The Securities Commission has laid criminal charges and issued civil proceedings against Dominion Finance Group Limited and North South Finance Limited directors Vance Arkinstall, Richard Bettle, Terence Butler, Ann Butler, Paul Forsyth and Robert Barry Whale.
These proceedings follow extensive investigations by the Commission since Dominion Finance Group went into receivership on 9 September 2008 owing approximately $176.9 million to some 5,900 investors. According to the receivers it is likely that secured debenture holders will receive less than 25% of their investment back. Unsecured creditors are likely to receive no return.
"The Commission alleges that Dominion Finance Group's offer documents and advertisements misled investors by misrepresenting the investment risks, especially in relation to related party transactions, lending standards, loan quality and impairment, liquidity and the company's overall financial position," Commission Chairman Jane Diplock says.
"The Commission also alleges that North South Finance's offer documents and advertisements misled investors in relation to related party transactions, liquidity and the company's overall financial position."
The Commission alleges that the directors made false statements in the Dominion Finance Group registered prospectus dated 13 September 2007, as amended by an extension certificate 20 December 2007 and the North South Finance registered prospectus dated 11 September 2007, as amended by an extension certificate 20 December 2007.
Each extension certificate stated that the relevant company's financial position had not materially and adversely changed since the company's last balance date and that the prospectus was not misleading by failing to properly refer to adverse circumstances. However the Commission alleges this was false and that the directors' statements misled investors.
In addition, the Commission alleges that a quarterly newsletter of Dominion Finance Group and a letter to the investors of both Dominion Finance Group and North South Finance distributed during 2008 contained similar untrue statements about the financial position of the companies.
The Commission has laid criminal charges under section 58 of the Securities Act which carry a maximum penalty of five years imprisonment or fines of up to $300,000. They were laid in the District Court at Auckland on 4 June 2010.
The Commission has applied for declarations of civil liability and civil pecuniary penalty orders of up to $500,000 against each of the directors. Under the Securities Act these applications must be made together.
The Commission's main purpose in making these applications is to take the first step towards compensation for investors who invested under the September 2007 prospectuses, as amended by the extension certificates on 20 December 2007. A declaration of civil liability is conclusive evidence that can be relied upon by either the Commission or investors themselves in any subsequent claims against the directors for compensation. The Commission will consider pursuing compensation claims in due course should it be in the public interest to do so.
Investors can take their own civil compensation proceedings whether or not the Commission also does.
The civil proceedings are issued under section 55C and related sections of the Securities Act. They were filed on 3 June 2010 in the High Court at Auckland.
The Commission is continuing its investigations in relation to Dominion Finance Group Limited, North South Finance Limited and their parent company Dominion Finance Holdings Limited (and their respective directors) and is considering further proceedings.
As these proceedings are now before the Court it would not be appropriate for the Commission to comment further.