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The charges against: Capital + Merchant Finance

The following is details of the case referred by Securities Commission to National Enforcement Unit of Ministry of Economic Development for prosecution against Capital + Merchant.  

Friday, December 3rd 2010, 6:02PM

Capital= Merchant collapsed owing 7,000 investors around $190 million. Its loans were mainly to property developers.

Since its failure the receiver, Grant Thornton, has reccovered all the loans and collected a total of $96.1 million. This money has been paid to priority charge holders such as Fortress.

The priority charge holders are still owed $2.32 million. Investors have received nothing.

If Fortress was on the same priority ranking as the public debenture holders, the recoveries paid to investors in Capital + Merchant as a percentage of total debt is 26 cents in the dollar.

Defendants

Civil and criminal proceedings - Neal Nicholls, Owen Tallentire, Colin Ryan and Robert Sutherland

Criminal charges only - Wayne Douglas (executive director) (resigned as a director in February 2007)

Charges

The Commission alleges that Capital + Merchant Finance's offer documents and advertisements misled investors by misrepresenting the investment risks, especially in relation to related party lending, insurance cover and liquidity.

The Commission alleges that the directors made untrue statements in the registered prospectus and investment statement dated 15 August 2006, mainly in respect of related party lending and loan management.  The Commission also alleges that the current four directors made similar untrue statements in the registered prospectus and investment statement dated 10 September 2007, as well as untrue statements about liquidity and cashflow and in the prospectus incorrectly stated that no loans were impaired and the company's financial position had not materially and adversely changed since its last balance date. 

In addition, the Commission alleges that five advertisements distributed during 2007 contained untrue statements about insurance cover for capital secured debenture stock and some of the matters referred to above.  These claims do not apply to Mr Douglas who had resigned his directorship by then.

The Commission further alleges that Mr Nicholls and Mr Ryan knowingly misled the Commission.

The Defendants deny the charges.

Penalties

Criminal charges - most of the criminal charges are laid indictably under section 58 of the Securities Act and carry a maximum penalty of five years imprisonment or fines of up to $300,000.  Criminal charges are also laid against Mr Nicholls and Mr Ryan under section 59A of the Securities Act and carry a maximum fine of $300,000 plus $10,000 for every day the offence is continued. 

Civil proceedings - the proceedings are issued under section 55C and related sections of the Securities Act. The Commission has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each of the current four directors.  

Date filed

Criminal charges -17 December 2009 in the District Court at Auckland.

Civil proceedings -30 November 2009 in the High Court at Auckland.  

Current status

Criminal charges - post-committal hearing took place on 29 November 2010. Awaiting date from court for next appearance.

Civil proceedings - stayed pending resolution of the criminal case.

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