ASB bails out small investors in company it no longer owns

By Nicholas Bryant

Friday 4th August 2000

ASB Bank through its Sovereign subsidiary has dipped into its own pocket to the tune of $23.8 million to put right the Reeves Moses contributory mortgage fiasco, rescuing small investors.

ASB wore the cost to pay out small investors, even though it was not required to and had already flicked off the company to Australian-based outfit Harts.

In a domino effect each party has blamed an earlier member in the chain for the company's problems; Harts has pointed the finger at ASB and Sovereign while in turn they have reproached those originally involved with Reeves Moses, a 28-year-old financial planning company.

The Securities Commission is investigating why Sovereign and its parent company, the ASB, were forced to cover the mortgages after buying Auckland financial advisers Reeves Moses in April 1998.

Sovereign onsold the company to Harts in January.

Since then Sovereign spent $23.8 million to buy a book of mortgages from about 1000 investors who were potentially facing losses.

The bill for ASB Bank could go even higher.

Sovereign finance director Richard Coon said as the investments involved property developments still in progress it was too early to forecast what the further losses from those would be.

"We've had some losses, nothing too frightening at this stage but there will be a number," Mr Coon said.

Steve Hart, who has renamed the company Harts Reeves Moses, has also spent over $4 million fixing the mess.

Mr Hart said he thought he was buying a sound business from Sovereign but one part involved contributory mortgages, funds lent by small investors which contributed to mortgages then used to fund property developments.

The investors in such schemes have no title in the properties, only an attractive set interest rate for eventual repayment.

Mr Hart said he was lumbered with something he was "not even remotely prepared for."

Alleged breaches and discrepancies range from minor infringements, such as not having an insurance policy on file, and not clearly explaining differing interest rates, to more serious breaches involving cross-lending between leases and some mortgages that did not have valuations.

Ex-Reeves Moses employee Peter van Nieuwkoop, who set up many of the schemes, now works for an Auckland company called Contributory Mortgage Investments, which was registered late last year.

Harts Reeves Moses Auckland director John O'Sullivan said it was likely Harts would take legal action against Reeves Moses former auditors MGI Wilson Elliot and a couple of [ex-Reeves Moses] directors.

Mr Coon would not elaborate on who, or what entity, Sovereign and ASB would seek redress from other than to say it would "seek to recover losses from the various parties we think are responsible for it."

Securities Commission investigating officer Norman Miller said he had no news on the matter at this time.

Comments from our readers

No comments yet