investigation into DFG and North South in October 2010, following a referral from the Securities Commission (now FMA).

Notes for Editors

1. Background to investigation

Dominion Finance Group Limited (DFG) and North South Finance Limited (North South) were the operating subsidiaries of NZX listed Dominion Finance Holdings Limited (Dominion Finance). Both companies traded as a finance company offering commercial and property loans and accepting deposits from the public.

Both companies suspended performance of their obligations to investors in July 2008 and proposed moratorium arrangements.

The Trustee appointed for the DFG depositors, Perpetual Trust Limited, declined to support the proposal and the company was put into receivership in September 2008. At the time of the appointment of receivers DFG owed 5,937 debenture holders approximately $177 million. Wholesale lenders were owed approximately an additional $55 million.

The Trustee acting for the North South depositors, Covenant Trustee, accepted the proposal and the moratorium continued until July 2010, at which time receivers were appointed. Liquidators were subsequently appointed on 17 September 2010. At the time of the appointment of receivers, North South owed debenture holders approximately $31 million. In addition, wholesale lenders were owed approximately $15 million. The receivers are yet to estimate the likely recovery.

Parent company Dominion Finance entered voluntary administration on 15 October 2008. Following an administrators recommendation to that effect, it was placed into liquidation on 3 February 2009. It has an estimated deficit owed to creditors of in excess of $115 million.

In total the group is recorded as having unpaid creditors in the region of $400 million.

After considering a referral received from the Securities Commission (now FMA), the Director determined that an investigation into the affairs of Dominion Finance may disclose serious or complex fraud. An investigation under Part II of the Serious Fraud Office Act was commenced on 28 October 2010.

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.

3. Chronological summary of SFO finance company investigations

1) Waipawa Finance - Charges laid and conviction secured.

2) Clegg Finance - Closed without charging. Prior conviction secured by Ministry of Economic Development.

3) National Finance - Charges laid and conviction secured, further charges to be tried by the FMA.

4) Bridgecorp - Charges laid, trial pending

5) Capital + Merchant Finance - Charges laid, trial pending

6) Five Star Finance - Charges laid and convictions secured, further charges to be tried

7) Nathans Finance Limited - Closed without charging. Prosecution completed by FMA

8) Kiwi Finance - Closed and referred to FMA

9) Mutual Finance & Viaduct Capital Limited - Closed and referred to FMA

10) Capital + Merchant (No.2) - Further charges laid, trial pending.

11) Belgrave Finance - Charges laid, trial date to be determined.

12) Dominion Finance - Charges laid, trial date to be determined.

13) Rockforte Finance - Under investigation.

14) South Canterbury Finance - Under investigation.

15) Hanover Finance - Under investigation.

4. The 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 2011-2014 sets out the SFO's three year strategic goals and performance standards. It is available online at: http://www.sfo.govt.nz

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