As we grind through the consequences of the massive recession, the regulatory authorities slowly crank into gear, picking on some Directors to make examples of them. Failed schemes have wreaked havoc with $6.5 billion of New Zealand investors’ savings. For those investors guilty of breaking the cardinal rule of putting most of your eggs in one basket, the results of the recession are permanent and irreversible. Civil proceedings against the downright criminal types and even the civilly incompetent, others are historically ineffective in repairing the fortunes of the victims. Some solace for the victims will be provided to the victims with the Securities Commission taking robust action against the Directors of Nuplex and seek declarations of pecuniary penalties of up to $1 million per defendant and compensation orders. This is a precedent case under the Securities Law alleging Nuplex breached its continuous disclosure obligations under the NZX listing rules, but cold comfort to individuals who will not see any of the money that might be awarded.
Another important case is the Securities Commission against the Lombard Directors, who include Sir Doug Graham. This could have serious consequences for these Directors. There are basic lessons here. Investors could have checked the background of Co-Director Michael Reeves and the companies he has been previously associated with, which would not have given them any comfort, and secondly, they should be very weary of “household” names like Sir Doug Graham being tacked to the masthead of little finance companies. This company has now lost over 70% of the investors money and all of the unsecured creditors money. A new addition to the Crimes Act (Section 240) made in 2004 regarding deceit has so far been rarely used. It is a very forceful Section. One case R v Morley has reached our Supreme Court and is a good read. Unfortunately the New Zealand Police are ill equipped to take complicated investment and security cases under this new provision. The Police instead leave it to the Securities Commission who in turn only pick a few out of the potentially hundreds that are available to process. All the people who escape prosecution fall in the “too hard basket” and survive to fleece investors again (and again). Overseas the situation is similar with Bernie Madoff being in jail and only eight other people charged, while hundreds of people connected with the Madoff scam all around the world, who were acting as his brokers, and all the institutional investors who were well placed to have checked him out, walk free.
Under our present securities laws the Security Commission can ask the Court to make a Pecuniary Penalty Order and Declaration of Civil Liability. This is a wonderful piece of legislation which is very rarely used, but could be used regularly in every occasion where the Crown is taking proceedings against dishonest investment promoters. A declaration obtained by the Crown gets around the horrendous difficulties ordinary victims would have suing Public Company Directors to obtain compensation, because normally the Evidence Act would get in their way. Regretfully fines of a few million dollars are not going to make much of a dent repairing the pockets of $6.5 billion of losses.
The “clean up phase” has certainly heated up with the announcement that US authorities are chasing Goldman Sachs. This is extraordinary because Goldman Sachs was a major contributor to the Obama campaign ($US981,000). Goldma Sachs is all powerful and is everywhere. They have contributed most of the executives in the recent US administrations. The heads of the Canadian, Italian and the World Bank and the New York Stock Exchange and the last two heads of the Federal Reserve are all Goldman alumni. Goldman Sachs should be able to pay a fine or two, it only paid 1% tax in 2008.
Her Majesty the Queen will be embarrassed because in 2009 she demanded why no one had anticipated the credit crunch and the London School of Economics set up a committee co-opting the Bank of England and Goldman Sachs on to her committee to enquire.
David A Wood Llb; Affiliate of the Australian Securities Institute
