Bridgecorp staff 'told to lie'

Bridgecorp staff were instructed to lie to investors who called the company asking why they hadn't received their regular interest repayments, Auckland District Court was told yesterday.

Bridgecorp collapsed into receivership on July 2, 2007, owing 14,500 investors about $459 million. Investors are expected to recover no more than 10 cents in the dollar.

Prosecutor Brian Dickey told the court that at one point before it failed, Bridgecorp had a bank balance of just $16,000.

One staff member said in an internal email four months before it collapsed that maybe investors could be told: "We have no money, can't pay our bills, are holding back payments, (and are) lying to investors". Faced with a cashflow and liquidity crisis, which it had failed to disclose to the market, the company was repaying only the noisiest and most persistent investors in the months leading up to receivership.

Unbeknown to most, Bridgecorp had been defaulting on investor repayments since February that year. Between February and June 2007, there were 44 separate defaults involving nearly $21m, prosecutor Brian Dickey told the court.

"It appears that staff were directed to lie to investors who contacted the company asking why they had not received their full payments on the relevant due date. The late or non-payments were attributed to computer errors, bank errors or accounting department errors."

The court was also told Bridgecorp's in-house lawyer emailed various staff members on March 8, 2007, seeking comment about proposed amendments to its December 2006 prospectus. One wrote back: "Maybe we could tell them that we have no money, can't pay our bills, are holding back payments, lying to investors and brokers about why their money hasn't been paid and I'm not confident that we can meet the March interest payments to investors."

Five former Bridgecorp directors – Rod Petricevic, Rob Roest, Bruce Davidson, Gary Urwin and Peter Steigrad – each face 10 charges brought under the criminal provisions of the Securities Act. Each charge carries a maximum penalty of five years' jail or a fine of $300,000.

The charges allege the directors lied to investors in the offer documents registered on December 21 2006. These "untrue statements" included claims about Bridgecorp's credit approval practices and its financial position.

All five appeared in court yesterday for a depositions hearing that will last all week before being adjourned, part-heard, until March. A High Court trial date is at least a year away.

A major issue at trial will be what the directors knew, or should have known, about the company's financial position before registering its prospectus and investment statement, and before the prospectus was amended in March 2007.

The court was told yesterday that Bridgecorp faced a liquidity crisis and was within two months of defaulting on investor repayments when the December 2006 offer documents were registered. None of this was disclosed to prospective investors; nor were they told that three months earlier a cashflow crisis had forced Bridgecorp to borrow $8 million from a competing finance company, St Laurence Ltd, at 23 per cent interest, in order to meet investor repayments.

The interest rate was raised to 30.5 per cent when Bridgecorp extended the loan in December 2006 – around the time its prospectus and investment statement were registered.

Mr Dickey said Bridgecorp's financial position was "pretty much shot" and the company was "in a freefall of deteriorating circumstances" in September 2006, three months before its prospectus was registered. By October 2006, cashflow was being monitored hourly.

- © Fairfax NZ News