Nathans Finance directors charged
The Securities Commission has laid criminal charges and issued civil proceedings against Nathans Finance directors John Hotchin, Donald Young and Kenneth Moses.
Criminal charges and civil proceedings have also been filed against a fourth director believed to be resident in Australia.
These proceedings follow extensive investigations by the Commission since Nathans Finance went into receivership on 20 August 2007 owing approximately $174 million to some 7,000 investors. According to the receivers less than 10% of that is likely to be recovered.
“The Commission believes Nathans’ offer documents misled investors about the risks of investing in Nathans Finance, especially the risks of its extensive related party lending,” Commission Chairman Jane Diplock says.
The Commission alleges that the directors made untrue statements in the registered prospectus and investment statement of Nathans Finance NZ Limited (in receivership) dated 13 December 2006. These statements concern lending to related parties (including Nathans’ parent company VTL Group), that Nathans had no bad debts, that it had adequate liquidity, that its lending was diversified, that it made loans and managed them in accordance with robust policies and processes, and that all material matters had been disclosed in the prospectus.
The Commission also alleges that the directors made further untrue statements when they signed a prospectus extension certificate on 30 March 2007. These stated that the company’s financial position had not materially and adversely changed since its last balance date, and that the 13 December 2006 prospectus was not false or misleading.
In addition, the Commission alleges that letters sent to members of the public advertising Nathans Finance debenture stock contained untrue statements about some of the matters referred to above. These claims do not apply to Mr Hotchin who had resigned his directorship by the time the advertisements were sent out.
The criminal charges are laid under section 58 of the Securities Act and carry a maximum penalty of five years imprisonment or fines of up to $300,000. They were laid in the District Court at Auckland on 12 December 2008. The defendants have been summonsed to appear on 23 January 2009.
The Commission has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each of the directors. Under the Securities Act these applications must be made together.
The Commission’s main purpose in making them is to take the first step towards compensation for investors who invested under the 13 December 2006 prospectus. A declaration of civil liability is conclusive evidence that can be relied upon by either the Commission or investors themselves in any subsequent claims against the directors for compensation. The Commission will consider pursuing compensation claims in due course should it be in the public interest to do so.
The Commission has power to take civil proceedings only in respect of a prospectus registered after 26 October 2006 or an investment statement or other advertisement distributed after that date. Investors can take their own civil compensation proceedings whether or not the Commission also has power to do so.
The civil proceedings are issued under section 55C and related sections of the Securities Act. They were filed on 12 December 2008 in the High Court at Auckland
The Commission acknowledges the assistance of the Nathans Finance receivers with this investigation.
As these proceedings are now before the Court it would not be appropriate for the Commission to comment further.