FMA files charges against former Mutual Finance, Viaduct Capital directors

Friday 21st March 2014

The Financial Markets Authority has filed charges against five directors of failed lender Mutual Finance and Viaduct Capital, while withdrawing a case against one of them who has since died.

The market watchdog has charged the defendants with theft in a special relationship and making false statements in a prospectus under the Crimes Act, and has also filed charges in relation to Viaduct of making false statements to a trustee under the Companies Act, it said in a statement. The Crimes Act charges carry maximum penalties of seven and 10 years' jail, while the Companies Act charge has a maximum sentence of five years' imprisonment or a $200,000 fine.

The FMA has charged former Strategic Finance founder Paul Bublitz, Bruce McKay, and Richard Blackwood for their roles at both companies, Lance Morrison for his role at Mutual and another person seeking name suppression. It will withdraw charges against Nicholaas Wevers for his role at Viaduct after he died. They are scheduled to appear in the Auckland District Court on May 7.

Mutual Finance collapsed in July 2010 owing about 340 investors about $9.3 million, $9 million of which was covered by the government's retail deposit guarantee. The Crown has been repaid about $1.8 million, with another $1.2 million in cash held by receivers Brendon Gibson and Grant Graham of KordaMentha which is subject to a dispute from another party, according to their latest report.

The financier's dealings were looked at by the Serious Fraud Office, which decided not to pursue a prosecution. It instead passed on information to the FMA over its relationship with related failed lender Viaduct Capital.

Viaduct called in the receivers two months before Mutual, owing 110 investors some $7.8 million, of which $7.5 million was guaranteed. Receivers Boris van Delden and Iain McLennan of McDonald Vague estimated a return to depositors of between 20 cents and 27 cents in the dollar, according to their last update in November.

Mutual had prior ranking over Viaduct's securities in exchange for further funding in 'security sharing deeds', something receivers van Delden and McLennan sought legal advice over its validity, according to their first report in August 2010.

Viaduct fell foul of the government in 2009 when the Treasury asserted it failed to comply with rules on related-party lending and general business conduct by not undertaking due diligence on loans from Hunter Capital Group.

Hunter's Bublitz lent cash to Viaduct's shareholder, Phoenix Finance Holdings, after he had been engaged to source lending opportunities for the finance company. When the guarantee was stripped, the firm held about $14 million of deposits.

Viaduct's then-chief executive Nick Wevers subsequently quit the firm, and McKay and Blackwood took over the management. Bublitz went on to take full control of Mutual.

BusinessDesk.co.nz

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