John Key's lawyer linked to 'sham' trust involved in failed Auckland property development
John Key's personal lawyer helped to set up a blind trust described by a High Court judge as a "sham" for a bankrupt property developer.
The trust allowed Las Vegas-based Kiwi developer Rod Nielsen to take part in a failed Auckland property project which owes investors $16 million, and is under investigation by the Serious Fraud Office.
Ken Whitney was also criticised by the judge for a "far from satisfactory" explanation regarding why he "witnessed" a signature made in Las Vegas while he was in New Zealand, as well as evidence with inconsistencies.
The revelations in a 2014 High Court ruling will place further pressure on Key and his ties with Whitney, after the Prime Minister told media: "I don't deal with people unless they're highly ethical and they do things well."
* Key's lawyer lobbied Govt on foreign trusts
* NZ trusts at the centre of Malta money scandal
* Govt now says NZ trust examination likely
* More NZ links to Panama Papers to come
* Call for Malta Prime Minister's head over trusts
* Q&A: Panama Papers' fallout has only just begun
* Money laundered on a global scale, document leak reveals
* OECD will scrutinise NZ's foreign trust rules next year: Paris official
* Foreign trusts hiding darker secrets than tax avoidance
The comments followed the news that Whitney lobbied the Government in 2014 over a potential crackdown on foreign trusts, citing a conversation he had had with Key.
On Monday, Key appeared to indicate to RNZ that Whitney had misrepresented his comments in an email about the foreign trust rules to then-Revenue Minister Todd McClay.
In 2014, Nielsen's Rosebud Corporate Trustees company brought a claim to the High Court in Auckland, seeking buy-out payments from former partners in the Albany Heights developments.
Nielsen was one of four men involved in a syndicate that advertised heavily in Southeast Asia to raise funds to build properties on Auckland's North Shore.
From March 2013, companies involved in the venture began to enter liquidation, leading to protests by angry investors at the New Zealand embassy in Hong Kong.
A Serious Fraud Office investigation into Albany Heights is ongoing, amid claims from unsecured investors that they are owed $16 million.
Justice Ed Wylie ruled against Rosebud's action in the High Court, declaring the trust involved in the venture was a "sham" and Nielsen was bankrupt when the deal were struck.
BLIND TRUST ESTABLISHED
In his ruling, Wylie spoke about Whitney's role in incorporating the Rosebud trust as one of Nielsen's "two trusted advisors in [New Zealand]".
Whitney acted for Nielsen during his 2009 bankruptcy proceedings, but did not respond to a request from the official assignee, or bankruptcy administrator, for all books and records relating to Nielsen's personal affairs.
According to the ruling, Whitney incorporated the Rosebud Corporate Trustee Limited company later in 2009 under Nielsen's instructions, with he and his law firm partner acting as Rosebud's directors.
A day later, the Rosebud company set up the Rosebud Trust as a blind trust, with Nielsen and his wife later appointed as "discretionary beneficiaries", which meant they would not show up on the trust deed.
The ruling said Whitney did not reply to a further request for Nielsen's information from the official assignee in July 2010, before responding in August that year when threatened with a summons.
However, he did not disclose the existence of the Rosebud Trust.
The ruling said Whitney and his firm partner resigned as directors of Rosebud on November 2010 at Nielsen's request, but Whitney continued to act as his lawyer afterwards.
'LITTLE OR NO OVERSIGHT'
While Nielsen was not meant to be controlling the Rosebud Trust, the ruling said "there was little or no oversight by Rosebud as a trustee" of the Albany Heights development.
"Rather, the evidence suggested that Mr Nielsen controlled the trust, and that he effectively made all decisions for it."
There was no evidence that Whitney gave Nielsen authority to enter into the Albany Heights agreement, while he did not see the agreement before it was signed.
Asked by Justice Wylie why he did not talk to Nielsen about how the Albany Heights venture was going to operate, Whitney said he had been told the money would be held in a solicitor's trust account, "and that he assumed that it would be 'pretty safe'."
However, Wylie's ruling said this was "at odds" with an earlier answer, where Whitney said the money from the sale of the option agreements could be used by the developers to fund the purchase and development of the property.
'INCONSISTENCIES IN WHITNEY'S EVIDENCE'
"When I asked him about inconsistency, he repeated that he 'didn't know the operational details'.
"He said that the whole idea was put to him in 'sort of a vague state', and that he 'didn't have any detail of it'.
"As can be seen, there are inconsistencies in Mr Whitney's evidence."
Whitney also acknowledged he had made no independent assessment of the risks of the deal, the ruling said, and accepted he should have fully investigated the risk before allowing the trust to go into the joint venture.
VEGAS SIGNATURE 'WITNESSED' IN NZ
According to Wylie, Whitney acknowledged under cross-examination that he was not present when Nielsen signed a May 2012 buyout agreement for Rosebud in Las Vegas, despite signing as a witness.
Instead, he witnessed Nielsen's signature when it was later returned to New Zealand.
"When it was put to Mr Whitney that the words 'In the presence of...' required that he be present when Mr Nielsen signed it, Mr Whitney offered the explanation that he had 'taken it to mean also if you know the person's signature and you've discussed it with them and they acknowledge it then that's fine'.
"Again, this is far from satisfactory."
'A SHAM TRUST FROM THE OUTSET'
The ruling said there was also evidence that a signed agreement setting up the venture had been signed in July 2011 but backdated to October 2010, which Wylie said was likely to have been about covering payments made to Nielsen's wife between the two dates.
"It seems highly likely that the ... agreement was backdated ... to try and capture the payments which had already been made direct to Mrs Nielsen, and to obscure the reality of the situation, despite the facade of the Rosebud Trust."
In the ruling, Justice Wylie concluded: "In my judgment, the Rosebud Trust was a sham trust from the outset.
"The intention from the outset was to mislead, to conceal Mr Nielsen's identity and to enable him to carry on business in this country, notwithstanding his bankruptcy."
Whitney did not respond to several emails and calls requesting comment about his involvement with Nielsen, and the High Court ruling.
He was not at his Antipodes Trust Group office on Monday afternoon, where an employee said he would be away for the rest of the week. A woman at his Auckland home on Tuesday said he was in an area without cellphone reception, and would not be checking his emails.
Asked if the revelations were grounds to reconsider his previous statements about Whitney, Key responded: "No. I have complete faith in him.
"I don't have any of the details about that. Lawyers ultimately in their career deal with lots of people and lots of clients but in my dealings with him he's been thoroughly ethical. I've known him for a long period of time.
"Sometimes lawyers do get criticised but in this particular case I have complete confidence in him."
Key revealed in a Stuff live chat on Wednesday that he had known Whitney for more than 20 years - and they met for the first time at ante natal classes.
"We met each other at ante natal classes when Stephi was born and his son Max was born. We're not hanging out every weekend but we know Ken and Rose well. They're really good people."