SFO lays charges against directors of Capital + Merchant Finance

SFO lays charges against directors of Capital + Merchant Finance

The Serious Fraud Office (SFO) today arrested and laid six charges under the Crimes Act against one current and one former Director of Capital+ Merchant Finance Limited (C+MF).

The charges involve nearly $14.5M worth of related party lending dating back to 2002.

The two accused are Neal Medhurst Nicholls aged 55 and Wayne Leslie Douglas aged 57. 

At the time C+MF was placed into receivership the company owed $167.1M to approximately 7,000 investors.

The charges concern loans of approximately $14.5M made between April 2002 and September 2004 to three companies that converted two Palmerston North high rise office blocks into student accommodation. 

The SFO allege that as directors of C+MF they held investors’ funds subject to a special relationship with investors, and that they used their position to apply those funds in a manner inconsistent with that relationship. 

The SFO also alleges that the directors falsely stated the true extent of related party lending in annual C+MF prospectuses and associated financial statements in July 2003 and September 2004. 

SFO Chief Executive Adam Feeley said the charges relate to one discrete set of transactions.

“While we have completed investigations into these matters, the SFO is continuing to investigate a number of other transactions that are of serious concern to us.”

The SFO commenced the C+MF investigation in March 2010 after receiving a complaint from the C+MF receivers, Grant Thornton.

Mr Feeley said “This investigation, and the subsequent charges, demonstrate the speed with which SFO can act, even where the case is one of significant complexity and involves many of millions of dollars.”

The SFO has now laid serious Crimes Act charges against persons involved with a number of finance companies, including National Finance; Bridgecorp; Five Star Finance; and Capital + Merchant.

Mr Feeley said “The confidence and financial security of New Zealand investors will not be restored without thorough and timely investigations into all of these companies and, where appropriate, serious criminal charges will need to be laid.“

They were remanded on bail and will next appear on 16 December 2010.

For further information

Simon McArley
General Manager
Serious Fraud Office
Phone: 021 308 953

Note to editors

Case summary

Capital + Merchant Finance Limited (C+MF) was incorporated on 18 January 2002.  It operated as a finance company providing financial accommodation and mortgage facilities for commercial and residential property development.  Funds for lending were sourced primarily from the issue of securities to the public in the form of debenture stock and convertible capital notes.

Mr Nicholls and Mr Douglas were the founding directors and beneficial owners of C+MF. Mr Nicholls was a Director up until the company was placed in receivership in November 2007.  Mr Douglas resigned as a director in February 2007.

C+MF was placed into receivership on 23 November 2007.  At the time of receivership C+MF owed $167.1M to approximately 7,000 investors.  C+MF was placed into liquidation under the control of the Official Assignee on 15 December 2009. 

Role of SFO

The Serious Fraud Office (SFO) was established in 1990 under the Serious Fraud 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 2010-2012 sets out the SFO’s three year strategic goals and performance standards.  It is available online at: www.sfo.govt.nz(external link)

Crimes Act 1961 charges

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

(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.