Serious Fraud Office nearing conclusion of 'enormous' Hanover investigation, outgoing CEO says, adding outcome will show right result reached

By Gareth Vaughan

The Serious Fraud Office (SFO) is close to wrapping up its probe into failed property lender Hanover Finance with outgoing CEO Adam Feeley saying the outcome will show the public that the right result has been reached.

Feeley, whose tenure at the SFO finishes at the end of next week, told interest.co.nz in a Double Shot interview there were a range of reasons why the Hanover investigation had taken so long. The SFO announced on November 29, 2010 it had launched an investigation into Hanover's affairs three months earlier, meaning the investigation has now been running for more than two years when the SFO under Feeley has targeted wrapping investigations up in one year.

"It's one of those deadlines that for a whole variety of reasons has moved," Feeley said. "I certainly had hoped to complete it in my tenure. That won't be the case now, but obviously the fact that I had hoped to complete it should indicate we are very close to concluding it."

Feeley leaves the SFO on Friday week after just under three years in the job to become chief executive of the Queenstown Lakes District Council.

He said there were "a whole range of reasons" why the Hanover investigation had taken as long as it had. It was an "enormous" case, there were a lot of parties to interview, a lot of things to analyse, and there had been frustrations caused by issues as simple as a staff member being on jury service or someone the SFO needed to interview being overseas for three months.

"It all has a cumulative effect. We've done a lot of good work. I think whenever it comes to a conclusion the public will have confidence that it has been a thorough and professional investigation and will be confident that the right result is arrived at," Feeley said, adding it was possible the results of the probe could be out this year.

The next longest investigation of a failed finance company the SFO has undertaken was its one on South Canterbury Finance, which ran for about 14 months and resulted in 21 charges against five people.

"When we first started (investigating) Hanover we looked at a wider number of transactions than we've ultimately focused on," Feeley said. "So you spend some time on transactions that you ultimately decide not to pursue. You also develop what we call the theory of the case, - if there is offending here what is the offence? That's obviously a starting point with any case."

"And on occasions we've said 'no that particular offending would not fit what we see here, but another type of offending could.' So that sets you off on another path," Feeley added.

"(The) volume of the data, complexity of the transactions inevitably adds up to quite some time."

Five or six transactions over several years the focus

Feeley said the Hanover transactions the SFO was looking into covered several years, with five or six transactions the areas of prime interest.

In November 2010 Feeley told interest.co.nz the SFO was probing at least four or five Hanover transactions with a particular focus on dividends owners Mark Hotchin and Eric Watson paid themselves prior to the company freezing investors’ money in July 2008, and debt restructuring before Hanover's finance book was sold to Allied Farmers.

Property lender Hanover froze NZ$554 million owed to 16,500 investors in July 2008. Investors' subsequently approved a moratorium proposal in December 2008 that pledged to pay them back over five years. Then a year later after getting back just 6 cents in the dollar, Hanover investors narrowly agreed to swap their Hanover debentures for shares in the Rob Alloway led Allied Farmers that were valued at 20.7c each and are now worth just 3.5 cents each.

In April the Financial Markets Authority (FMA) filed civil proceedings against directors and promoters of Hanover Finance, plus sister companies Hanover Capital and United Finance. Under the Securities Act, proceedings have been filed against Hotchin and Watson, plus directors and promoters Greg Muir, Sir Tipene O'Regan, Bruce Gordon and Dennis Broit. The charges relate to statements made in December 2007 prospectuses, subsequent advertising, and a March 2008 prospectus extension certificate.

The FMA is seeking declarations, pecuniary penalty orders and compensation for investors who made NZ$35 million worth of investments between December 7, 2007 and July 22, 2008. Former Hanover chairman Muir has described the FMA's move to file civil proceedings as disappointing. The directors deny and are fighting the FMA's claims. See more on this here.

In May FMA CEO Sean Hughes told interest.co.nz that Hanover may be the first target of the Australian Securities and Investments Commission style power the FMA has to step into an investor's shoes and take civil action seeking compensation. Hanover Finance's trustee was Guardian Trust and its auditor KPMG. Hanover Capital and United Finance both had Perpetual Trust as trustee and KPMG as auditor.

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