SCF director accused of concealing hotel asset
South Canterbury Finance (SCF) director Ed Sullivan is alleged to have used a relative as a puppet to hide the finance company's ownership of the Hyatt Hotel in Auckland, the High Court at Timaru has been told.
Sullivan, former SCF chief executive Lachie McLeod, and former director and accountant Robert White have pleaded not guilty to 18 individual and combined fraud charges laid by the Serious Fraud Office in December 2011.
Their trial was in its second day yesterday before Justice Heath.
The Crown completed its opening yesterday and looked at how SCF was accepted into the Crown retail deposit guarantee scheme in 2008. Under the scheme, $1.58 billion was paid out to investors when SCF collapsed two years later. Prosecutor Colin Carruthers QC outlined the application SCF made in October 2008 to enter the scheme. Issues came up around the Crown's policy on related-party loans.
The loans in question were financial advances from SCF to companies controlled or owned by the lender's directors or executives. Related-party loans are not illegal but trust deeds and the guarantee scheme required them to be disclosed, and limited how much could be loaned.
Carruthers said that on December 4, 2008, Sullivan wrote to his brother-in-law, Peter Symes, and said he was required in name to own the Hyatt Hotel.
The Crown alleged this was to avoid declaring a related-party loan, with Symes not involved in the running of the company and receiving only a small fee.
"We need to appoint you, in my view, as a [sole] director of Regency Auckland. Please note that it owns the Hyatt Hotel in Auckland. South Canterbury Finance does not wish to be direct owner and neither does Southbury Group [SCF parent company]. It is for that reason we formed Quadrant Holdings which is the end owner of the hotel," Sullivan wrote. He finished the letter with: "Your ever-loving brother-in-law".
The ability of SCF to meet the Government's requirements to enter the guarantee scheme was debated by the accused.
White emailed Sullivan and outlined his reservations.
"We have been telling less than the truth regarding our asset quality for some time now," he wrote.
White and Sullivan asked the Crown to amend its policy requiring all transactions to be at arm's length but it would not.
On November 19, 2008, the company was allowed into the scheme based on information from SCF prospectuses. Carruthers said the company did not disclose related- party loans, which meant SCF entered the scheme by deception.
On a memo to SCF directors discussing its stake in the Scales Corporation, White had scribbled it was "Titanic deckchairs stuff".
The case will call on another member of Sullivan's family, nephew Geoffrey Sullivan.
Symes' evidence will be in writing, as he died in August.
His evidence related to his role as director of Quadrant Holdings and Shark Wholesalers.