SFO's live finance company investigations near conclusions, more in sights

The Serious Fraud Office is likely to conclude investigations into Capital + Merchant, Five Star Group and Nathans Finance within about a month and is making preliminary inquiries into another two or three companies that raised money from the public, SFO director Adam Feeley says.

In a Double Shot interview with interest.co.nz, Feeley also bemoaned the level of financial literacy in New Zealand, saying some people spent more time investigating relatively small purchases such as dishwashers than they did considering where to invest hundreds of thousands of dollars.

Feeley said the SFO’s three live finance company investigations – into Five Star, Nathans Finance and Capital + Merchant – were nearly finished. The three are now either in receivership or liquidation having collapsed in 2007 and 2008 owing about NZ$441 million between them through about 17,000 deposits. See more in our Deep Freeze list. 

“We are in a position I think to be making announcements within the next month or so,” Feeley said, adding that he couldn't say whether charges were likely.

The three are among about 40 finance company collapses over the past four years which have put billions of dollars of investors’ savings at risk.

Meanwhile Feeley said preliminary inquiries were being made into two or three other companies that had raised money from the public and loaned it on to other businesses or through other transactions.

The SFO recently concluded what Feeley described as "extensive and exhaustive" investigations into Bridgecorp, which collapsed into receivership on July 2, 2007 owing 14,367 investors NZ$459 million, with fresh charges against the group's managing director Rod Petricevic and finance director Robert Roest. Feeley said despite some public perceptions that all finance company collapses involved fraud this wasn't the case.

People ought to bear in mind there was a range of factors that caused the finance company collapses, he said. Some companies were caught out by the market and others were “fairly sharp” in their practices. There was a “big and important" distinction between commercially sharp and acting in a criminal manner.

“I think there’s a real issue for New Zealand to grapple with regarding the level of business and financial literacy of a lot of the investing public. And unfortunately I think we’ve got ourselves into a situation with the finance company collapse that there are large parts of the New Zealand public that won’t invest because they believe every time there’s a failure something criminal must have happened.”

There were some companies, which he declined to name, where the prospectuses were fairly clear, if complicated, about what people were investing in.

“And if people had read those prospectuses very carefully, and perhaps also taken good independent advice, they might have thought twice about whether they were good investments,” Feeley added.

The SFO, via its new business plan (see attachment below), had a role to play in improving financial literacy. The Government's proposed new super regulator, the Financial Markets Authority, was also likely to look at financial education and the Capital Markets Development Taskforce had also highlighted education as an area where improvement was required. Furthermore, Feeley said, discussing financial literacy - or the lack of it - in the media may encourage people to pay more attention to business and financial issues.

“I think quite often New Zealanders spend more time searching the best dishwasher around the country to buy for $1000 or $2000 than they do instead of considering whether to put one, two or three hundred thousand dollars of their retirement savings into something they don’t understand,” Feeley said.

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