SFO secures conviction on $13M property fraud charges

SFO secures conviction on $13M property fraud charges

Raghu Srinivas Aryasomayajula, was today found guilty in the District Court at Auckland of two charges of Obtaining by Deception. 

The charges which were brought by the Serious Fraud Office (SFO) concerned a series of mortgage frauds with a value of approximately $13M.

Aryasomayajula’s co-defendant, Phillip Julian Cavanagh, had previously plead guilty to the same charges in October 2009 and was sentenced to 2 years and 5 months imprisonment.

Both Cavanagh and Aryasomayajula were former real estate agents of Barfoot and Thompson.

Chief Executive, Adam Feeley, said the case demonstrated the range of major frauds currently under investigation by the SFO.

“While we have put considerable energy into financial market frauds in recent times, this case is an example of the many different types of other frauds that continue to be perpetrated and need speedy investigations.”

Mr Feeley added that concluding the matter maintained SFO’s trend of reducing time taken to conclude both investigations and prosecutions.

“The average age of SFO investigations has reduced by almost 70% in the past 15 months, and a number of our recent prosecutions, such as National Finance and Five Star Finance have secured early guilty pleas from some defendants.” 

Mr Feeley said that the SFO continued to have 22 cases under investigation and a further 31 under prosecution.

Aryasomayajula has been remanded in custody and is scheduled to be sentenced on 3rd February 2011.

For further information

Nick Paterson
General Manager, Fraud & Corruption
Serious Fraud Office
Phone: 021 675 647

Note to editors

This case relates to the property development activities of Mr Aryasomayajula and Mr Cavanagh in 2005 and 2006. The two endeavoured to acquire several properties with sub-division potential with a view to developing second dwellings on sites and selling the developed property for a profit.

Neither man had sufficient personal wealth to finance, or obtain finance for, several property developments simultaneously so embarked upon a system of engaging “trustees” to purchase properties on their behalf.

Mr Aryasomayajula and Mr Cavanagh then used the trustees’ names and personal circumstances in applications for finance, a fact the trustees were aware of and for which they were paid a fee.  All costs of the finance, including mortgage payments during the development, were to be met by Mr Aryasomayajula and Mr Cavanagh through one of their companies.

Mr Aryasomayajula prepared and submitted loan applications to various lenders, particularly Westpac Bank and the Bank of New Zealand, in the names of the trustees. However, without the knowledge of the trustees he altered their personal financial situation in order to make their position more acceptable to the lenders. In addition to false income, asset and liability information, forged valuations were also created. 

Mr Aryasomayajula also neglected to inform lenders of the arrangement with the trustees, giving the impression that the trustees were in fact genuine purchasers intending to service the debt themselves.

As a consequence of numerous false representations and omissions made by Mr Aryasomayajula lenders were induced to part with approximately $13 million. The greater part of that amount has been recovered through mortgagee sales, but the total loss incurred by all lenders is approximately $3.8 million.

The role of the Serious Fraud Office

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 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:
http://www.sfo.govt.nz/f56,555/SFO_Statement_of_Intent_2010.pdf(external link)
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