Report from BusinessDesk
The Serious Fraud Office has added the scalp of former Dominion Finance and North and South Finance executive Paul Cropp to its tally of successful finance company prosecutions.
Cropp was today found guilty in the High Court in Auckland relating to related party lending totaling approximately $13.57 million in breach of the companies trust deeds, the SFO said in a statement. Former director Robert Whale and another associate with name suppression were found not guilty of five and three charges respectively.
“SFO are pleased to have brought another finance company case to an end,” acting chief executive Simon McArley said. “These prosecutions deliver a strong deterrent to future offending.”
The conviction takes the white-collar crime investigator’s successful finance company prosecutions to four, after convictions in the Capital + Merchant Finance, Bridgecorp Finance and National Finance 2000 cases. The SFO has a few other cases in the pipeline, including South Canterbury Finance and Five Star Finance and is still to decide whether to pursue Hanover Finance.
Other finance company prosecutions, including Lombard Finance & Investments and Nathans Finance, were for securities law breaches rather than fraud.
McArley said the key to reducing the cost of economic crime is early action.
“SFO can only achieve this with strong interagency collaboration and the support of the community in reporting suspect and unethical behaviour,” he said.
Dominion Finance Group had 5,937 debenture holders with $176.9 million invested at the time of receivership in 2008. North South Finance was put in receivership in 2010. Both were subsidiaries of NZX-listed Dominion Finance Holdings, which was placed in liquidation in 2009.
Press Release – Serious Fraud Office
Paul William Cropp (49) has today been found guilty of four Crimes Act charges laid by the Serious Fraud Office (SFO). The charges relate to failed finance companies Dominion Finance Group Limited (Dominion) and North South Finance Limited (North South). Both companies were wholly owned subsidiaries of NZX listed Dominion Finance Holdings Limited.
Former company director and lawyer Robert Barry Whale (65), former CEO Paul William Cropp (49), and one other associate, appeared in the Auckland High Court for a six week trial which took place in February and March 2013.
Mr Cropp has now been found guilty of charges relating to related party lending totaling approximately $13.57 million in breach of the companies trust deeds. Mr Whale and the other associate were found not guilty of five charges and three charges respectively.
Acting SFO Chief Executive, Simon McArley says, “SFO are pleased to have brought another finance company case to an end. These prosecutions deliver a strong deterrent to future offending. The finance company experience has also taught us valuable lessons. A key to reducing the cost and impact of economic crime is early detection and intervention. SFO can only achieve this with strong interagency collaboration and the support of the community in reporting suspect and unethical behaviour.”
SFO opened its investigation into Dominion and North South in October 2010, following a referral from the Securities Commission (now FMA).
Notes for Editors
Background to investigation
Dominion Finance Group Limited (Dominion) and North South Finance Limited (North South) were the operating subsidiaries of NZX listed Dominion Finance Holdings Limited (Dominion Holdings). Both companies traded as finance companies offering commercial and property loans and accepting deposits from the public.
Both companies suspended performance of their obligations to investors in July 2008 and proposed moratorium arrangements.
The Trustee appointed for the Dominion depositors, Perpetual Trust Limited, declined to support the proposal and the company was put into receivership in September 2008. At the time of the appointment of receivers Dominion owed 5,937 debenture holders approximately $177 million. Wholesale lenders were owed approximately an additional $55 million.
The Trustee acting for the North South depositors, Covenant Trustee Company Limited, accepted the proposal and the moratorium continued until July 2010, at which time receivers were appointed. Liquidators were subsequently appointed on 17 September 2010. At the time of the appointment of receivers, North South owed debenture holders approximately $31 million. In addition, wholesale lenders were owed approximately $15 million.
Parent company Dominion Holdings entered voluntary administration on 15 October 2008. Following an administrators recommendation to that effect, it was placed into liquidation on 3 February 2009. It has an estimated deficit owed to creditors of in excess of $115 million.
In total the group is recorded as having unpaid creditors in the region of $400 million.
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.
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.
The 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 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 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