3 years 8 months sentence in Green Acres franchise fraud

Published

Three years eight months sentence in Green Acres franchise fraud after SFO investigation

Keith Lapham was today sentenced to three years and eight months imprisonment following his guilty plea in respect of three charges of obtaining by deception brought by the Serious Fraud Office (SFO).

The SFO alleged that in 2007 Lapham fraudulently obtained $3,845,000.00 having made false representations:

  • to intended sub franchisees of the Green Acres Franchise Group about the amount of guaranteed income they would receive;
  • to four intended sub franchisees of the Green Acres Franchise Group about the number of sub franchises in the Auckland area; and
  • to the Green Acres Franchise Group as to the number of sub franchises that he had awarded.

Over 200 people, mostly recent immigrants, paid Lapham for franchises on the basis of the false representations as to guaranteed income.

Lapham pleaded guilty to the charges laid on 30 September 2010, but disputed the amount in question, claiming that he had obtained approximately $1.5m only.  Ultimately the sentencing judge took the view that the difference in quantum would not make a material difference to the sentence. 

For further information

Nick Paterson
General Manager, Fraud and Corruption
Serious Fraud Office
Phone: 021 675647

Note to editors

Case summary

Keith Victor Lapham was a Master Ironing Franchisee for Green Acres Franchise Group from March 2000 to December 2007.  By the end of 2006 he had approximately 50 sub-franchisees under contract to him, using the Green Acres method of business and knowledge.

From about 2002, Green Acres agreed with Mr. Lapham that he would deal directly with commercial customers himself.  After that, Mr. Lapham acted as the front man for the ironing business for both commercial and domestic clients.  Mr. Lapham would deal solely with the clients, arrange for pick up and delivery of clothing, invoice and collect money from the client on behalf of the ironing contractor (sub-franchisee) to whom he had sold a franchise.  It was his responsibility to pay the guaranteed income to the sub-franchisee and make any royalty or brand levy payments on their behalf to Green Acres.

Mr. Lapham told the new sub-franchisees that he would pay them a guaranteed income of at least $650 per week and in some cases up to $1,000 and $2,000 per week.  From early 2007 Mr. Lapham granted an increasing number of sub-franchises each month.  At the end of March 2007 he had 87 sub-franchisees under contract to him. 

On the conservative figure of $650.00 payable weekly in guaranteed income to these sub-franchisees, Mr. Lapham needed to pay the sub-franchisees $202,800.00 per month at March 2007.  However, Mr. Lapham’s income from ironing customers for March 2007 was only $68,805.36.

At the end of December 2007, Mr. Lapham had signed up 256 sub-franchisees.  Based on $650.00 payable weekly in guaranteed income to the 239 sub-franchisees he had at the end of November 2007, Mr. Lapham needed $673,183.33 to meet the monthly guaranteed income payments in December 2007.  The income Mr. Lapham received from ironing customers for December 2007 was only $50,146.64.  Most of the sub-franchisees were not paid the guaranteed income Mr. Lapham had promised.

At the time Mr. Lapham made the false representations as to whether he could pay the levels of guaranteed income he promised, he knew the amount he derived from his ironing customer base was nowhere near sufficient to fulfill both the then current and future financial obligations he had to the sub-franchisees in the form of guaranteed income.  He obtained a total of $3,621,336.00 on the basis of these false representations.   This total was reflected in two separate charges, one for the $96,000.00 obtained in relation to the four specific potential sub-franchisees, the other charge for the remaining $3,525,336.00 obtained in relation to the other sub-franchisees generally.

Most of the funds received by Mr. Lapham from the sub-franchisees were returned to the business and little in the way of personal gain was made by Mr. Lapham.

Mr. Lapham paid out some sub-franchisees during 2007 where the sub-franchise was reassigned to another sub-franchisee.

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 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