Justice for Investors

This week saw the depositions hearings begin in a case being brought against the former directors of Bridgecorp.  While investors will not benefit from the outcome of the case, they will undoubtedly take delight in the images of former directors sweating it out in the courtroom.  These directors lived the high life, and obviously took great delight in living off the proceeds of what effectively was a Ponzi scheme, the scale of which had never before been seen in New Zealand.  There is little doubt that the depositions hearing will then lead onto a full blown court case.  It has taken almost four years to get this far.  Contrast that with the situation in the United States where Madoff was despatched to prison for the rest of his life (and they mean life in the USA) within months of his downfall.

The Bridgecorp debacle was so bad that the receivers have been unable to recover any assets of substance.  Some or even all the directors who have been charged were intelligent men, most likely very well versed in covering their tracks through complex arrangements no doubt in a similar league to those seen in the wine box hearings from several decades ago.

There are some real questions as to why the Securities Commission did not take action earlier.  Our understanding is that the New Zealand Institute of Chartered Accountants prepared and presented a submission to them months before Bridgecorp went into receivership.  Unfortunately nothing happened and Bridgecorp continued to trade for a number of months longer, even though they must have been technically insolvent.  How much good reading eventuates, will depend on the skills of those reporting on the trial, assuming that there is a trial.

A number of the Nathans Finance directors are facing similar court action.  Those charged if convicted may receive prison sentences or fines.  The level of fines that can be imposed is infinitesimal in comparison to the millions of dollars squandered by these finance companies.  There will be no justice for the investors.  The only thing that they may get from any convictions will be some satisfaction that justice is seen to be done.

Unusually, during the weekend we had a call from an investor that had placed business with an Auckland based advisory company.  It turns out that the company had been put into liquidation and that there are millions of dollars unaccounted for.  There had been a small press release in the NZ Herald and also on the Radio.  The liquidator is having quite a job in trying to trace what has gone on, as the records are very poor, and the advisers claimed that they only had 36 clients.  Since the publicity a number of other investors have come forward.  If you invested through either Mike or Jackie Bradley, please contact the liquidator David O’Connor of BDO, and provide your details.  His number is 09 379 2950, and email david.oconnor@bdo.co.nz

Investors need to be wary about placing investments with advisers who use obscure nominee or custodial companies.  Investments placed through these are not in the investors own name and could have the potential to be manipulated by fraudsters.  We do not have any concerns about the safety of using custodial services that are provided by the major Wrap account providers such as Aegis.  These are subject to very rigorous audit procedures and full records are provided to the investor by the custodian in addition to high quality reports that the advisers provide to their clients.  We also caution against using advisers who are not members of professional associations such as the Institute of Financial Advisers (IFA) or SIFA.

We all need to be vigilant, and it would be great if there really is justice for the investor.  Unfortunately the reality is that the investor always will lose when there are rotten eggs in the basket.