A Companies Office prosecution of high profile people continues to creep its way through the court system, although nothing appears to have been heard of it publicly since last October.
Until now. And it’s back in court.
Lombard Financial Services and directors Bill Jeffries, a former Labour government minister and Hugh Templeton, a former National government minister, along with company executive Alan Beddie and chief executive Michael Reeves, face 27 collective civil and criminal counts under the Securities Act of allegedly misleading investors over a contributory mortgage offer for Village Care New Plymouth.
Mr Jeffries is a former Justice and Transport minister in the Lange/Palmer Labour governments of the 1980s. Mr Templeton is a former Customs and IRD minister in the Muldoon National government and is a New Zealand director for anti-corruption agency Transparency International.
The four, who faced further charges under the Securities Act relating to the ill-fated Ballantyne Golf Retirement Village in Katikati, denied the charges, which were first laid in 2003.
The case, which some say has implications across the investment spectrum with opinion divided as to whether the watchdog Securities Commission sank its teeth into a raw nerve or dropped its dentures on the way, began in the Wellington district court in August, 2005.
In a summary of the case against the Lombard Four, prosecutor Brian Dickey of Meredith Connell, said the fundamentals of the Village Care investment had been presented in “quite a misleading manner” to the public.
According to media reports at the time the Securities Commission alleged that Lombard Financial Services inflated the value of the rest home in question and misled investors by basing the investment’s value on the “going concern” of the business rather than the land and buildings, and did not adequately disclose this in offer documents in 2000.
It was also alleged the going concern valuation gave a more acceptable valuation than what the Securities Commission claimed was a much riskier land and buildings valuation.
The Commission also alleged that as part of the offer, Lombard included a debt security, namely a debenture over Village Care’s assets taken by the company on behalf of investors, without the required offer documents.
The company’s lawyers argued that any reasonable investor would not have been misled by the contributory mortgage offer.
According to a report in The Independent Business Weekly of July 27, 2005, Bruce Squire QC told the court the Ballantyne proposal did not proceed because it did not meet Lombard’s prudential standards and all funds, together with interest, were either returned to potential investors or, with their authority, placed in other investments.
The Independent’s Tim Donoghue reported Mr Squire saying Village Care’s funding was arranged through contributory mortgages in July 2000, which were refinanced by further contributory mortgages in 2001 and 2002.
Mr Squire was reported saying that although the further contributory mortgages in 2002 subsequently fell into default and interest payments were not then made, the later sale of the security for that contributory mortgages realized sufficient funds to repay all investors’ principal contributions in full together with some arrears of interest.
A week later, on August 3, 2005, The Independent’s Donoghue reported that Judge David Ongley found there was a case to answer and also allowed the prosecution to amend the charges to refer to Lombard and the directors as promoters rather than issuers of the offer, despite defence protestations that the case should be struck out.
But responding to earnest submissions from Lombard’s lawyers Judge Ongley agreed to refer his decision to the High Court for an opinion as to whether he had interpreted the law correctly and the case was adjourned part heard..
Justice Ron Young heard argument in March this year and within a few days issued a decision in which he agreed totally with Judge Ongley that there was a case for Lombard and its people to answer and the prosecution should proceed.
In his judgment Justice Young traversed in detail the district court’s amendment of charges to allege Lombard was the “promoter” rather than “issuer” of the relevant securities involved and therefore the other defendants, as directors of the promoter Lombard, were liable under the Securities Act.
Justice Young agreed that so far as the prosecution was concerned Lombard were always seen as the promoter and the informations alleging Lombard was the issuer were a prosecution error.
The prosecution, according to Justice Young, had always identified the objectionable conduct as arising from the actions of those who prepared and sent the investment material to the public inviting public subscription.
“That ‘person’ was Lombard and its directors,” Justice Young said.
“The informant’s case was built around what they alleged was this objectionable conduct. They, however, mis-described and thus mis-charged Lombard and the directors as issuers and principals of issuers rather than promoters,” the judge said.
The judge said the charges were always focused on the actions of Lombard and its officers as those who were responsible for the material which went to the public inviting subscription to a security to buy a New Plymouth rest home.
He said Lombard was the broker whose job it was to raise $3.43 million from investors to enable Village Care New Plymouth Ltd to buy Highland Lodge Rest Home.
Justice Young was satisfied that Judge Ongley was correct in law in finding there was a case to answer on the allegations that the statement in Lombard’s investment memorandum was untrue and/or likely to deceive, mislead or confuse and/or was false or misleading in the way the prosecution alleged.
Dismayed that the case got the go-ahead to proceed back in the district court Lombard lawyers this month (June 19) petitioned for leave to appeal the rulings to the Court of Appeal and a reserved decision is awaited.
