Herbert Insurance Group's Grant Herbert jailed for 4 and a half years after SFO prosecution

The ex-owner and director of insurance brokering firm Herbert Insurance Group has been sentenced to four years and six months in prison after using $2.5 million of clients' money to pay his company's operating expenses.

The 62 year-old Grant Malcolm Herbert (62) was sentenced in the Auckland District Court after a Serious Fraud Office (SFO) prosecution. Sentencing came after Herbert was last month found guilty by a jury of 17 Crimes Act charges and seven Secret Commissions Act charges.

"The former owner and director of the insurance brokering firm Herbert Insurance Group Limited, had received premiums from clients but failed to forward approximately $2.5 million of this to insurers, in some cases leaving the customers uninsured. He diverted this money to pay operating expenses for Herbert Insurance Group," the SFO says.

"He had also given an employee of an insured customer, secret commissions for referring insurance business to Herbert Insurance Group. That company was overcharged approximately $220,000 for its insurance."

Before his trial Herbert also pleaded guilty to using a forged document to obtain a $250,000 credit facility.

“Clients who were uninsured as a result of Mr Herbert’s offences were exposed to a risk of loss many times greater than the cost of the premiums which they paid in good faith. These and the other offences of which he has been convicted represent serious breaches of trust on the part of Mr Herbert," SFO director Julie Read says.

"Mr Herbert’s conduct has also had the potential to damage the community’s confidence in dealing with brokers and thereby damaged the interests of all those brokers who act honestly.”

In 2011 Herbert told interest.co.nz the company was "a bit of a mess" administratively, said he didn't know how to use his own company's computer system, but said he'd be astonished if policy holders were left in the lurch.

Here's some background to the investigation provided by the SFO

Since March 1991 Grant Malcolm Herbert has ultimately been the sole owner and a Director of the various Herbert Insurance Group (HIG) entities.

HIG acted as an insurance intermediary for insurers and also provided an insurance brokering service to insured clients.

One of those clients was an Australian based home improvement supply company, to which Christopher David Green (66) was the former Commercial Property Manager. Mr Green’s role included procuring insurance for the portfolio of premises that his employer occupied around New Zealand.

HIG was placed in receivership on 7 March 2011, following an attempt to voluntarily liquidate the company and sell assets. HIG had approximately 4,000 clients throughout New Zealand.

When HIG was placed into receivership and liquidation, there was a shortfall of $3.1 million owed to insurers. This money should have been held by HIG in an insurance premium account. Only a small percentage of the money in that account could legitimately be transferred to HIG to pay for its fees and any brokerage earned, and the insurance premium account should never have gone into deficit.

Crimes Act offences

Section 220: Theft by person in special relationship
(1) This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person—

(a) to account to any other person for the property, or for any proceeds arising from the property; or
(b) to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.

(2) Every one to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.

(3) This section applies whether or not the person was required to deliver over the identical property received or in the person's possession or control.

(4) For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements.

Section 257: Using forged documents
Everyone is liable to imprisonment for a term not exceeding 10 years who, knowing a document to be forged, -

(a) uses the document to obtain any property, privilege, service, pecuniary advantage, benefit, or valuable consideration; or

(b) uses, deals with, or acts upon the document as if it were genuine; or

(c) causes any other person to use, deal with, or act upon it as if it were genuine.

Secret Commissions Act offences

Section 3: Gifts to agent without consent of principal an offence
(1) Every person is guilty of an offence who corruptly gives, or agrees or offers to give, to any agent any gift or other consideration as an inducement or reward for doing or forbearing to do, or for having done or forborne to do, any act in relation to the principal's affairs or business (whether such act is within the scope of the agent's authority or the course of his employment as agent or not), or for showing or having shown favour or disfavour to any person in relation to the principal's affairs or business.

(2) Any gift or other consideration given or offered or agreed to be given to any parent, husband, wife, civil union partner, de facto partner, or child of any agent, or to his partner, clerk, or servant, or (at the agent's request or suggestion) to any other person, shall be deemed for the purposes of this section to have been given or offered or agreed to be given to the agent.