SFO lays fifty fraud charges against Allan Hubbard

SFO lays fifty fraud charges against Allan Hubbard

The Serious Fraud Office (SFO) today announced that it has made a decision in relation to its investigation into the affairs of Aorangi Securities Ltd (ASL); Hubbard Management Funds (HMF); and ASL directors Allan and Margaret (Jean) Hubbard.
 
SFO Chief Executive, Adam Feeley, said, “After an exhaustive investigation, we have concluded that there is sufficient evidence to lay fraud charges against Mr Hubbard.”

Mr Feeley said that fifty charges under sections 220, 242 and 260 of the Crimes Act had been laid today in the District Court in Timaru.

The SFO said it did not intend to lay charges against any other current or former director of ASL. Nor were any other charges being contemplated by the other agencies involved with the investigations into ASL or HMF.

Mr Feeley said, “We believe from the available evidence, Mr Hubbard was effectively in sole control of both ASL and HMF at all relevant times.”

Mr Feeley said that the investigation had relied on assistance from the Securities Commission (and now the FMA) and the Registrar of Companies.

“We need to acknowledge the contribution from others to what has been a very thorough and professional investigation.”

Financial Markets Authority (FMA), Chief Executive Sean Hughes, said the FMA and the SFO have worked together closely throughout this investigation, and the evidence on which the charges laid by the SFO are based could also give rise to charges by the FMA under section 59 of the Securities Act.

However after careful consideration, both organisations are satisfied that the charges laid by the SFO will address this matter in a way that is proportionate, and that this matter is more appropriately prosecuted by the SFO under the Crimes Act, without expenditure of additional public funds on a separate prosecution by the FMA.

“The FMA has therefore closed its investigation into this matter, and has offered the SFO any ongoing assistance which may be required,” Mr Hughes said.

Mr Feeley said that there were aspects of the case which challenged the conventional concepts of serious fraud.

“Whatever the public may think, in considering whether serious fraud has been committed, the motives or lifestyle of an alleged offender are ultimately irrelevant. We have to consider matters such as whether deceit has occurred; the losses caused by that that deceit; and whether the facts meet the prescribed elements of one or more criminal offences.”

Mr Feeley said that prior to making a decision to lay charges the SFO gave very careful consideration to the Solicitor General’s Prosecution Guidelines, including the issue of whether a prosecution was in the public interest.

“The decision to charge has been reached only after extensive analysis of the evidence, as well as discussions with senior prosecution counsel, including the Crown Solicitors and the SFO Panel Counsel,” he said.

“Throughout the investigation we have been aware of the level of public interest in, and support for, Mr Hubbard, and the issues of Mr Hubbard’s age and health which have been raised by his lawyers.”

“However, we also have to consider the interests of justice and the interests of the investors relative to the evidence we have obtained during our inquiries.”

“We are satisfied that, on balance, there is strong public interest in having this matter put before the Court, and any issues regarding fitness to stand trial will be matters for the Court to adjudicate on.”

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Sarah Knowles
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Note to editors

Background to investigation

The SFO investigation commenced on 21 June 2010 as a result of a referral from the Registrar of Companies who raised concerns of possible fraud in the management of ASL.

ASL was incorporated on 19 November 1974.  Its current directors are Mr and Mrs Hubbard.  ASL; Mr and Mrs Hubbard; and a number of Hubbard-related companies were placed into statutory management on the recommendation of the Securities Commission on 20 June 2010. The statutory management was subsequently extended to HMF, a Hubbard-managed trading entity.

In their most recent report (March 2011), the statutory managers advised investors that:

Aorangi Securities Ltd: “The amount due to investors is $96 million. The preliminary estimate of the realisable value of the portfolio is in the range of approximately $87 million to $97 million. Based on these estimates, investors could suffer a loss and Mr Hubbard would receive no money from Aorangi. No interest would be paid with realisations at this level.”

