Report from BusinessDesk
Stephen Smith, former director of the failed Belgrave Finance, has pleaded guilty in the High Court in Auckland today to 25 charges of fraud related to the collapse of the company in 2008. The charges included 19 under the Crimes Act of theft by a person in a special relationship, four charges of false statement by promoter, one Securities Act charge of making an untrue statement and one Companies Act charge of making a false statement to a trustee.
The charges were brought in a joint prosecution by the Financial Markets Authority and the Serious Fraud Office. Belgrave, which provided finance for property developments from funds raised via debentures and capital notes, was put in receivership in May 2008 owing $22 million to about 1,000 investors. It was placed in liquidation in April 2010.
Smith has been remanded in custody pending a bail hearing later today and will appear for sentencing on June 7. His conviction means he is banned from managing companies for five years.
The charges relate to more than $18 million of loans made by Belgrave Finance to various related entities between June 2005 and March 2008, according to the SFO’s statement.
Charges have also been laid against former director Shane Buckley, alleged controller of the company Raymond Schofield and legal advisor Hugh Hamilton. Buckley was sentenced to three years’ jail after pleading guilty last August. Schofield was granted a stay of prosecution on the grounds of terminal illness and Hamilton has been committed for trial at a date to be set, the SFO said.
Press Release – FMA and SFO
Stephen Charles Smith (45), pleaded guilty at the Auckland High Court today to 25 charges arising out of the collapse of Belgrave Finance Limited. The charges were brought in a joint prosecution by the Financial Markets Authority (FMA) and the Serious Fraud Office (SFO).
Mr Smith pleaded guilty to 19 Crimes Act charges of theft by person in a special relationship, four charges of false statement by promoter, one Securities Act charge of making an untrue statement and one Companies Act charge of making a false statement to a trustee.
The charges relate to more than $18 million of loans made by Belgrave Finance to various related entities between June 2005 and March 2008.
FMA Head of Enforcement, Belinda Moffat, said all directors should treat today’s guilty plea as a reminder of their duties and responsibilities.
“Anyone who invests their hard earned money relies on directors to do the right thing,” said Ms Moffat. “There are standards of behaviour that are expected and consequences of getting it wrong.”
Acting SFO Chief Executive, Simon McArley, added that Mr Smith’s plea is another positive step towards concluding the response to the finance company collapses.
“The impact of fraud on its victims is substantial. Whether it’s the loss of financial investments or jobs, many New Zealanders’ lives and prosperity are irrevocably changed through the impact of fraud. The completion of these prosecutions sends a strong deterrent message that will help ensure we don’t see a repetition of the finance company issues and will deter any new forms of financial crime developing,” he said.
Under the Companies Act, Stephen Smith’s conviction means he is automatically banned from managing companies for five years.
Mr Smith has been remanded in custody pending a bail hearing at 3.15pm today and will next appear for sentencing on 7 June.
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 Finance, the (then) Securities Commission made initial investigations into the company before referring the matter to SFO in June 2010. The SFO Director determined that an investigation into the affairs of Belgrave Finance may disclose serious or complex fraud, and SFO commenced an investigation under Part II of the Serious Fraud Office Act in July 2010.
Charges have also been laid against former director Shane Buckley (45), alleged controller of the company Raymond Schofield (51), and legal advisor Hugh Hamilton (61). Mr Buckley was sentenced to three years’ imprisonment following a guilty plea in August 2012. Mr Schofield was granted a stay of prosecution on the grounds of terminal illness in December 2012, conditional upon review. Mr Hamilton has been committed for trial at a date to be set.
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 223: Punishment of theft
Every one who commits theft is liable as follows:
(a) in the case of any offence against section 220, to imprisonment for a term not exceeding 7 years; or
(b) if the value of the property stolen exceeds $1,000, to imprisonment for a term not exceeding 7 years; or
(c) if the value of the property stolen exceeds $500 but does not exceed $1,000, to imprisonment for a term not exceeding 1 year; or
(d) if the value of the property stolen does not exceed $500, to imprisonment for a term not exceeding 3 months.
