SCF 'smoke and mirrors'

18:55, Mar 12 2014
scf trial
TRIAL STARTS: Arraigned in the dock at the start of the $1.58b South Canterbury Finance fraud case, from left, are Edward Sullivan, Robert White and Lachie McLeod.

Emails talking of half truths, hiding loans and auditors ‘‘on the warpath’’ were outlined on the first day of the South Canterbury Finance fraud trial in the Timaru High Court yesterday.

Prosecutor Colin Carruthers QC said a culture of ‘‘round the mulberry bush’’ related party transactions by South Canterbury Finance (SCF) directors was behind its downfall and the subsequent $1.6 billion government bailout.

The country’s largest fraud trial began yesterday with SCF chief executive Lachie McLeod and two former directors, Timaru lawyer Edward Sullivan and accountant Robert White, pleading not guilty to the 18 individual and combined charges they face.’

SCF collapsed on August 31, 2010, owing $1.58b, which was paid out to investors under the Crown retail deposit guarantee scheme.

 Carruthers said in opening that 41 witnesses would canvass nine key transactions undertaken by the company, including deals to finance farming empire Dairy Holdings and the buying and selling of Auckland’s Hyatt Hotel.

‘‘They moved beyond [being] cavalier and contributed directly to the collapse. The hallmark was related-party lending, highly structured to hide it. He read out an email from McLeod to a SCF accountant on February 21, 2008.


‘‘Obviously trying to hide my loan as a related party and now need to flesh out fully.’’

In an email to Sullivan, White said ‘‘the auditors are on the warpath re related party loans and are clearly unwilling any longer to work with the half-truths and related party loans that they have endured in the past’’.

In another email White said he had, ‘‘spent all afternoon trying to get rid of the smoke and mirrors to try and understand what the shape of the transaction is and now I have thrown in the towel’’.  

He also described other transactions as ‘‘round the mulberry bush’’, and ‘‘trying to hide a pea under a thimble’’. Emails from another SCF insider described a ‘‘juggle of related party debt to keep the trustee from busting my balls’’.

The case will draw in Sullivan’s family members, including Geoffrey Sullivan and Peter Symes, respectively his nephew and brother-in-law.

 Symes’ evidence will be written, as he died in August last year. His evidence relates to his role as director of Quadrant Holdings and Shark Wholesalers.

Carruthers said Symes acted as a proxy of Sullivan in these companies.

Geoffrey Sullivan was the general manager of Specialised Sales and Marketing (SSM), who noticed the company faced funding issues,  Carruthers said.

‘‘[Ed] Sullivan proposed a solution to the funding issue, where Shark could purchase stock from SSM which SSM would gradually purchase back. He will say that is exactly what occurred,’’ Carruthers said.

Sullivan’s personal assistant, Florence Smith, and RSM Law practice manager Greg O’Brien will also be called.

Stuart Nattrass, a former director of SCF, is the first witness to be called and is expected to occupy the stand for all of next week.

Other witnesses set to appear during the four-month trial include developer Neville Mahon, who was involved in an abandoned bid to purchase and renovate the Hyatt Hotel, and SCF receiver William Black.

Treasury’s manager of the Crown Retail Guarantee Scheme, John Park, was said by Carruthers to be a key witness in establishing the Government was misled when SCF was allowed into the Government scheme.

Fairfax Media