The SCF verdicts

After a 14-month investigation and a five-month trial, the South Canterbury Finance hearing ended yesterday with former chief executive Lachie McLeod and former director Robert White acquitted of all charges.

Former director Edward Sullivan was found guilty on five charges and acquitted on the remaining four.

Of particular note is the acquittal of all three on the charge relating to the Crown Retail Deposit Guarantee Scheme, which saw the Government pump $1.6 billon into the company to bail out its investors.

About half of the money has been recovered in an expensive collection process.

Charges were laid by the Serious Fraud Office (SFO) against the three men in respect to South Canterbury Finance (SCF) in December 2011 after a long investigation.

The acquittal yesterday of Messrs McLeod and White and the reduced number of guilty verdicts against Mr Sullivan must be disappointing to the SFO given the high profile of the case, said to be one of the most expensive commercial prosecutions in New Zealand's history.

Justice Paul Heath said the SFO failed to prove its claim of an underlying culture of concealment in SCF between 2004 and 2010.

In his written judgement, Justice Heath said, while the Crown's case relating to concealment did not withstand scrutiny, two market phenomena exposed the ''fragile capital structure on which South Canterbury operated and drove the directors to respond in a knee-jerk fashion''.

The first was its rapid growth, with SCF's total assets increasing from about $750 million in June 2004 to almost $2 billon by June 2008.

The absence of a robust loan authorisation process and a less than orthodox approach to debt impairment were contributing factors to the problems SCF faced when a major financial downturn occurred in mid-to-late 2008, the judge said.

The property downturn around mid-June 2008 and the global financial crisis the same year adversely affected the value of securities taken for particular loans and caused some borrowers to be unable to meet their principal and interest payments.

SCF was tightly controlled by the late Allan Hubbard, who died in a car crash in 2011.

Mr Hubbard was regarded as a benevolent lender of money, especially in South Canterbury where loyal followers rallied in the streets of Timaru after he lost control of his companies.

Suggestions his book-keeping methods left much to be desired will now be just that - unproved suggestions - with the verdicts delivered yesterday.

SFO director Julie Read yesterday referred to the difficulties of bringing a case of this nature before the court, describing it as a difficult and complex prosecution.

She considered the case was investigated thoroughly and counsel presented the best possible case to the court.

The SFO is considering the judge's reasons for yesterday's decisions.

The SFO was found wanting in this case and must now look hard at its own processes.

New Zealanders rely on the watchdog to ensure markets are safe for investors.

And regardless of the verdicts, trust in the market has been shaken.

Some good has come out of the case.

Investors flooded into SCF because of better-than-average returns and the reputation of Mr Hubbard as someone who had made good of himself from humble beginnings, and who looked after the small investor.

But that is not enough and, unfortunately, it was left to taxpayers to prop up those investors who lost their money.

Subsequently, rules were tightened and transparency improved around investment ''vehicles'', although there are worrying signs of high-risk, high-reward offerings again entering the market.

The publicity around the case should also be a warning to investors to take particular care with their savings.

The judge's decision, being released at the start of Money Week, could not have come at a more appropriate time.

Too often, older investors rely on the goodwill reputation of an adviser rather than doing the proper research.

This approach is no longer appropriate and improved warnings around investment advice can only be good for the reputation of a somewhat tarnished industry.

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