Chief financial officer helped with SFO inquiry

EMMA BAILEY
Last updated 05:00 15/04/2014

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Following South Canterbury Finance's downfall, its chief financial officer helped the Serious Fraud Office in its investigation into the failed finance company.

The trial of former SCF chief executive Lachie McLeod and former directors Edward Sullivan and Robert White resumed before Justice Paul Heath at the High Court in Timaru yesterday. The trio face a combined 18 charges.

David Jarman gave evidence yesterday about alleged related-party transactions at SCF which were not disclosed in its prospectus.

He was the chief financial officer from September 2009. He is currently employed in the same position for Crown Asset Management, a company formed to deal with the last remaining SCF assets. A number of senior SCF staff were kept on following its collapse and employed by Crown Asset Management.

Jarman helped prepare the 60th prospectus in 2009. Auditors had raised concerns about the lending of $49.7 million to the Hyatt Hotel being a related-party transaction, as it was owned by Quadrant Holdings, the sole director of which was Sullivan's brother-in-law, Peter Symes.

"Quadrant owed SCF $49.7m and the Hyatt was only valued at $58m. It also owed $25m to ASB and $2m to Westpac. It was $77m in debt and the asset was worth less than that. My point is that SCF had a reasonable amount of influence over Quadrant," Jarman said.

Former chairman Allan Hubbard had a blank signed share transfer for all the shares in Quadrant, meaning SCF could take it on if it wanted to.

Following the collapse of SCF, Jarman worked with receivers, who passed on evidence to the SFO. "I was able to search through all the emails sent and received by SCF."

He found internal emails related to alleged related-party transactions which have been used throughout the trial.

Another transaction he outlined involved Kelt Finance.

McLeod faces a charge of false accounting.

The Crown say that SCF's exposure to its parent company, Southbury, exceeded its trust deed. The deed states loans to any one group cannot exceed 35 per cent of shareholder funds. At the time Southbury owed $81m. To reduce the exposure to Southbury, $10m of the money loaned from SCF was put through a third party, Kelt Finance. The Crown says the loan never existed, other than as a record in SCF's books.

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- BusinessDay

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