Securities Commission charges Lombard directors, including Doug Graham

Four former Lombard Finance & Investments directors, including high profile former cabinet minister and ex-Lombard chairman Sir Douglas Graham, face fines of up to NZ$500,000 each after the Securities Commission alleged the failed finance company's prospectus documents and advertisements misled investors. The civil case follows extensive investigations since Lombard was placed in receivership in April 2008 owing about 4,400 investors about $127 million, the commission said. The other three directors charged are Michael Reeves, William Jeffries and Lawrence Bryant. “The Commission alleges that Lombard Finance Investments’ offer documents and advertisements misled investors by misrepresenting the investment risks, especially in relation to liquidity, the quality of the loan book, adherence to credit policies and the company’s overall financial position,” Commission Chairman Jane Diplock says. Meanwhile, Sir Douglas said the directors don't accept the allegations  and would defend themselves against the commission's charges. Here's the Securities Commission's full statement below.

The Securities Commission has issued civil proceedings under the Securities Act against Lombard Finance and Investments directors Sir Douglas Graham, Michael Reeves, William Jeffries and Lawrence Bryant. These proceedings follow extensive investigations by the Commission since Lombard Finance and Investments went into receivership on 10 April 2008 owing approximately $127 million to some 4,400 investors.  According to the receivers it is likely that secured debenture holders will receive less than 30% of their investment back. Unsecured creditors are likely to receive no return. “The Commission alleges that Lombard Finance and Investments’ offer documents and advertisements misled investors by misrepresenting the investment risks, especially in relation to liquidity, the quality of the loan book, adherence to credit policies and the company’s overall financial position,” Commission Chairman Jane Diplock says. The Commission alleges that the directors made false statements in the registered prospectus dated 7 September 2007, as amended by a memorandum of amendments dated 24 December 2007, and investment statements dated 28 December 2007.  The documents stated the 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 the directors’ statements misled investors. In addition, the Commission alleges that a DVD advertisement distributed during 2007 and 2008 contained similar untrue statements about the financial position of the company. The Commission has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each of the current four directors.  Under the Securities Act these applications must be made together. The Commission’s main purpose in making them is to take the first step towards compensation for investors who invested under the 7 September 2007 prospectus, as amended by a memorandum of amendments on 24 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 has power to do so. The civil proceedings are issued under section 55C and related sections of the Securities Act.  They were filed on 1April 2010 at the High Court at Wellington. The Commission acknowledges the assistance of PriceWaterhouseCoopers, the Lombard Finance and Investments receivers, with this investigation. As these proceedings are now before the Court it would not be appropriate for the Commission to comment further. The Commission is continuing its investigations in relation in relating to Lombard Finance and Investments Limited and its parent company Lombard Group Limited (and their respective directors) and is considering further proceedings.

The former chairman of Lombard Finance, the Rt Hon Sir Douglas Graham, responded today to the civil and criminal proceedings under the Securities Act brought by the Securities Commission against the four directors. “The case in the main relates to a prospectus filed in December 2007. The Securities Commission alleges that the prospectus did not adequately disclose the impact the credit crisis had had in the previous 9 months on the company’s borrowers and therefore in turn on Lombard Finance” Sir Douglas said. “The Commission believes investors who relied on the prospectus may have been misled” he said. Sir Douglas said that in the 3 months between the prospectus and the receivership the company received about $8.5m in deposits but how many investors had relied on the prospectus is unknown. “The directors do not accept the allegations of the Commission and will be defending all the proceedings’ Sir Douglas added. “The prospectus was prepared by management, commented on by the auditors and solicitors and then accepted by the Companies Office. The document was sent to the Trustee. None of these advised the Board of any concerns with the final wording” he said. “Finally I must record my dismay that it has taken 2½ years to make the allegations and very disappointed the Commission has never raised with me any concerns it had over the prospectus prior to filing proceedings” he concluded. Sir Douglas said that as the matter was now before the Courts he would not be making any further comment.