Hubbard Management Funds: “The report states that some shares recorded as belonging to HMF are subject to possible claims from others. They say shares have been pledged as security to financiers for borrowings made by Mr Hubbard or parties related to him.

As previously stated, statutory managers’ reconciliation as at 31 March 2010 indicates that there were insufficient assets to provide investors the investments noted on their statements.  There were also investments that were not allocated to investors and some valuations that, in the statutory managers’ opinion, were incorrect.

Once all adjustments and corrections were processed, the shortfall of assets compared with the investor statements is estimated at about $31 million.” 

Crimes Act offences

Crimes Act 1961

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; 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.

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; or
(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.

Solicitor-General Prosecution Guidelines

The purpose of the Guidelines is “to ensure that the principles and practices as to prosecutions in New Zealand are underpinned by unified values. These values aim to achieve consistency in key decisions and trial practices. If these values are adhered to, New Zealand will continue to have prosecution processes that are open, fair to the defendant, witnesses and the victims of crime, and reflect the proper interests of society.”

The Test for Prosecution

The Test for Prosecution is met if:

(i) The evidence which can be adduced in Court is sufficient to provide a reasonable prospect of conviction – the Evidential Test; and

(ii) Prosecution is required in the public interest – the Public Interest Test.

The Evidential Test must be satisfied before the Public Interest Test is considered. The prosecutor must analyse and evaluate all of the evidence and information in a thorough and critical manner.

The evidential test

A reasonable prospect of conviction exists if, in relation to an identifiable individual, there is credible evidence which the prosecution can adduce before a court and upon which evidence an impartial jury (or Judge), properly directed in accordance with the law, could reasonably be expected to be satisfied beyond reasonable doubt that the individual who is prosecuted has committed a criminal offence.

The public interest test 

Once a prosecutor is satisfied that there is sufficient evidence to provide a reasonable prospect of conviction, the next consideration is whether the public interest requires a prosecution. It is not the rule that all offences for which there are sufficient evidence must be prosecuted. Prosecutors must exercise their discretion as to whether a prosecution is required in the public interest.

Considerations:

The predominant consideration is the seriousness of the offence. Where a conviction is likely to result in a significant penalty including any confiscation order or disqualification, then there is a strong public interest for a prosecution. Factors considered in this regard include:

1. Where the defendant was in a position of authority or trust and the offence is an abuse of that position;
2. Where the defendant was a ringleader or an organiser of the offence;
3. Where the offence was premeditated;
4. Where the offence was carried out by a group;
5. Where the offence has resulted in serious financial loss to an individual, corporation, trust person or society;
6. Where there is any element of corruption;
7. Where the defendant has previous convictions, diversions or cautions which are relevant;
8. Where there are grounds for believing that the offence is likely to be continued or repeated, for example, where there is a history of recurring conduct.

Public interest considerations against prosecution include:

1. Where the Court is likely to impose a very small or nominal penalty;
2. Where the offence is not on any test of a serious nature, and is unlikely to be repeated;
3. Where there has been a long passage of time between an offence taking place and the likely date of trial such as to give rise to undue delay or an abuse of process unless:
a. the offence is serious;
b. delay has been caused in part by the defendant;
c. the offence has only recently come to light; or
d. the complexity of the offence has resulted in a lengthy investigation.
4. Where a prosecution is likely to have a detrimental effect on the physical or mental health of a victim or witness;
5. Where the defendant is elderly or a youth;
6. Where the defendant has no previous convictions;
7. Where the defendant was at the time of the offence or trial suffering from significant mental or physical ill-health;
8. Where the victim accepts that the defendant has rectified the loss or harm that was caused (although defendants must not be able to avoid prosecution simply because they pay compensation);
9. Where the recovery of the proceeds of crime can more effectively be pursued by civil action;
10. Where any proper alternatives to prosecution are available.

Role of the 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 2011-2014 sets out the SFO’s three year strategic goals and performance standards.  It is available online at: www.sfo.govt.nz(external link)