Finance company directors charged

The Securities Commission has laid criminal charges and issued civil proceedings against Capital + Merchant Finance directors Neal Nicholls, Owen Tallentire, Colin Ryan and Robert Sutherland.

Criminal charges have also been laid against Wayne Douglas, who resigned as a director in February 2007.

Yesterday the Serious Fraud Office said it had started an investigation into Capital + Merchant Finance following a referral from Grant Thornton, the receivers of companies within the Capital + Merchant Group.

The Securities Commission said its proceedings followed extensive investigations by the commission since Capital + Merchant Finance went into receivership on November 23, 2007 owing approximately $167 million to some 7000 investors.

According to the receivers it was likely that none of this would be recovered, the commission said.

"The commission alleges that Capital + Merchant Finance's offer documents and 
advertisements misled investors by misrepresenting the investment risks, especially in relation to related party lending, insurance cover and liquidity," commission chairwoman Jane Diplock said.

The commission alleges that the directors made untrue statements in the 
registered prospectus and investment statement dated August 15, 2006, mainly 
in respect of related party lending and loan management.

It also alleges that the current four directors made untrue statements in the registered prospectus and investment statement dated September 10, 2007, as well as untrue statements about liquidity and cashflow and in the prospectus incorrectly stated that no loans were impaired and the company's financial position had not materially and adversely changed since its last balance date.

Five advertisements distributed during 2007 contained untrue statements about insurance cover for capital secured debenture stock and some of the matters referred to above, it is alleged. These claims do not apply to Mr Douglas who had resigned his directorship by then.

The commission further alleges that Mr Nicholls and Mr Ryan knowingly misled 
the commission. Most of the criminal charges carry a maximum penalty of five years imprisonment or fines of up to $300,000. The charges were filed at Auckland District Court yesterday. The first court appearances are scheduled for April 8.

The commission has applied for declarations of civil liability and civil 
pecuniary penalties of up to $500,000 against each of the current four 
directors.

A declaration of civil liability is conclusive evidence that can 
be relied upon by either the commission or investors themselves in any 
subsequent claims against the directors for compensation.

The commission will consider pursuing compensation claims in due course and investors can take their own civil compensation proceedings.