Mutual Finance hearing begins, marking FMA's final finance company case

Monday 8th August 2016

The last of the finance company cases being brought by the Financial Markets Authority has begun in the Auckland High Court today with one of the five accused pleading guilty to theft charges.

Paul Bublitz, Bruce McKay and Richard Blackwood pleaded not guilty to charges relating to the collapse of Mutual Finance and Viaduct Capital, including theft in a special relationship and making false statements in a prospectus.

Charges against Lance Morrison and Peter Chevin related to Mutual Finance only and while Morrison pleaded not guilty, Chevin pleaded guilty to 10 charges of theft by a person in a special relationship.

Charges against a sixth defendant, Nick Wevers, were withdrawn following his death in March 2014.

The trial was delayed from starting in February after Bublitz asked for extra time to obtain funding from a current property development he was involved in Queenstown which would allow him to fund lawyers for his defence.

Both Viaduct Capital and Mutual Finance went into receivership in 2010. They held deposits insured by the government’s retail deposit guarantee scheme when they collapsed, owing a total of around $17 million.

In his opening address, Crown prosecutor David Johnstone said Bublitz’s property development company Hunter Capital got into trouble after the global financial crisis in 2007 – it was “asset rich and cash poor”.

The Crown alleges Bublitz and his co-conspirators then deliberately misled investors and potential investors in Viaduct Capital and Mutual Finance over a series of related party transactions for their direct benefit and to the detriment of the companies.

Bublitz’s Hunter Capital had a portfolio of five property assets nationwide said by the Crown to have been involved in the related party transactions, including a property development in Khandallah in Wellington, Northgate business park in Silverdale, property at Kinloch, a share in assets owned by Dockland Holdings in Auckland, and NKE Trust which had a property development at Helensville.

All of the properties were not generating sufficient income to cover bank loans which Bublitz had provided personal guarantees for.

The Crown alleges the defendants comprised a plan at Blublitz’s holiday home in Pauanui in January 2009 to buy an existing finance company that was covered by the government's retail deposit guarantee scheme. They proposed the finance company would then acquire Hunter Capital’s distressed property assets, but structured in such a way that it wouldn’t alert investors and regulatory authorities to the related party transactions or breach the trust deed.

Priority Capital, later renamed Viaduct Capital, was bought in February 2009 in a complicated transaction that involved Wevers and Bublitz allegedly setting up a shell company, Phoenix Finance, which was lent $2.165 million by Hunter Capital to buy Priority Capital for $2.15 million. Hunter Capital, in turn, sold six loans and its Dockland shareholding to Priority Capital for $2.55 million in cash and $2.35 million in capital notes.

Bublitz was not named as a shareholder or director in the renamed Viaduct but the Crown alleges he effectively controlled it and earned $240,000 a year – the same as chief executive Nick Wevers - as an informal consultant.

“He effectively controlled Viaduct after acquiring it,” Johnstone said, including instructing Wevers on how to run the finance company, setting salaries and the strategic direction.

The company also followed the earlier blueprint laid out to acquire Hunter Capital property assets through a series of transactions that was signed off by the trustee.

The trial is continuing.

BusinessDesk.co.nz

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