Conduct didn't cause SCF collapse - defence
The South Canterbury Finance (SCF) accused are victims of factors beyond their control, a lawyer told the High Court in Timaru yesterday.
Opening the defence case in New Zealand's biggest fraud trial, Pip Hall QC said the collapse of SCF was caused by the global financial crisis and by its chairman, Allan Hubbard, being placed in statutory management.
Former directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod, are before Justice Paul Heath and between them face 18 charges.
Hall, appearing for Sullivan, said the "headline-grabbing" cost of the collapse, at $1.58 billion, had dominated the case.
"The defence submits the alleged conduct was not the reason for the failure of it [SCF]. [It was] firstly the global financial crisis which led to the collapse worldwide and secondly the decision to place Mr and Mrs Hubbard and associated entities under statutory management in June 2010. Two months later, SCF was placed in receivership."
The financial collapse saw many of SCF's loans defaulting, he said, and the company was vulnerable by virtue of its size.
"Clearly at the time, SCF was the largest non-retail deposit-taking institution in New Zealand and it was clearly in trouble with impaired loans."
The most serious charge, which relates to the finance firm's entry into the Crown Deposit Guarantee Scheme, would also be a key focus, he said.
Hall said the entry would likely have been delayed by alleged omissions the Crown had focused on, but the scheme would still have been entered into.
"What has never been highlighted is that although $1.58b was paid out, there has been the recovery of half of that and the recovery continues. The loss to the taxpayer has not been established."
Interestingly, while the Serious Fraud Office (SFO) has laid the charges, three former SFO staff are working with the defence.
Ian Varley and Gib Beattie formed financial investigator company Beattie Varley after they left the SFO. Varley was with the SFO when the SCF investigation started and helped uplift documents from the SCF's former auditor.
Karen Greenwood, a forensic accountant at Beattie Varley, also worked at the SFO.
She was the first witness yesterday and was also at the SFO during the SCF investigation, but was not part of it. Much of her evidence was unravelling the transactions.
Next week former SCF chief financial officer Graeme Robert Brown, 46, will be called under subpoena.
Brown faced one charge of false accounting for transferring a loan from SCF of $10m to Kelt Finance, which was then advanced to SCF parent company Southbury. This charge was later dropped.
Also to be called is former SCF accountant Terry Hutton, who also faced charges which were later dropped.
RSM Law partner John McGlashan will also give evidence today. He was a partner at the firm with Sullivan.
The Timaru Herald