Capital + Merchant directors face criminal charges over misleading prospectuses

The Securities Commission has laid criminal charges against Capital + Merchant Directors Neal Nicholls, Owen Tallentire, Colin Ryan and Robert Sutherland, alleging they issued prospectuses that mislead investors over related party lending, cashflow and liquidity. The charges could result in up to 5 years jail or NZ$30,000 in fines, the Securities Commission said. Capital and Merchant was put into receivership in November 2007 owing 7,000 investors NZ$167 million. Receivers have said none of this will be recovered. See our DeepFreeze list here. See the full Securities Commission statement below:

The Securities Commission has laid criminal charges and issued civil proceedings against Capital + Merchant Finance directors Neal Nicholls, Owen Tallentire, Colin Ryan and Robert Sutherland. Criminal charges have also been laid against Wayne Douglas, who resigned as a director in February 2007. These proceedings follow extensive investigations by the Commission since Capital + Merchant Finance went into receivership on 23 November 2007 owing approximately $167 million to some 7,000 investors. According to the receivers it is likely that none of this will be recovered. "The Commission alleges that Capital + Merchant Finance's offer documents and advertisements misled investors by misrepresenting the investment risks, especially in relation to related party lending, insurance cover and liquidity," Commission Chairman Jane Diplock says. The Commission alleges that the directors made untrue statements in the registered prospectus and investment statement dated 15 August 2006, mainly in respect of related party lending and loan management. The Commission also alleges that the current four directors made similar untrue statements in the registered prospectus and investment statement dated 10 September 2007, as well as untrue statements about liquidity and cashflow and in the prospectus incorrectly stated that no loans were impaired and the company's financial position had not materially and adversely changed since its last balance date. In addition, the Commission alleges that five advertisements distributed during 2007 contained untrue statements about insurance cover for capital secured debenture stock and some of the matters referred to above. These claims do not apply to Mr Douglas who had resigned his directorship by then. The Commission further alleges that Mr Nicholls and Mr Ryan knowingly misled the Commission. Criminal charges Most of the criminal charges are laid under section 58 of the Securities Act and carry a maximum penalty of five years imprisonment or fines of up to $300,000. Criminal charges are also laid against Mr Nicholls and Mr Ryan under section 59A of the Securities Act and carry a maximum fine of $300,000. The charges were filed at the District Court at Auckland on 18 December 2009. First Court appearances are scheduled for 8 April 2010. Civil proceedings 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 10 September 2007 prospectus. 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 30 November 2009 at the High Court at Auckland. Other investigations The Commission acknowledges the assistance of Grant Thornton, the Capital + Merchant Finance receivers, with this investigation. As these proceedings are now before the Court it would not be appropriate for the Commission to comment further.