SFO lays sixty charges in Belgrave Finance investigation

Former Belgrave Finance Director, Stephen Charles Smith (43), and an associate, Raymond Tasman Schofield (49), have appeared in the Auckland District Court today to face charges arising out of the collapse of Belgrave Finance Limited.

The Serious Fraud Office (SFO) last week laid 60 charges against three persons, alleging the defendants misrepresented to investors how their investments in Belgrave Finance would be used, and subsequently used those funds in an unauthorised manner. The third person will appear at a later date.

The charges relate to more than $18 million of loans made by Belgrave Finance to various entities allegedly related to Mr Schofield and the company, between June 2005 and March 2008.

The charges have been brought under the Crimes Act and, if convicted, the defendants face penalties of up to ten years imprisonment. The Financial Markets Authority (FMA) has also laid charges against the three under the Securities Act and Companies Act.

SFO Chief Executive Adam Feeley said the SFO had been working closely with the Financial Markets Authority (FMA) on the Belgrave Finance case and other finance company investigations.

"Both agencies are acutely aware of the public interest in seeing these cases concluded. To that end we are committed to working in whatever manner will achieve the best outcome."

Mr Feeley said that both agencies would continue to share information and resources.

"Whether there are joint or separate investigations, in all cases we will ensure that the best possible outcomes are achieved through the most efficient and effective use of resources."

Mr Feeley said that the decision on Belgrave was the 12th finance company investigation concluded by SFO.

He added that in almost every case charges had been laid either by the SFO or another agency. A small number of cases that have been referred to other agencies remain under investigation.

"We have been determined to ensure that, where the is sufficient evidence, the charges laid properly address the public confidence in the integrity of our financial markets and the justice system is maintained."

Mr Feeley said there were four remaining SFO investigations into finance companies, all of which were all less than a year old.

"We expect to conclude the majority of these cases shortly, but in every instance timing will be ultimately determined by evidence acquired and the issues arising."

Belgrave Finance was placed into receivership in May 2008, owing an estimated 1,000 investors approximately $22 million. The Securities Commission (now FMA) made initial investigations into the company's collapse before referring it to the SFO in June 2010.

Mr Feeley said that the SFO were continuing investigations into Belgrave Finance to determine whether additional persons should be charged in relation to the allegations.

Notes for Editors

1. Background to investigation

Belgrave Finance Limited was incorporated in September 2000.

Belgrave Finance provided financial accommodation and mortgage facilities for commercial and residential property developments. Funds for lending were sourced primarily from the issue of securities to the public in the form of debenture stock and convertible capital notes.

Belgrave Finance was placed into receivership in on 28 May 2008 owing around $22 million to approximately 1,000 investors. The company was placed into liquidation in April 2010 and at the time, was the 20th finance company to collapse in two years.

Following the collapse of Belgrave, the (then) Securities Commission made initial investigations into the company before referring the matter to the SFO in June 2010. The Director determined that an investigation into the affairs of Belgrave Finance may disclose serious or complex fraud, and the SFO commenced an investigation under Part II of the Serious Fraud Office Act in July 2010.

2. Crimes Act offences:

Section 220: Theft by person in special relationship

(1) This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person-

(a) to account to any other person for the property, or for any proceeds arising from the property; or

(b) to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.

(2) Every one to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.

(3) This section applies whether or not the person was required to deliver over the identical property received or in the person's possession or control.

(4) For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements.

Section 242: False statement by promoter, etc

(1) Every one is liable to imprisonment for a term not exceeding 10 years who, in respect of any body, whether incorporated or unincorporated and whether formed or intended to be formed, makes or concurs in making or publishes any false statement, whether in any prospectus, account, or otherwise, with intent-

(a) to induce any person, whether ascertained or not, to subscribe to any security within the meaning of the Securities Act 1978 http://www.legislation.govt.nz/act/public/1961/0043/latest/link.aspx?search=ts_act_crimes_resel&p=1&id=DLM25999#DLM25999 ; or

(b) to deceive or cause loss to any person, whether ascertained or not; or

(c) to induce any person, whether ascertained or not, to entrust or advance any property to any other person.

(2) In this section, false statement means any statement in respect of which the person making or publishing the statement-

(a) knows the statement is false in a material particular; or

(b) is reckless as to the whether the statement is false in a material particular.

3. Chronological summary of SFO finance company investigations

1) Waipawa Finance - Charges laid and conviction secured.

2) Clegg Finance - Closed without charging. Prior conviction secured by Ministry of Economic Development.

3) National Finance - Charges laid and conviction secured, further charges to be tried by the FMA.

4) Bridgecorp - Charges laid, trial pending.

5) Capital + Merchant Finance - Charges laid, trial pending.

6) Five Star Finance - Charges laid and convictions secured, further charges to be tried.

7) Nathans Finance Limited - Closed without charging. Prosecution completed by FMA.

8) Kiwi Finance - Closed and referred to FMA.

9) Mutual Finance - Closed and referred to FMA.

10) Viaduct Capital Limited - Closed and referred to FMA.

11) Capital + Merchant (No.2) - Further charges laid, trial pending.

12) Belgrave Finance - Charges laid, trial date to be determined.

13) Rockforte Finance - Under investigation.

14) Dominion Finance - Under investigation.

15) South Canterbury Finance - Under investigation.

16) Hanover Finance - Under investigation.

4. The 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 1 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 2 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 Statement of Intent 2011-2014 sets out the SFO's three year strategic goals and performance standards. It is available online at: http://www.sfo.govt.nz

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