Commission closes contributory mortgage firm

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The Securities Commission has stepped in and closed yet another contributory mortgage firm where investors have lost money.

Wednesday, June 25th 2003, 9:40PM

Another contributory mortgage firm, General Mortgage, has been shut down by the Securities Commission, this time because it “failed to meet the standards of care and governance expected from those who raise funds from the public.”

It is understood there are 21 mortgages totalling $29 million involved in this action.

Securities Commission chairman Jane Diplock says General Mortgage had “repeatedly failed to comply with the law, including requirements to prepare and file financial statements on time and to provide information to investors.”

Consequently the commission has removed Clinton John Rains as the director and appointed David Crichton and Keiran Horne as directors in his place.

However, General Mortgage and Rains have lodged an appeal against the orders in the High Court.

The commission says that Crichton Horne will manage the existing mortgages pending the outcome of any such appeal. A further order prohibits General Mortgage from offering contributory mortgages to the public for two years.

The commission considered Rains had a significant conflict of interest that meant General Mortgage failed to manage some mortgages in the interests of investors. Those mortgages are now in default and investors’ funds appear to be at risk.

Rains was the sole director of the borrower as well as the sole director of General Mortgage.

He was also the sole shareholder in General Mortgage’s parent company and the majority shareholder in the borrower’s parent company.

General Mortgage did not adequately disclose this conflict to contributors before they invested, the commission says.

This is the fourth contributory mortgage scheme business the commission has handed over to Crichton. Others, which involved a total of more than $100 million of mortgages, include: the Parliament St project in Auckland, Harts contributory mortgages, also based in Auckland, and another Christchurch firm, New Zealand Commercial Mortgage Brokers.

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