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The Serious Fraud Office (SFO) today announced it had completed its investigations into the Blue Chip group of companies and, while investigations were continuing in relation to one of its South Island franchises, it did not intend to lay charges against

SFO says insufficient evidence to charge in Blue Chip investigation

The Serious Fraud Office (SFO) today announced it had completed its investigations into the Blue Chip group of companies and, while investigations were continuing in relation to one of its South Island franchises, it did not intend to lay charges against the Blue Chip group based on the available evidence.

SFO Director, Adam Feeley, said “The Blue Chip investigation has attracted intense public and media interest. However, in order to lay criminal charges there must be a reasonable prospect, based on credible evidence which could be admitted in Court, that an impartial jury could be satisfied, beyond reasonable doubt, that the person prosecuted has committed a criminal offence.”

“We have concluded that this evidential threshold cannot be met.”

“Some may consider that Blue Chip operated in a moral vacuum with high pressure sales techniques and less-than-forthcoming disclosures regarding the nature of the property investments. The Court of Appeal in Bartle v GE Custodians & Tasman Mortgages described the Blue Chip business as a predatory and oppressive asset lending scheme which was inherently defective and fraught with risks.”

“However, the SFO can only form a judgment on matters that cross a threshold into serious criminal acts. In this regard, we are satisfied that insufficient evidence exists for a criminal prosecution.”

Mr Feeley said the SFO had investigated a large number of Blue Chip’s operations, including allegations of:

  • Misuse of purchasers’ deposit money;
  • On-selling of previously sold apartments; 
  • Unauthorised amendment of loan applications;
  • Use of false representations and documentation to obtain advances or  fees and avoid penalties;
  • False Representations to investors;
  • False accounting for renovations at Mr Mark Bryers’ home.

Mr Feeley said “this is not a decision lightly made. We have collected an enormous number of documents; conducted numerous interviews with investors; Blue Chip staff; and senior officers. However, after extensive discussions with the Crown Solicitors, Meredith Connell, we concluded there is insufficient evidence to implicate any particular individual with criminal conduct.”

Mr Feeley noted that the matter could be reviewed if further, compelling, evidence came to light, but that discussions with interested parties to date had not revealed anything new to the SFO investigations already conducted. 

The SFO had also referred matters of professional conduct of lawyers involved in the Blue Chip developments to the NZ Law Society for inquiry.

For further information

Adam Feeley
Chief Executive
Serious Fraud Office
Phone 021 333 539

Note to editors

Blue Chip (BC) matters inquired into:

1. Application of deposits
BC companies received deposits paid from investors on apartment purchases.  This money was not held in trust but was passed to other BC companies and used for general expenditure.  However the contracts entered into by the purchasers permitted the disbursement of deposits and the payments were disclosed in the relevant financial statements. 

2.  On selling of apartments
BC sold apartments off plans in developments that had not yet been built.  Investors paid deposits to secure these.  When banks funding was not available for these projects, BC on sold the project to other developers with clean title.  Those developers then re-sold the same apartments.   The original deposits were not returned and the investors became unsecured creditors of BC.   The contracts entered into by the purchasers permitted BC to on-sell apartments and provide a substitute property.  SFO has not found evidence to establish that the on-sales were undertaken with the intention of not providing such a substitute property.  SFO received some evidence that BC staff undertook extensive efforts to identify substitute properties.   

3. Unauthorised amendment of loan applications
Tasman Mortgages Limited was a mortgage broking business associated with BC.  Tasman assisted BC clients in applying for mortgage finance for their apartment purchases.  Tasman’s primary role was to assist BC clients with the completion of loan applications and to lodge these with mortgage lenders, invariably GE Money.  It is alleged that Tasman or BC staff altered loan a mortgage loan applications without the BC clients’ knowledge to make them fit the application criteria set out by GE Money.  While there is evidence of loan applications being altered in this manner, there is no evidence of who actually changed the particular forms.  Further GE Money has confirmed that the alteration did not affect its lending decision, and that the detail concerned was not relied upon by GE Money.  Accordingly it is unlikely that any deception occurred. 

4. Use of false representations and documentation to obtain advances or fees and avoid penalties;
The BC business structure involved a BC company entering into underwriting agreements with an apartment developer for the sale of within a development.  BC would then sell interests in the apartments to BC clients.  Once a prescribed level of sale was achieved, the developer would be able to access bank funding for the development and BC would be entitled to payment of an underwriting fee.  The allegation has been made that false sale and purchase agreements were supplied by BC to the developer in accordance with the terms of an underwrite agreement.  In doing so the BC company involved was entitled to receive the fees that would not otherwise have been payable and avoided penalties that would otherwise have been payable.  Once genuine sales agreements were completed, they were substituted for the falsified agreements.   

SFO has again discovered evidence that agreements were produced and presented in this manner.  However SFO has been unable to obtain conclusive and reliable evidence as to who falsified or authorised the falsification and use of the agreements. 

5. False accounting in relation to sales
The BC business structure also involved cases where a BC company agreed to a bulk purchase of apartments in an apartment development.   BC would then on sell those apartments to BC clients.  As each apartment was on sold BC received and accounted for a margin in the sale price.  BC accounted for sales in the year to 31 December 2006 that were later reversed.  It is alleged that the sales were falsely accounted for to improve BC’s financial performance for that period.  However SFO has identified apparently genuine transactions that give rise to the subsequent variation to the December 2006 transactions. 

