20 Jul 2012

Capital and Merchant directors guilty of fraud

7:03 am on 20 July 2012

Three former directors of failed finance company Capital and Merchant have been found guilty of fraud on some of the charges they faced.

The men - Neal Nicholls, Wayne Douglas and Owen Tallentire - faced a variety of charges following a Serious Fraud Office investigation into four transactions that happened between 2004 and 2006, involving $28 million.

Tallentire was found guilty on two of the four transactions, and not guilty on the other two.

Nicholls and Douglas were found guilty on three transactions, and cleared on the other one.

Nicholls and Douglas were also cleared of a separate set of charges on theft and making a misleading statement relating to $14.4 million worth of alleged related party lending to a Palmerston North development.

Capital and Merchant was placed into receivership in November 2007, owing $167 million to 7500 debenture holders. It is unlikely any of the money will be returned to investors.

Helpful for other cases - SFO

Serious Fraud Office chief executive Adam Feeley told Checkpoint the scale of the fraud and its inordinate number of complexities makes the case extremely significant.

Mr Feeley says at least $16 million ended up in trusts controlled by the men to further their own interests.

He says the money was thought to be going to a company that made good, arms length, sound business decisions about investing in property development, which certainly had some risk to it. 'In reality this company existed for the defendants to invest in their own business development.'

Mr Feeley says the guilty verdicts will be helpful for other fraud prosecutions. 'We need to get these verdicts to get some good law because we've got some more trials coming up and we're obviously very pleased we've got the outcome we have.

Mr Feeley says while Capital and Merchant has not received the same attention as Bridgecorp, its failure is made worse because investors have lost all their money.

Complex, says prosecutor

Crown prosecutor Nicholas Davidson, QC, says it was a complex case of theft.

"It's theft under the Crimes Act and it's based on what the law regards as a knowing breach of obligation, so the basis of the charges was that these accused had acted contrary to the terms under which they'd taken in money from the public and the obligations they held in dealing with that money under a trustee, which controls their conduct," he told Checkpoint.