Former Justice Ministers prosecuted over Lombard offer documents

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Doug Graham and Bill Jeffries, both former Justice Ministers, plus two other Lombard directors facing charges

Wednesday, April 14th 2010, 6:33AM 1 Comment

by Paul McBeth

Former Justice Minister and Attorney-General Doug Graham has been charged by the Securities Commission, which he once oversaw, in civil proceedings relating to failed finance company Lombard Finance & Investments (LFI).

Bill Jeffries, also a former Justice Minister, and two other Lombard directors, Michael Reeves and Lawrence Bryant all face prosecution.

"The commission alleges that Lombard Finance & Investments' offer documents misled investors by misrepresenting the investment risks, especially in relation to liquidity, the quality of the loan book, adherence to credit policies, and the company's overall financial position," said chair Jane Diplock in a statement.

The regulator claims the directors made false statements in a prospectus dated September 7, 2007 and investments statements dated December 28, 2007. It also alleges that a DVD advertisement distributed in 2007 and 2008 repeated similar untrue claims about the company's financial position.

Graham, who had oversight of the Securities Commission in the 1990's, issued a statement on behalf of the directors disputing the allegations and claiming no one raised any issues with the board at the time.

"The prospectus was prepared by management, commented on by the auditors and solicitors then accepted by the Companies Office. The document was sent to the Trustee. None of these advised the board of any concerns with the final wording," Graham said. "I must record my dismay that it has taken two-and-a-half years to make the allegations and am very disappointed the commission has never raised with me any concerns it had over the prospectus prior to filing proceedings."

It was unknown how many investors who invested $8.5 million through the three-month period had relied on the prospectus

At the time of the prospectus, the company's trustee was Perpetual Trust, which ultimately sent it to the receivers, its auditor was KPMG, and its solicitor was DLA Phillips Fox.

The Securities Commission is seeking civil liability and pecuniary penalties of up to $500,000 from each director, and is continuing its investigations in relation to LFI and its parent company, Lombard Group, now known as Insured Group.

The parent company, which successfully completed its acquisition of Australian Consolidated Insurance as part of a reverse-takeover, says the proceedings will not impact on it after it separated out its ownership of LFI to a holding company and wrote off the value of its shareholding.

"The proceedings are part of the history of Lombard, which shareholders in the listed company have left behind as the company moves into its new future as a substantial participant in the insurance broking business in Australasia," managing director Wayne Miller said.

Paul is a staff writer for Good Returns based in Wellington.

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