14 Oct 2014

SCF trial: Two cleared, Sullivan guilty

5:41 pm on 14 October 2014

Former South Canterbury Finance director Edward Sullivan has been found guilty on five of nine charges relating to the failed South Canterbury company.

Edward Sullivan (fourth from left) arriving at the High Court in Timaru.

Edward Sullivan (fourth from left) arriving at the High Court in Timaru. Photo: RNZ / Patrick Phelps

Justice Health, who presided over the five-month trial of Sullivan, Robert White and Lachie McLeod, handed down his verdict in a packed High Court at Timaru this morning.

The charges brought by the Serious Fraud Office ranged from theft by a person in a special relationship, false accounting, obtaining by deception and making false statements.

The judge found Sullivan, a director of 20 years, guilty on five of the charges he faced and not guilty on four.

Former chief executive Mr McLeod was found not guilty on all five charges, while former director Mr White was found not guilty on all four charges he faced.

Justice Heath told the court the Crown's case against the three was based on the proposition they evaded or ignored controls they should have adhered to.

The judge said what the Crown suggested was a culture of concealment did not withstand scrutiny. He did not consider the seven transactions which were central to the Crown and SFO's case were representative of a culture of concealment from the public.

"The Crown based its allegations on seven transactions and three other events. I do not consider that an examination of the seven transactions over a period of a little over five years can provide a safe foundation for an allegation of continuos concealment of information from the Government."

However, the directors did respond in a knee-jerk fashion to a downturn in the property market, and the global financial crisis, Justice Heath said.

Sullivan has been bailed until his sentencing on 12 December.

Jonathan Eaton, QC, left, and Lachie McLeod.

Jonathan Eaton, QC, left, and Lachie McLeod. Photo: RNZ / Nicola Grigg

Lives have been wrecked - lawyer

The Serious Fraud Office came under fire today from the accused, their legal teams and Justice Heath.

Jonathan Eaton, QC, who represents Lachie McLeod, said the Crown's allegations that the three men acted dishonestly have been roundly rejected by the judge.

Mr McLeod said the SFO has wrecked the lives of five men, including two whose charges were dropped before the trial started in March this year.

Speaking outside the court today Mr McLeod said there were not words for the sense of relief he felt.

"I knew it was hopefully coming but you can't describe a feeling like that. I'd just like to thank my family, my wife and daughters and all the local support around Timaru and South Canterbury who have come and dropped emails and called for the last four years. It's been fantastic, really."

Mr Eaton said it showed there was no substance to the allegations of dishonesty against his client.

"It's obviously been a long road, at the heat of the allegations were suggestions that there was a culture of concealment at South Canterbury, allegations of dishonesty, which are very serious allegations to make against anybody.

"And the judge, as you've heard, has roundly rejected those allegations, and that's what we've always argued and it's very rewarding for Lachie, and for all the accused that type of allegation has been put to bed."

Mr Eaton said because of the significant expenses of the case, Mr McLeod was likely to apply to recover his costs.

Bob White outside High Court in Timaru.

Bob White outside High Court in Timaru. Photo: RNZ / Patrick Phelps

SFO defends prosecution

SFO director Julie Read said while it was unsuccessful in part of its prosecution, it was in the public interest to put all matters before the court.

Ms Read said she was satisfied there was sufficient evidence to warrant bringing the prosecution as the court, not the SFO, was the ultimate arbiter of whether or not that evidence was sufficient to prove the charges beyond reasonable doubt.

The SFO had, in this case, failed to satisfy the court to the required standard in relation to Mr McLeod and Mr White.

However, Ms Read said the case was thoroughly investigated and counsel presented the best possible case to the court.

She said the SFO's role was to investigate and put matters before the court when appropriate, and it did a good job on this case.

She also said disruption caused by the Canterbury earthquakes destroyed some of the documents.

The SFO would make a submission on Sullivan's sentence in December.

South Canterbury Finance former board member Robert White, right, on his way into court.

South Canterbury Finance former board member Robert White, right, on his way into court. Photo: RNZ / Patrick Phelps

South Canterbury Finance timeline

  • 22 January 2009 - Treasury is first briefed by Allan Hubbard and Lachie McLeod about plans SCF was making for restructuring and recapitalisation.
  • 16 February 2010 - SCF presents to Treasury a recapitalisation proposal.
  • 31 August 2010 - SCF placed into receivership owing approximately $1.58 billion, triggering a payout under the Crown deposit guarantee scheme. SCF, had about 35,000 investors and $1.6 billion in deposits, and had been in trouble for at least nine months because of bad loans and mismanagement.
  • 1 September 2010 - Prime Minister John Key says the Government intended to sell SCF assets. It's expected taxpayers may have to wait up to four years to find out how much they will get back from their $1.8 billion bailout of South Canterbury Finance's depositors.
  • 18 October 2010 - Investigation by the Serious Fraud Office Act begins.
  • 2 September 2011 - Alan Hubbard is killed, and his wife injured, in a head-on collision. Mr Hubbard was in statutory management and facing 50 fraud charges relating to private investment vehicles Aorangi and Hubbard Management Funds.
  • December 2011 - After a 14 month investigation the SFO lays 21 charges against five individuals following its investigation into South Canterbury Finance Limited. The charges allege a variety of offences, including theft by a person in a special relationship; obtaining by deception; false statements by the promoter of a company; and false accounting. The total estimated value of allegedly fraudulent transactions is approximately $1.7 billion.
  • March 2012 - The five individuals are named as: Messrs Graeme Brown, Terrance Hutton, Lachie McLeod, Edward Sullivan and Robert White.
  • August 2013 - The SFO withdraws a charge of false accounting against the former Chief Financial Officer of SCF, Graeme Brown.
  • October 2013 - The SFO withdraws charges against Terrence Hutton, the former Group Accountant for the company. Mr Hutton faced two charges alleging false accounting in relation to the recording of a $25 million loan advance and a $10 million loan advance.
  • 12 March 2014 - The SCF trial involving 18 fraud charges, begins in front of a Judge-only jury at the High Court in Timaru, it is expected to take four months to complete.
  • 18 August 2014 - The SCF trial comes to a close after 62 days of evidence, 3000 pages of submissions and after 12 days of closing arguments.
  • 14 October 2014 - Justice Heath will deliver the verdict and reasons at 9.30am.

The South Canterbury Finance Three

Robert Alexander White: A retired Timaru accountant was a SCF board member and director 1993-2009. Former partner at Hubbard and Churcher accounting firm since 1971. Mr White was the director for (Allan Hubbard investment company) Aorangi Securities from September 2003 to July 2008.

Edward Oral Sullivan: He retired in 2011 after 43 years at Timaru legal firm RSM Law. Mr Sullivan was on SCF's board from 1990 to 2010.

Lachie John McLeod: He was a former SCF chief executive between 2003 and November 2009.

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