6. False representations to investors
In the course of its business BC made representations to investors regarding the investment offered to them.  It is alleged that some of these representations were false.  The allegations are that BC represented that:

  • The investment was safe and without risk 
  • deposit money was to be paid to a trust account;
  • deposits were to be covered by deposit insurance

The Office has investigated each of these assertions and has reached the following conclusions:

Assertion that the investment was safe:   The most common complaint amongst investors was that they were lead to believe that the investment was safe and without risk.  They claim that they were not informed that they would become liable for mortgage repayments and thus their own homes were at risk.

The Blue Chip scheme required BC to meet mortgage repayments for the investors and pay the contracted interest returns.  Investors were however entirely reliant on BC’s financial ability to do so, and on the financial collapse of BC, it ceased to make these payments.  As the borrowings were taken out by the investors names, the responsibility of the repayments then fell to them.  Further as investors had mortgaged their own homes to secure the borrowings, their homes were at risk.

Many investors had also entered into arrangements which required BC to meet the investors’ settlement obligations when settlement fell due.  These investors never intended to settle the purchase, as they looked upon their agreement as being only a temporary arrangement to provide investment returns in the period until settlement.  However when BC became financially unable to meet these obligations as agreed, the investors remained liable to complete the apartment purchase.

It is clear many BC investors did not understand the investments they were entering into. While the terms of the investment were set out in writing in all of the agreements the signed with BC, these agreements were cumbersome, esoteric and difficult to follow.  It is also clear that investors were poorly advised by the BC advisers or their lawyers, who were not independent of BC.

However it is also clear that it was Blue Chip’s intention and preference for investors to not settle on a property.  Not doing so meant that the properties could continuously be re-sold, generating more cash flow for the company without large outlay.  SFO also found that many BC advisers believed in the product that they were selling, and personally purchased products and also lost money. 

While investors may have been misled, SFO did not find conclusive evidence of a criminal intent to deceive on the part of any particular person.  Accordingly no criminal offences were disclosed. 

The conduct may well have been deceptive for the purposes of the Fair Trading Act, and the office understands that the Commerce Commission has investigated this aspect.

Deposits were to be paid to a Trust Account:  A small number of investors complained that they believed that their deposit money would be held in a trust account.  The Office has received just two complaints of this.  None of the other investors interviewed by the office had been informed of a so-called trust account and the majority knew that their deposit money would be released.  The agreement investors entered in to specifically stated that the investors would get paid interest payments and a weekly procurement fee in consideration for them taking on the obligations of borrowing and providing working capital for use by the company.

It appears that after making the decision to invest, some investors were asked to write cheques payable to Blue Chip NZ Trust A/C, BNZ account (suffix 02).  This was not in fact a true trust account but rather the name of an account which was printed on deposit slips for Blue Chip.  It is also clear that prospective investors only found out about the so called trust account after committing themselves to invest. 

Accordingly it is difficult to conclude that the clients were knowingly deceived by this activity to the degree required to constitute a criminal offence.  The activities may however amount to deceptive conduct for the purposes of the Fair Trading Act, and the office understands that the Commerce Commission has also investigated this aspect.

Deposit Insurance:  A small number of investors maintained that one of the key reasons they invested in the scheme was that BC had deposit insurance in place to protect investors’ deposit money.  BC’s periodic newsletter issued to existing investors in summer of 2005/2006 included a statement that deposit insurance was in place for new clients. 

However the investors who raised the issue had not sighted the newsletter previously and were in only 2 cases able to identify any specific statements made to them about deposit insurance prior to making their investment.  In the two cases the statements were ambiguous as they referred to “the process of finalising administration on the policy … still taking place.”

SFO has identified that at the time the statements were made, preliminary arrangements had been made, that there was a clear intent from the parties that such a scheme would be put into place but that details of the policy remained to be finalised.  These were never completed, partly because the BC business model changed to one where BC did not hold deposits from new investors. 

Again while the conduct may have been misleading SFO did not find sufficient evidence of criminal intent to defraud. 

7. False accounting for renovations at Mr Mark Bryers’ home
During 2006 Mr Bryers completed extensive renovations made at his Remuera home.  At the same time BC companies were utilising the same contractors to complete the renovation of apartments to be used in the BC Business.   It is alleged that work on Mr Bryers home may have been falsely invoiced to the apartment project. 

While SFO was able to establish that worked on the private home renovations was billed to BC companies, SFO also received evidence from BC staff that Mr Bryers asked for the private works to be separately accounted for, and personally reimbursed the BC company at regular intervals for the personal invoices paid. 

The role of the Serious Fraud Office

The Serious Fraud Office (SFO) was established in 1990 under the Serious Fraud Act(external link) in response to the collapse of financial markets in New Zealand at that time.

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 strategy and goals for contributing towards the Government’s Justice and Economic Development goals. It is available online at,555/SFO_Statement_of_Intent_2010.pdf(external link)(external link)

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 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.


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.


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.


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.