SCF investors' need to know of loans queried
South Canterbury Finance (SCF) investors did not need to know about all related-party lending, according to Edward Sullivan's lawyer.
The trial of former SCF directors Sullivan and Robert White, and former chief executive Lachie McLeod, continued yesterday before Justice Paul Heath in the High Court at Timaru, with expert witness Grant Graham cross-examined by Sullivan's lawyer, Marc Corlett.
Graham is a partner in investment company Korda Mentha and was engaged by the Serious Fraud Office (SFO)
Sullivan faces a charge of obtaining by deception and making a false statement as a promoter. He is said to have enticed investors to SCF with prospectuses that did not fully detail lending he knew to be related-party lending.
Related-party transactions are not illegal, but need to be disclosed where a director has an interest or control over the company being lent money to.
Corlett questioned Graham on whether leaving out the details of a related-party loan of $6.9 million to Woolpak Holdings in the prospectus would have influenced investors, as it equated to only 0.39 per cent of the overall loan book of $1.6 billion. Initially $690,000 was advanced.
"Would that have made a difference in their decision to invest?"
Graham said he thought it would have.
"Feedback I have had from investors is that (related-party loans disclosures) is one
area they head to. There is an awareness of what is in that note and they are quite interested in it. The number of [related-party] transactions they are interested in, as they think it shows a pattern. They are also interested in the quantum [overall value]."
Justice Heath queried the effect of the value of the loan on the investor.
"The appearance of $690,000 may not have caused much concern but the next year, showing $6.9m, could have looked like a lot of money to an average investor who is making a lot less than that," the judge said.
"These are the sort of numbers that resonate with investors," Graham replied.
The wide range of sophistication of the investors was also noted.
"Yes, that is typical of all finance companies I have been involved with," Graham said.
"If you look at Nathan's, Bridgecorp etc these are pivotal issues around [finance] com- panies being cash boxes and these were issues investors were focused on."
In the morning, Graham was asked by the judge to leave court after tetchy questioning from Corlett, who tried to highlight what he saw as 18 differences in key pieces of evidence presented by Graham.
"What I'm trying to establish is what he has relied upon and what he has not relied upon," Corlett said.
The judge said: "We have got conflicting evidence. Ultimately I have to make findings of fact."
Corlett said: "This witness is a crucial witness for the Crown. [I'm trying] to go through with this witness to identify evidence that was available to help, that he has not relied on to come to his conclusion."
Once determining a different line of questioning, the judge said: "I certainly haven't gone off to sleep. I'm listening with intense interest to the points you are making."
His cross-examination continues tomorrow.
The Timaru Herald