Capital + Merchant directors imprisoned

Press Release – Serious Fraud Office

Directors of failed finance company, Capital + Merchant Finance Limited (Capital + Merchant), were sentenced to prison terms in the Auckland High Court today.

Media release

31 August 2012
Capital + Merchant directors imprisoned following convictions

Directors of failed finance company, Capital + Merchant Finance Limited (Capital + Merchant), were sentenced to prison terms in the Auckland High Court today.

Neal Medhurst Nicholls (56), Wayne Leslie Douglas (58) and Owen Francis Tallentire (65) had been found guilty in July of fraud charges brought by the Serious Fraud Office (SFO).

Mr Nicholls and Mr Douglas were sentenced to seven and a half years, and Mr Tallentire was sentenced to five years.

SFO Chief Executive, Mr Adam Feeley said “We have long maintained that the collapse of Capital + Merchant represented some of the worst excesses of the finance companies saga, and these sentences support that point of view. They will send a strong message to the commercial sector regarding the severity of punishment that will follow cynical crimes of these kind.”

The charges relate to an SFO investigation into transactions involving approximately $28 million that occurred between 2004 and 2006. It was alleged that these transactions (collectively known as the Clyde 1 & 2 and Numeria 1 & 2 transactions) were entered into in breach of the restrictions contained in the company’s trust deed, and resulted in trusts controlled by the accused receiving benefits totalling approximately $15.9 million.

All defendants were found guilty in respect of the charges relating to Clyde 1 & 2, and Mr Nicholls and Mr Douglas were also found guilty in respect of the Numeria 1 transaction. Mr Nicholls and Mr Tallentire were found not guilty in relation to the Numeria 2 transaction.

The SFO are seeking to appeal not guilty verdicts against Mr Nicholls and Mr Douglas from a separate Capital + Merchant trial in April-May. These relate to the non-disclosure of alleged related party lending totalling approximately $14.4 million.

ENDS
Note to editors:

Background to investigation

Capital + Merchant Finance Limited (Capital + Merchant) was incorporated on 18 January 2002. It operated as a finance company providing financial accommodation and mortgage facilities for commercial and residential property development. Funds for lending were sourced primarily from the issue of securities to the public in the form of debenture stock and convertible capital notes.

Neal Medhurst Nicholls and Wayne Leslie Douglas were the founding directors and beneficial owners of Capital + Merchant. Owen Francis Tallentire was appointed Chief Executive of the company. Mr Tallentire was also later appointed a Director. Mr Nicholls was a Director until the company was placed in receivership in November 2007. Mr Douglas resigned as a Director in February 2007.

Capital + Merchant were placed into liquidation under the control of the Official Assignee in December 2009.

Crimes Act offences

Section 220: Theft by person in special relationship

(1) This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person—

(a) to account to any other person for the property, or for any proceeds arising from the property; or

(b) to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.

(2) Every one to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.

(3) This section applies whether or not the person was required to deliver over the identical property received or in the person’s possession or control.

(4) For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements.

Section 242: False statement by promoter, etc.

(1) Every one is liable to imprisonment for a term not exceeding 10 years who, in respect of any body, whether incorporated or unincorporated and whether formed or intended to be formed, makes or concurs in making or publishes any false statement, whether in any prospectus, account, or otherwise, with intent—

(a) to induce any person, whether ascertained or not, to subscribe to any security within the meaning of the Securities Act 1978; or

(b) to deceive or cause loss to any person, whether ascertained or not; or

(c) to induce any person, whether ascertained or not, to entrust or advance any property to any other person.

(2) In this section, false statement means any statement in respect of which the person making or publishing the statement—

(a) knows the statement is false in a material particular; or

(b) is reckless as to the whether the statement is false in a material particular.

Role of the SFO

The Serious Fraud Office (SFO) was established in 1990 under the Serious Fraud Office 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 I 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 II 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 Annual Report 2011 sets out its achievements for the past year, while the Statement of Intent 2012-2015 sets out the SFO’s three year strategic goals and performance standards. Both are available online at: www.sfo.govt.nz

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