Four go on trial following million-dollar collapse of finance companies
Four businessmen have gone on trial charged with a raft of Financial Markets Authority charges in relation to two finance companies that collapsed, owing investors more than $17 million.
Paul Bublitz and his co-defendants Richard Blackwood, Bruce McKay and Lance Morrison have denied charges of theft by a person in a special relationship, making false statements to a trustee, and false statements by a promoter.
Co-accused Peter Chevin was also charged and on Monday morning pleaded guilty to 10 charges of theft by person in a special relationship. He will be sentenced in September.
Two companies associated with the defendants, Mutual Finance and Viaduct Capital, collapsed in 2010 owing investors $9.3 million and $7.8m respectively.
READ MORE: Charged man found dead
The judge-alone trial began in the High Court at Auckland on Monday.
Crown prosecutor David Johnstone told Justice Mark Woolford that "the essence" of the Crown case was that Bublitz acquired and used the two finance companies to support his various property investments, and was assisted by his co-accused.
"In the course of Mr Bublitz's conduct, the Crown submits that the defendants deliberately misled investors and potential investors by failing to disclose a series of related party transactions," Johnstone said.
Bublitz, a former property developer, was described as being left "asset rich but cash poor" following the fallout of the Global Financial Crises in 2007.
His property assets were held in two groups, Hunter Capital and Hunter Property, which had various projects across Auckland including a development at Silverdale, north of Auckland.
In 2008 the Crown began underwriting or guaranteeing finance companies to encourage Kiwi investment, and the Crown claims Bublitz took advantage of that by setting up a shell finance company to prop up an ailing Hunter Capital.
Johnstone described Bublitz using experienced property development businessman Nick Wevers as a "puppet" to purchase an existing Christchurch finance company called Priority, which they later renamed Viaduct Capital.
Wevers was also charged with offences but died in 2014.
The Crown argues Bublitz held significant control over Viaduct, although his name did not appear in documents as a listed director.
Instead Wevers was named a director of that company, but Johnstone argued that beneath the surface, Hunter Capital controlled Viaduct and generated money to pay off its loans.
The Crown alleges that also involved in the scheme were chartered accountant Bruce McKay, who worked for Bublitz before becoming a Viaduct director in 2009; Richard Blackwood, an experienced businessman with accounting experience and who also later become a Viaduct director; and Lance Morrison, a chartered accountant for Bublitz who managed financial affairs for Hunter Capital and who later became a director of Mutual Finance.
On Monday morning a memorandum was produced between Bublitz, Peter Chevin and McKay, who had a meeting at Bublitz's Pauanui holiday home in 2009.
Minutes were later compiled of that meeting which the Crown said was essentially a "blueprint" for their plan to enrich cash-poor Hunter Capital.
"There is simply no wriggle room to pay creditors. Mortgages paid until end of January," the document read.
It outlined a plan to acquire a finance company and other documents provided by the Crown showed the issue of related party issues "loomed large in their conscience", Johnstone said.
"Throughout the next year or so the company operated largely in accordance with blueprint," Johnstone said.
In April 2009 Viaduct came under investigation after Treasury became concerned that the "true beneficiary" of the company, and the Crown guarantee, was Hunter Capital.
Accountancy firm PwC investigated and as a result of that investigation the Crown withdrew its guarantee for Viaduct, Johnstone said.
Another memorandum between Wevers and Bublitz revealed that Wevers was concerned about the way things were operating, Johnstone said.
"Paul, I have formed the opinion that we have to take some drastic actions immediately," Wevers wrote.
The document went on to say that Wevers could not sign company prospectuses because it would breach a trust deed.
"The Crown argument is not undermined by Mr Wever's apparent concern by the need for the trust deed not to be breached," Johnstone said.
He said Wevers was simply motivated by the risk of having a forced sale, rather than a breach of terms of related party lending, which Johnstone said the men had taken steps to conceal.
That email also showed that Wevers appeared to be deferring to Bublitz for direction, Johnstone said.
The trial is expected to last 12 weeks.