Fraud-busting Companies Office tackles $24m mess

Friday 9th February 2001

By Nick Stride

In the first of a string of prosecutions, a re-invigorated Companies Office has swooped on three individuals involved in the Reeves Moses contributory mortgage mess.

The office's beefed-up investigative arm, the National Enforcement Unit, spent months investigating the complex case, resulting in the Crown laying civil and criminal charges in the Auckland District Court.

The charges, under the Securities Act and the Securities Act (Contributory Mortgage) Regulations, relate to financial planning company Reeves Moses' scheme where it put small investors' money into a book of mortgages, valued last year at $23.8 million.

Some of the alleged breaches carry maximum penalties of three months' imprisonment and a $15,000 fine - others a maximum fine of $5000.

The case is set down for a hearing on February 28.

Meanwhile, charges are expected to be laid shortly in at least two other cases, satisfying critics who claim the office has sat on its hands when it came to investigating cases of mismanagement and fraud.

The Reeves Moses case dates back to 1998 when the financial planning company was sold to Sovereign Insurance and Sovereign was then taken over by ASB Bank.

But problems with the mortgage scheme did not emerge until January last year, when Sovereign sold the financial planner to Harts Australasia.

Harts alleges it found numerous irregularities, some of a relatively minor nature, such as failure to have an insurance policy on file, and some more serious, such as cross-lending between leases and mortgages that didn't have valuations.

With some of the developments for which money had been raised, the ground had not even been broken by the time the irregularities came to light.

Although they were not obliged to do so Sovereign and ASB Bank bought the small investors out of the mortgage scheme last year, paying out $23.8 million. They booked losses on the rescue but only "a fraction of the total cost," according to Sovereign finance director Richard Coon.

Harts, which operates here under the name Harts Reeves Moses, said it had spent more than $4 million fixing the problems.

The Crown case is not the only litigation to arise from the mess. Both Harts and Sovereign have said they will seek redress from the parties they hold responsible.

Harts' Auckland director, John O'Sullivan, said that process was continuing.

Mr Coon said his company had appointed a Queen's counsel and was moving toward filing statements of claim.

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