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Archive for 30 March 2012

Of mice and men (and much, much, money)

30 March 2012 2 comments

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Lombard Finance was one of fortynine finance companies that’ve collapsed since 2006. An estimated $8.5 billion of investor’s funds was affected.  Many of the directors of companies such as Lombard, Hanover, Dominion Finance Group, Bridgecorp, etc,  have appeared in Courts on various charges – usually centering around making untrue statements in their respective investment prospectuses.

Of those who lost money, many were the real “mum & dad” investors whom John Key invokes when his Party talks of privatisation of state owned assets.

Many of these “mum & dad” and “grandma & grandpa” investors have lost their life savings due to the actions of finance companies.

Those who are ultimately responsible are the directors. There is no one “above” them in terms of accountability.

As a certain US president once stated,

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Quite simply, if Directors are not responsible – then who is? And why – if Directors are not responsible – are they signing prospectus and being paid generous directors’ fees?

According to Stephen Franks – ex ACT  Member of Parliament  and unsuccessful National Party candidate – the Directors of Lombard and other companies should not have been prosecuted under the Crimes Act. In an interview on Radio New Zealand’s Morning Report,  with Geoff Robinson today, Franks said,

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RNZ:  “… so was it appropriate to have a criminal case?”

Franks:  “No, I think it’s very wrong that the criminal law gets in here because it leads even someone as experienced as you   [Robinson] to say something that’s false. They weren’t convicted  of making false statements, they were convicted of making untrue statements. But quite reasonably you’re treating it as false. Untrue because the thing didn’t require any conscious intention or even knowledge. If it wasn’t true it was untrue, but we usually use the term false meaning someone’s, you know,  deliberately -“

RNZ: (interuption)]

Franks: “… knowingly made an untrue statement. But because this has become a criminal law matter, people feel, not unfairly, that they should be able to use the more extravagant language of wrong-doing, wickedness, thief, theft.

If you look at the blogs you’ll see people are foaming and I don’t blame them. I think the criminal law should deal with bad people. But the problem is it’s got involved in an area  where as the judge clearly said, this was just a mis-judgement…”

[abridged]

“… I’m not condoning poor judgement,  I think the law should be easier to enforce as a civil action, but I don’t like seeing the criminal law misused against people who aren’t dishonest.”

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There are several aspects to Stephen Franks’ comments which require a response.

Whilst I am not a lawyer, criminal law takes into account negligence as well as dis-honesty.

  • A driver who causes a crash, with injury or loss of life, can be charged and tried under the Crimes Act. The driver was not dis-honest in any manner – but their negligence was seen as criminal because of consequences that affected others.
  • Negligence can have severe consequences, as much as a deliberate act such as selling drugs or robbing a bank.
  • The investors in failed finance companies can indeed take civil action against former Directors of failed finance companies. But to what end? Often the assets of Directors is buried away in family trusts – as were some of the Lombard Four.  So no compensation is possible.
  • Civil action is a costly process, with the legal bills being met by the plaintiff. Even legal aid is not the “blank cheque” that is commonly believed by the public. Legal Aid is a loan, not a grant, and the State may demand it be repaid, in full, or in part,  at the earliest opportunity.

Stephen Franks may be on solid ground when he splits legal hairs by defining the difference between “untrue” and “false”.

But I doubt if the “mums/dads” and “grandma/grandpas” will appreciate the finer points between the two terms.

It astounds me that Stephen Franks could suggest that company directors not be prosecuted under the Crimes Act, and that creditors be forced to resort to private civil prosecutions. Many of the creditors are no longer in any financial position or even fit mental state to pursue errant directors through the Courts.

An elderly person who has lost his/her life savings to the dodgy dealings of finance companies is most likely a broke person – both financially and emotionally. Franks wants the victims of these companies to take on more responsibilies to pursure justice?

In what possible manner is that even remotely fair???

I am reminded of Stephen Franks’ original political ‘home’, the ACT Party,

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Source

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ACT and other right wing parties and their adherents make a Big Thing about responsibility.

It appears that this concept of responsibility may  not apply to company directors, responsible for flushing  approximately $8 billion in other peoples’ money down the proverbial toilet? Responsibility for some, but not for others?

By comparison, if I robbed someone of $20, that would be Strike One against me, and time spent in jail . The Three Strikes law – courtesy of the ACT Party.

I have no wish to see the Lombard Four or other failed finance company directors end up in jail. Wasting $90,000 p.a. to throw middle aged or  elderly men behind bars, who are otherwise no threat to society, seems pointless.

But at the very least, the  “mums/dads” and “grandma/grandpas”  who lost their savings should know that those responsible are held to account.

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Additional

Radio NZ:  Securities lawyer analyses sentencing of lombard directors (interview)

Shark Patrol:  Failed or Collapsed Finance Companies

NZ Treasury:  Claims or Repayment Process Retail Deposit Guarantee Scheme

NZ Herald: Finance Company Collapses (and court cases)

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