Datasouth Director sentenced for SCF fraud

Datasouth Director sentenced for SCF fraud

Gavin Clifford Bennett (53) was sentenced today to eight years imprisonment in the Christchurch District Court after pleading guilty to fraud charges laid by the Serious Fraud Office (SFO) in November 2011.

Bennett, the former Managing Director of Christchurch company Datasouth Group, pleaded guilty in March to six representative charges under the Crimes Act relating to approximately 900 separate incidents of dishonestly using a document, and a further two charges of false accounting.

The charges related to Bennett falsifying documents to obtain approximately $65 million funding from South Canterbury Finance (SCF), and falsifying the financial statements of Datasouth Finance by approximately $38 million in order to retain the on-going finance facility from SCF.

Of the money defrauded from SCF, Bennett personally benefitted from approximately $7.8 million that was paid into bank accounts controlled by him or to meet his credit card expenses. The expenditure of this money included rental of luxury apartments; payments to female escorts; and other lavish expenditure on restaurants, jewellery, and high-end fashion.

The SFO assessed the resulting financial loss to SCF from the fraud as being at least $23 million.

In sentencing Bennett, Judge Farish said, described it as an “unprecedented level of fraud” to support a “lavish and grandiose lifestyle.”

SFO Chief Executive, Adam Feeley, welcomed the sentence and the conclusion of the case.

"This was a cynical fraud to inflate one man's business ego and allow him to live a life of luxury while his staff struggled to keep the business afloat. His crimes, which were uncovered soon after the Christchurch earthquake, resulted in 31 people losing their jobs at the worst possible time for the city."

Mr Feeley praised the actions of the Datasouth Chief Executive both in uncovering the fraud and then calling in the SFO.

"Complex corporate frauds can rarely be uncovered without someone within the company willing to stand up and do the right thing. We have nothing but praise and respect for the Chief Executive who not only helped ensure a successful prosecution, but also minimised further losses."

Mr Feeley said that the case also highlighted the scope of impact that financial crime has on society.

"While our immediate priority with an investigation is to ensure that those who commit crimes are held to account, we need to ensure that victims of fraudsters are not overlooked. We recognise that this as an important issue which needs increasing focus in our work, and will be looking to work with Victim Support to ensure that we are also helping people affected by financial crime to get practical support and information.”

Background to investigation

In the mid-1990s Mr Bennett established a business which came to be known as the Datasouth Group. It was made up of a number of companies, including Datasouth Finance Limited (Datasouth Finance).

The group was based in Christchurch and provided a variety of IT related services, including network design and integration; data management solutions; consultancy; and hardware leasing. The latter was the area of focus for the SFO’s investigation.

Customers of the Datasouth Group wishing to lease IT equipment would enter into a ‘Hire Agreement’ with Datasouth Finance to acquire specific equipment. The purchase of the equipment to be leased was then financed by South Canterbury Finance Limited (South Canterbury Finance) and was arranged pursuant to a finance agreement between Datasouth Finance and South Canterbury Finance.

Mr Bennett falsified agreements between Datasouth Finance and its customers, and then presented these, as if genuine, to South Canterbury Finance in order to secure funding.

In addition, Mr Bennett prepared and submitted false financial statements to South Canterbury Finance in order to retain the on-going finance facility.

What is a Ponzi Scheme?

A Ponzi scheme is typically an investment fraud that involves the payment of purported returns to existing investors from funds that have been contributed by new investors, rather than genuine returns from the investment scheme.

In a lending scenario, it involves soliciting new, larger loans from new or existing funding sources to pay off earlier loans that have fallen due, along with using a portion of the funds for personal expenses.

Crimes Act offences

Section 228: Dishonestly taking or using document

Every one is liable to imprisonment for a term not exceeding 7 years who, with intent to obtain any property, service, pecuniary advantage, or valuable consideration,—

(a) dishonestly and without claim of right, takes or obtains any document; or
(b) dishonestly and without claim of right, uses or attempts to use any document.

Section 260: False Accounting

Every one is liable to imprisonment for a term not exceeding 10 years who, with intent to obtain by deception any property, privilege, service, pecuniary advantage, benefit, or valuable consideration, or to deceive or cause loss to any other person,—

(a) makes or causes to be made, or concurs in the making of, any false entry in any book or account or other document required or used for accounting purposes; or
(b) omits or causes to be omitted, or concurs in the omission of, any material particular from any such book or account or other document;
(c) makes any transfer of any interest in a stock, debenture, or debt in the name of any person other than the owner of that interest.

Role of the SFO

The Serious Fraud Office (SFO) was established in 1990 under the Serious Fraud Office Act in response to the collapse of financial markets in New Zealand at that time.

The SFO operates three investigative teams:

• Fraud Detection & Intelligence;
• Financial Markets & Corporate Fraud; and
• Fraud & Corruption.
The SFO operates under two sets of investigative powers.

Part I of the SFO Act provides that it may act where the Director “has reason to suspect that an investigation into the affairs of any person may disclose serious or complex fraud.”

Part II of the SFO Act provides the SFO with more extensive powers where: “…the Director has reasonable grounds to believe that an offence involving serious or complex fraud may have been committed…”

The SFO’s Annual Report 2011 sets out its achievements for the past year, while the Statement of Intent 2011-2014 sets out the SFO’s three year strategic goals and performance standards. Both are available online at: www.sfo.govt.nz

ENDS

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