Investors were enticed, trial told
South Canterbury Finance (SCF) enticed investors with three prospectuses that did not declare related party lending, with "puppet" directors, and alluded to an expired banking facility, a court has been told.
The Crown is presenting its closing arguments in the SCF trial in the High Court in Timaru.
Former SCF directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod, face a total of 18 charges brought by the Serious Fraud Office following SCF's $1.58 billion collapse.
The trial is being heard by Justice Paul Heath alone.
Crown counsel Colin Carruthers, QC, covered off counts two, three and four yesterday.
Count two focuses on prospectus 57, put to market in 2006. Sullivan is said to have induced people to invest while not declaring related party lending in two transactions. The first transaction was to Woolpak.
In 2006, then chairman Allan Hubbard owned 44 per cent of Wool Services. He had been offered a further 19 per cent but buying it would have triggered takeover regulations.
Sullivan approached his friend and client, Ross Lund, to be a director. Lund agreed as long as Sullivan arranged the finance and he (Lund) did not have to personally guarantee the borrowings.
SCF then loaned Woolpak $6.9 million. Lund requested a document outlining his indemnity.
Carruthers said despite denying it in his evidence, Lund was a puppet director and Sullivan really controlled Woolpak, making it a related party.
"Mr Hubbard was really driving the company, which was apparent from the fact Mr Lund was only prepared to enter into the arrangement if he was indemnified by South Canterbury for it".
The Hyatt transaction came about when Sullivan asked his brother-in-law, Peter Symes, to be the sole director of a company called Quadrant that would borrow $25 million from SCF and own the Hyatt Hotel in Auckland.
The Crown again contends this was to conceal a related party, with Sullivan in control of Quadrant. It was not declared in the prospectus as "outside the ordinary course of business".
"So in any event, it is submitted that allowing a $25m advance without any documentation or approval cannot be in the ordinary course of business."
Count three alleges the same as count two, however it centres around prospectus 58, issued in 2007, in which, again, the Hyatt and Woolpak lending were not disclosed.
Count four focuses on prospectus 59 in 2008 and alleges both Sullivan and White made a false statement by failing to declare the Hyatt and Woolpak lending and also alluding to a banking facility of $150m that the Crown says had expired and did not exist.
The Crown's closing arguments continue today with count five.
The Timaru Herald