Meanwhile, away from the courts, the Dominion Post reported on January 31, 2006 that in a plan to bolster its balance sheet and take on other financial services companies, the New Zealand Stock Exchange’s latest addition, Lombard Group (Lombard Financial Services parent), wanted to raise $10.5 million by issuing 350 million three cent shares.
Issuing more shares would take the number of Lombard stocks to 2.65 billion, according to the Dominion Post’s Adrian Bathgate.
Chief executive Michael Reeves was reported saying the primary objective was to get more cash in hand, but he said Lombard was also “shopping around” for assets in what he described as an overheated market. (The offer was extended to the end of May and fully subscribed).
In March came an announcement from Lombard Group that it would establish an insurance firm, and had contracted with Marsh – the world’s leading risk specialist and insurance broker – to provide the necessary consulting services.
Mr Reeves was reported saying that establishing an insurance business was a natural move as Lombard built on what he described as its solid base in commercial lending and finance.
On June 9 Chris Hutching and Duncan Bridgeman reported in the National Business Review that Lombard Group was one of four finance companies to join South Canterbury Finance in a last minute bid to rescue Christchurch-based Provincial Finance from liquidation. Part of Provincial Finance’s downfall came from lending millions of dollars to a Waikato-based mortgage scam involving about 30 accused, including 5 lawyers (See “King Pin Coughs” story on this site).
However the rescue bid failed because the amount required was greater than originally thought.
Back to the court proceedings.
Now, as in a lot of cases that involve famous people accused of diddling investors, there are those who will see conspiracies under every promissory note.
So it’s no surprise that eyebrows have been raised as to why the National Business Review, not usually an organ to shrink from parading the misfortunes of famous folk in trouble with the law, has yet to run any story explaining what the Lombard prosecution is all about.
Oh sure, there’s been the odd little bit about parent company Lombard Group’s perfectly legal back door entry to the stock exchange through Pure New Zealand, a passing mention of its financial results and even a few words making little more than a passing reference to the prosecution.
On October 7, 2005 NBR’s Duncan Bridgeman, in a story picking the “finance industry hot list,” described related company Lombard Finance as “another success story.” Bridgeman mentioned briefly that a related company which he did not name but said brokered contributory mortgages, had been in “a legal dispute with the Companies Office over technical issues relating to two offer documents.” Bridgeman reported the unnamed company – presumably Lombard Financial Services - exited the contributory mortgage business in 2002
“While the court case is still undecided, Lombard appears to have its house in order, with latest results showing a rapid improvement in profitability, net worth and gearing,” Bridgeman wrote.
But there’s nothing there to really get your teeth into.
Not even righteous condemnation of the Securities Commission for what some people at NBR might regard as unwarranted and spiteful persecution of decent chaps. Why?
As already stated the charges against the company and the Lombard Four went before the Wellington district court in August 2005 where Judge David Ongley found there was a case for them to answer but agreed to allow his decision to be tested in the High Court.
The case was widely reported in the media, including other business press, at the time.
So how did National Business Review miss the boat?
Was it not news that directors of a finance company involved in the business of contributory mortgage lending faced not one but 27 charges effectively accusing them of pulling an orchestrated fast one over potential investors?
Was it not news that two of those directors, Bill Jeffries and Hugh Templeton, were former high ranking Ministers of the Crown?
Was it not news that a challenge to the prosecution was mounted in the High Court?
Was it not news that the chairman of the Lombard group of companies, who does not face any charges, is a lawyer and distinguished former National Minister and Attorney-General Sir Douglas Graham?
Was it not news that a fellow director who also does not face any charges is Lawrie Bryant, who in another life loyally served the Monarch?
Was it not news that Lawrie Bryant’s son and heir Nicholas Bryant, whose family, according to Company Office records, have the good fortune to hold four million Lombard Group shares, was for two years news editor of National Business Review until his departure this month to join a new insurance subsidiary of Lombard Group?
Did someone figure that readers of the National Business Review would not be interested in this story, or that it just wasn’t news or did it simply slip under everyone’s radar?
Watch this space.
Editor’s Note: It should be clearly understood that the Lombard directors and company officers charged in this matter have at all times professed their innocence of the allegations and no charges have been laid against any other directors or officers of any other Lombard companies. As stated in this report Lombard exited the contributory mortgage business in 2002.
And before the rumour mill gets well and truly cranked up Bill Jeffries did not appoint Hamilton Labour stalwart “Red” Ron Young to the district court in 1988, where he rose to the rank of chief district court judge in 1993 before former Attorney-General Margaret Wilson promoted him to the High Court in 2001. It was somebody else.
Feedback on this story to jockanderson@ihug.co.nz Posted June 30, 2006.
