Secret Hanover report may be potential evidence

23:11, Apr 04 2014

A secret report on Hanover Finance has emerged as potential new evidence in legal action brought against the company's promoters by the Financial Markets Authority.

The existence of the report emerged after the failed finance company's owners Mark Hotchin and Eric Watson agreed to settle their defamation claim against former Shareholders Association chairman Bruce Sheppard.

In the lead-up to the settlement, Hotchin and Watson had challenged whether certain evidence Sheppard wanted to use in his defence could be presented in court.

While the settlement is confidential, Sheppard says that evidence may yet be available to the FMA and to the Serious Fraud Office, which closed its investigation into Hanover a year ago without pressing charges.

Sheppard confirmed yesterday that the FMA had requested access to the evidence.

"I can't comment on whether or not that evidence would be relevant to the FMA's current proceedings," he said. "My gut instinct is that it is, but that's their call."


The evidence was to be presented by a witness who is subject to a confidentiality agreement with Hanover, said Sheppard.

"What he has is a report on Hanover which was commissioned by a party related to Hanover. In order to do that he had to enter into agreement to see records and things, and he entered into a confidentiality agreement."

Sheppard said the witness had agreed to give evidence if a court required him to do so.

In a further twist, Sheppard said he had not himself seen the report.

"I know by other means what's in it. And I know the report still exists including the file that gave rise to the report."

He had not previously disclosed the information because he had learned of it in a confidential engagement with a client of his accountancy firm.

In a statement issued late yesterday, Hotchin and Watson said it was "nonsense" to suggest the evidence was relevant to the FMA's lawsuit or to the SFO's investigation.

"If it was, no doubt Mr Sheppard would have supplied it to the regulators years ago (particularly as Mr Sheppard is an associate member of the FMA).

"We are completely untroubled by the prospect of the regulators seeing the irrelevant and tendentious evidence produced by Mr Sheppard in an attempt to justify his incorrect and defamatory media statements about us."

The defamation claim arose mainly from comments made by Sheppard in an interview aired by Television New Zealand in November 2009.

In a joint statement announcing the settlement with Sheppard, on the eve of a three-week trial due to start this week, both sides gave concessions.

Sheppard acknowledged that some of his public comments "may wrongly have implied that the plaintiffs were involved in transactions that were criminal and fraudulent".

In turn the plaintiffs said: "Hotchin and Watson have alleged in their claim that in making the statements Sheppard was motivated by ill will towards them. They accept this was not the case."

Sheppard declined to comment on the settlement, but confirmed he was covered by insurance.

"The cost of defence to date, and any settlement, if any, have not cost me a dime. I have not spent a cent."

Although the Sheppard case has settled, Hotchin is still to face off with fund manager Brian Gaynor and his publisher APN New Zealand.

Hotchin filed a claim of defamation in the High Court at Auckland in April 2011 following criticism of Hanover in Gaynor's weekly column in the New Zealand Herald.

Julian Miles, QC, acting for Hotchin, confirmed the action against Gaynor and APN was still in train but declined to comment further. The matter is set down for a pre-trial hearing on October 15.

The litigation followed a swirl of controversy after the collapse of Hanover in 2008.

The finance company's meltdown and its disastrous merger with Allied Farmers led to 13,000 investors losing much of the $554 million placed with the company.

The Financial Markets Authority has launched a civil against against Hanover figures, including Hotchin and Watson, alleging investors were misled. This claim is being defended.

The Serious Fraud Office, who announced it would not be prosecuting following a two-year investigation into Hanover, said it would welcome any new information Sheppard could provide.

"The SFO considers all complaints which are filed with us and would thoroughly evaluate any new material submitted to us by Sheppard in relation to this matter," a spokeswoman said.

Fairfax Media