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Former Reeves Moses Hudig directors Roger Moses and Gary Stevens start their defence of securities law breaches today (Tuesday) minus the bulk of the charges laid against them.
They faced more than 30 charges under both the Securities Act and the contributory mortgage regulations.
Judge John Hole yesterday dismissed the charges laid under the regulations after hearing a day of argument from the defence. He is still considering whether there is a case under section 59 of the act, but has found there is a case under section 58.
The judge has not yet given his reasons for dismissing some of the charges.
The defence application, by Raynor Asher QC for Moses, supported by Chris Morris for Stevens, came at the end of a four-day prosecution case in the Auckland District Court.
The charges Moses and Stevens face relate to development loans Reeves Moses made on four projects.
It is alleged that the two men, as directors of Reeves Moses Hudig Mortgage Brokers Ltd and Reeves Moses Hudig Nominee Co Ltd, distributed, or allowed to be distributed, misleading and incorrect offer and allotment documents to the public.
Moses and Stevens have denied the charges.
Opening the prosecution last week, prosecutor Brian Dickey said the two men were obliged under the Securities Act to know what happened in their companies, and to know when their employees were not acting properly with contributors' funds.
Under the act and the regulations they faced strict liabilities. Section 58 of the Securities Act made them criminally liable for misstatement in an advertisement or a prospectus, and section 59 made them liable for offering, distributing or allocating securities in contravention of the act.
Dickey said the defendants were liable as directors for the actions of the broker who worked for them under regulation 41. Regulation 21F required sufficient funds to be available to complete a project at the time of a drawdown, and under regulation 33 a broker must not allow any security to rank equal to, or above, the contributory mortgage without the consent of all contributors.
Asher said yesterday the liabilities on directors under the regulations were extreme, but not absolute.
He said that if the information provided to directors by an employee was not correct, they were susceptible, and the legislators clearly accepted people could run a business without that close a degree of day-to-day control.
Two of the Crown's witnesses spoke of documents from a master file, but said in cross-examination they had nothing to do with such a file in their work.
Asher said, in reference to forward-looking documents on mortgage investments, "the fact that a rogue employee might have a certain intention about a future event does not make a statement by the corporation about that event untrue."
Judge Hole suggested Asher was making this too simplistic: "One employee could be a cleaner. The one we're talking about is a key employee. There could be a difference."
Morris told the judge that under section 58: "There is an absolute ban on conviction if the contravention did not take place with his [the director's] knowledge and consent. There is no evidence that this contravention took place with the director's knowledge and consent."
Dickey said his reference to untruthfulness was in relation to letters to contributors, and the directors had consented to those letters being sent.
The case is continuing.
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