By 3 News online staff
After 61 days of evidence, 40 witnesses and months of hearings, the three men at the centre of one of New Zealand’s longest and most expensive fraud trials are due to hear their fate today. Here’s a background to the fall of South Canterbury Finance.
What was South Canterbury Finance?
Once New Zealand's largest independent finance company, South Canterbury Finance (SCF) was a major property lender and investor in the South Island. The company started out as a small-time lender in Timaru during the 1920s and exploded into an economic powerhouse under the leadership of the late Alan Hubbard.
By the mid-2000s the company had 35,000 investors and assets worth around $2 billion, including major stakes in Dairy Holdings Limited, Helicopters NZ and Scales Corporation.
Things started unravelling in 2008 with the onset of the Global Financial Crisis. SCF announced losses of $67.8 million the following year and the company went into receivership on August 31 2010, prompting a $1.6 billion government pay-out under the Retail Deposit Guarantee Scheme.
Who has been charged?
A total of 18 charges have been laid against:
- Former chief executive Lachie McLeod, 50
- Former board member Edward Sullivan, 73
- Former board member and accountant Robert White, 71
The Crimes Act charges include theft by a person in a special relationship, false accounting, obtaining by deception and false statements by the promoter of a company.
The accused maintain their innocence and have been fighting the case in the Timaru High Court. They face a maximum penalty of seven to 10 years imprisonment.
What went wrong?
The Serious Fraud Office (SFO) believes McLeod, Sullivan and White were aware of a plan to cook SCF's books ahead of an application to the Government's Retail Deposit Guarantee Scheme in 2008.
Designed to keep business confidence high during the Global Financial Crisis, the scheme offered investors a full guarantee on any funds despotised into approved banks and institutions. SCF made an application in late 2008 and was approved for the scheme allegedly on the back of false financial statements provided by company officials. The company immediately began to reap the benefits as depositors rushed to take advantage of their high interest rates, safe in the assurance the Government would return their money if it went under.
Despite the downturn of the global economy, SCF began to use the money to substantially increase its risk portfolio and soon ran into trouble when investments fell through. The company owed depositors $1.7 billion when it went into voluntary receivership in August 2010.
What is the Crown case?
Prosecution lawyers claim McLeod, Sullivan and White were involved in the dealings of former company chairman Alan Hubbard, who died in a car crash in 2011.
Crown lawyer Colin Carruthers QC described Hubbard as a man who evaded and detested regulations, saying the ordinary rules of accounting and business had been ignored or broken.
McLeod, Sullivan and White had failed to restrain the chairman and signed prospectuses which falsely set out the company's position, the court heard. The bogus information was passed to Treasury and gave SCF an unjustified place in the Government's Retail Deposit Guarantee Scheme.
Describing the case as the "biggest fraud in New Zealand history", lawyers said McLeod, Sullivan and White hid the truth on a regular basis and cooked the books under Hubbard's direction.
What is the defence case?
Defence lawyers came out swinging against the Serious Fraud Office, saying investigators had operated on an assumption of guilt and failed to carry out key interviews and searches.
They criticised investigators for failing to interview the official who approved SCF's place in the Retail Deposit Guarantee Scheme - former Secretary of the Treasury John Whitehead - and for not obtaining key Treasury and Reserve Bank documents.
Sullivan's lawyer Marc Corlett said the SFO investigation had been so poor the defence often had to carry out its own forensic work to get to the facts. He also criticised the Crown's "mindboggling" failure to question the three accused about SCF's entry into the guarantee scheme.
source: newshub archive