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; 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.
Securities Act offences:
Section 58: Criminal liability for misstatement in advertisement or registered prospectus
(1) Subject to subsection (2), where an advertisement that includes any untrue statement is distributed,—
(a) the issuer of the securities referred to in the advertisement, if an individual; or
(b) if the issuer of the securities is a body, every director thereof at the time the advertisement is distributed—
commits an offence.
(2) No person shall be convicted of an offence under subsection (1) if the person proves either that the statement was immaterial or that he or she had reasonable grounds to believe, and did, up to the time of the distribution of the advertisement, believe that the statement was true.
(3) Subject to subsection (4), where a registered prospectus that includes an untrue statement is distributed, every person who signed the prospectus, or on whose behalf the registered prospectus was signed for the purposes of section 41(1)(b), commits an offence.
(4) No person shall be convicted of an offence under subsection (3) if the person proves either that the statement was immaterial or that he or she had reasonable grounds to believe, and did, up to the time of the distribution of the prospectus, believe that the statement was true.
(5) Every person who commits an offence against this section is liable—
(a) on conviction on indictment to—
(i) imprisonment for a term not exceeding 5 years; or
(ii) a fine not exceeding $300,000 and, if the offence is a continuing one, to a further fine not exceeding $10,000 for every day or part of a day during which the offence is continued; or
(b) on summary conviction to—
(i) imprisonment for a term not exceeding 3 months; or
(ii) a fine not exceeding $300,000 and, if the offence is a continuing one, to a further fine not exceeding $10,000 for every day or part of a day during which the offence is continued.
Companies Act offences:
Section 377: False statements
(1) Every person who, with respect to a document required by or for the purposes of this Act,—
(a) makes, or authorises the making of, a statement in it that is false or misleading in a material particular knowing it to be false or misleading; or
(b) omits, or authorises the omission from it of, any matter knowing that the omission makes the document false or misleading in a material particular—
commits an offence, and is liable on conviction to the penalties set out in section 373(4).
(2) Every director or employee of a company who makes or furnishes, or authorises or permits the making or furnishing of, a statement or report that relates to the affairs of the company and that is false or misleading in a material particular, to—
(a) a director, employee, auditor, shareholder, debenture holder, or trustee for debenture holders of the company; or
(b) a liquidator, liquidation committee, or receiver or manager of property of the company; or
(c) if the company is a subsidiary, a director, employee, or auditor of its holding company; or
(d) a stock exchange or an officer of a stock exchange,—
knowing it to be false or misleading, commits an offence, and is liable on conviction to the penalties set out in section 373(4).
(3) For the purposes of this section, a person who voted in favour of the making of a statement at a meeting is deemed to have authorised the making of the statement.
Role of 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.
SFO operates three investigative teams:
• Evaluation & Intelligence;
• Financial Markets & Corporate Fraud; and
• Fraud & Corruption.
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 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…”
SFO’s Annual Report 2012 sets out its achievements for the past year, while the Statement of Intent 2012-2015 sets out the SFO’s three year strategic goals and performance standards. Both are available online at: www.sfo.govt.nz
Role of FMA
FMA was established on 1 May 2011 as part of the Financial Markets Authority Act 2011, in response to the need to address failures in the financial markets, made evident from the global financial crisis. The Government recognised that New Zealand required a single conduct regulator to proactively monitor and enforce securities legislation.
FMA is an independent Crown entity and has the following functions:
• to monitor compliance with, investigate contraventions of, and enforce securities and investment law, financial reporting law, and companies law, in respect of financial markets participants;
• to promote confident and informed participation in the financial markets;
• to license and supervise particular financial markets participants, including financial advisers, trustees and statutory supervisors, auditors, and securities markets;
• to monitor and conduct inquiries and investigations into financial markets and financial markets participants; and
• to keep the law under review.
More information about FMA can be found at www.fma.govt.nz