Hubbard accounts 'largely fictional'
Annual investor statements written by the late Allan Hubbard for the Hubbard Management Funds (HMF) were "largely fictional" and using them to decide how to compensate investors would be unfair, the High Court in Christchurch was told yesterday.
Statutory managers Grant Thornton have asked the court to decide how to distribute the remaining funds from the failed entity run by the Timaru financier, placed in statutory management in June 2010.
The statutory managers' lawyer, Frazer Barton, said HMF had started as a small side service, with Hubbard managing investment portfolios for some friends and family members, and had grown to be unmanageable for Hubbard, who managed the 300 portfolios alone.
Deciding how to distribute the money hinged on whether the fund was a collection of individually crafted share portfolios or a "global" fund that pooled all members' investments.
Statutory managers want to distribute on the basis that the fund was a collection of individual share portfolios while the investors are arguing that it should be seen as a "global" fund.
The investors are owed $82 million, yet the fund was last valued at only $44.8m.
The assets held and the investor statements had not matched up for about three years before then, the court was told.Barton said none of the investment files kept by Hubbard had a foundation document and no prospectus had been published.
All 300 investors did get an investment statement about March each year, detailing the number and value of shares held as well as dividends received and in some cases, interest received.
Investors' lawyer Peter Whiteside said evidence showed the statements "were largely fictional in nature" and should not be used to determine ownership.
All shares in the company were bought by a single Hubbard-controlled company and owned by another, rather than individual investors.
By email, one investor polled 160 fellow investors and 75 replied. They wanted the assets pooled and given to investors in proportion to their investment in the fund.
A global pooled trust was the only fair way to reimburse investors as that was how it had been run by Hubbard, Whiteside said.
It was also the way the fund had been run by the statutory managers. And, according to one of the managers' reports, it was identified as the only way to divvy up the assets, until the managers changed their stance, Whiteside said.
Hubbard's estate and a friend of the court are yet to submit to the court and the hearing will continue today.
Barton said all the investment statements were unique and the returns "varied wildly", which led the statutory managers to believe the investments were created each specifically for the investor.
That meant the investors effectively owned whatever shares were on their investment statements and investors who found themselves with shares that did not exist, or in reality smaller holdings, should take the loss on those items, he said.
The shortfall between shares allocated to investors and those held by HMF was $7m. The fund also held some shares which had not been allocated to any investor.
Some investors had cash in the fund which Hubbard would have allocated shares to in due course. However, $6m supposed to be held by the fund did not exist and the fund had only $234,000 in the bank when it was put into statutory management, Barton said.