Intricate web of fraud alleged in the affairs of Crown guaranteed failed finance company

By Gareth Vaughan

The receivers of government guaranteed, Gisborne-based second hand car financier Rockforte Finance, which is now under Serious Fraud Office (SFO) investigation, flagged concerns over an apparent misappropriation of investor funds, the accuracy of the registered prospectus and the accuracy of the company's books and records with the SFO.

The second report, from receivers Dennis Parsons and Katherine Kenealy of InDepth Forensic, also says their investigations suggest a significant proportion of Rockforte's loan book had been under-performing for over twelve months and that there was material  - NZ$2 million worth - of undisclosed related party lending.

On top of this, they estimate the return to the Treasury, which has paid out NZ$3.5 million of taxpayers' money to 66 Rockforte investors under the Crown retail deposit guarantee scheme, will be "no greater" than 10 cents in the dollar.

"This, however ,will be subject to the ability of the receiver to recover the performing loan portfolio on a cost effective basis. This will also be dependent on successful resolution of various legal actions currently underway," say Parsons and Kenealy.

Unsecured creditors, including the Radio Network whose stations include Newstalk ZB and Classic Hits, are owed NZ$234,070.67 and won't get any money back.

'Detailed complaints'; Case has 'large impact on local community'; Jean Jones relationship

The receivers say they filed detailed complaints with the SFO, the Securities Commission and the National Enforcement Office of the Companies Office. The complaints resulted in the SFO announcing last month that it had opened an investigation into the affairs of Rockforte.

Rockforte was tipped into receivership in May last year at the behest of its directors - John Patrick Gardner, Nigel Brent O'Leary and Colin Mark Simpson - owing 77 investors NZ$3.25 million. 

Announcing the launch of the investigation in December, SFO chief executive Adam Feeley said although the Rockforte investigation didn't involve a large amount of money compared to other SFO cases, it was a case with a large impact on a local community.

The spotlight is likely to fall on Rockforte's relationship with failed clothing retailer Jean Jones, whose liquidator  Bernard Montgomerie told the Herald on Sunday that advances to Jean Jones accounted for about a quarter of Rockforte's loan book.

Montgomerie has now been replaced as  liquidator of  the Jean Jones companies - Michael Ward 1969 Ltd, Jean Jones Ltd and Jean Jones Property Ltd by Parsons and Kenealy. In their first report on the Jean Jones group Parsons and Kenealy say the SFO and IRD are undertaking enquiries into the companies and their failures with the assistance of Parsons and Kenealy.

'Carefully planned asset grab'

In his second report into Michael Ward 1969, which traded as Jean Jones and whose sole director and shareholder is Michael Ward, Montgomery said the company was the object of a "carefully planned and suddenly executed grab" of major assets by a group of security holders.

"Our investigations have revealed at the date of liquidation the company had no access to bank funding and was totally reliant on expensive second and third tier finance company facilities for working capital. This was provided at great cost," wrote Montgomery.

His first report noted all of Michael Ward 1969's assets were secured under a General Security Agreement (GSA) to SH Lock Ltd, whose directors include National Party president Peter Goodfellow. However, the GSA was sold to DDLC Ltd, whose director is Gardner and shareholders Gardner and O'Leary, resulting in the "seizure of all known assets" on April 24, 2009.

Meanwhile, Parsons and Kenealy say their complaints to authorities over Rockforte covered concerns about the apparent misappropriation of investor funds, the accuracy of the company's registered prospectus and the accuracy of the company's books and records.

Their report notes that between late 2009 and its receivership in May 2010 Rockforte attempted to secure an institutional investor to help bolster its financial position. When these negotiations stalled, the directors requested that trustee Covenant Trustee Company appoint receivers, with Parsons and Kenealy appointed on May 10 last year.

"Our investigations have identified that the company was having material liquidity problems with non performing loans since mid 2009," the receivers say.

'Investors' funds transferred without consent'; Loan security 'poor and non-existent'

Rockforte records indicated there were 77 investors with NZ$3.25 million invested in secured debentures.

"However, further investors were identified totalling NZ$0.61 million whose funds appear to have been transferred to third parties without their knowledge or consent. Further investor claims are currently being investigated."

According to Parsons and Kenealy, Rockforte has 318 loans, consisting primarily of small sums secured over second hand Japanese imported vehicles.

"At the date of receivership there was NZ$4.8 million outstanding with NZ$1.1 million classed as overdue. Security for loans can generally be described as poor and in some cases non existent. 35 loan files cannot be located," the receivers say.

"Our initial review of the loan book indicated that this overdue figure was materially inaccurate as the company regularly refinanced non-performing loans into new loans, creating a new and current liability and by doing so had the effect of removing the non-performing loan from its records. In some instances this refinancing took place immediately prior to receivership."

Since their appointment Parsons and Kenealy say they have been managing Rockforte's loan book.

"Recoveries to date have been in line with our investigations. We have referred a number of matters for legal recovery involving the related parties, which include the directors of Rockforte."