Relative 'used as puppet' by SCF director
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, which was in its second day yesterday, is set down for four months in front of Justice Paul Heath.
The Crown completed its opening yesterday and spent the morning looking at how SCF was accepted into the Crown retail deposit guarantee scheme in 2008. Under the scheme, $1.58 billion of taxpayers' money 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 stringent policy on related-party loans.
The loans in question are 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.
Mr 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 it as a related-party loan, with Mr 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 arms-length, but it would not.
On November 19, 2008, the company was allowed into the scheme based on information from SCF prospectuses. Mr 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 draw in another member of Sullivan's family, his nephew Geoffrey Sullivan. Mr 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.
Defence still wants judge removed
Lawyers acting for the three defendants in the South Canterbury Finance fraud trial have renewed their bid to have Justice Paul Heath removed from the case, succeeding in halting the trial until Monday.
The Serious Fraud Office prosecution of former SCF directors Edward Sullivan and Robert White, and the company's former chief executive, Lachie McLeod, began in the High Court at Timaru on Wednesday.
The lawyers had earlier claimed comments made last week by SFO director Julie Read at a conference, where she said "We are very fortunate to have Justice Heath as our trial judge", showed a perception of partiality and required the trial to be aborted.
Justice Health said on Wednesday the comment by Read was "unfortunate" but innocuous and did not reflect bias on his part. He declined to stand down, but granted leave for counsel to make further submissions on the matter if they had more evidence to support their claim.
After a long break yesterday as defence counsel conferred, Bruce Squire QC, acting for White, told the court the challenge to Justice Heath would be formally renewed.
"We need to put the matter on a formal footing," Mr Squire said.
Mr Squire said affidavits would soon be filed by Wellington lawyer Scott Barker, who was present when Ms Read made the comments, and a "senior silk" who would provide expert opinion on the matter.
Colin Carruthers, QC, for the Crown, has flagged that the application would be vigorously opposed.
"In my opinion there is no foundation to it at all," he said.
Justice Health said the matter was serious and needed to be dealt with urgently.
"The issue is going to be dealt with sooner rather than later," he said.
The Crown was due to begin presenting formal evidence tomorrow, but this was cancelled to provide counsel time to prepare for an urgent hearing on Monday afternoon, when the application to remove Justice Heath will be heard.
The Timaru Herald