Five
years after a bombastic Serious Fraud Office press release heralding the conclusion
of its investigation into South Canterbury Finance and what was claimed to be
the biggest commercial fraud in New Zealand history, the High Court pilloried
this investigation as falling well below standards the public is entitled to
expect.
In ordering a taxpayer contribution to
the $1.38 million legal costs incurred by former South Canterbury Finance chief
executive, Lachie John McLeod, Justice Heath ruled the Crown justified in
charging him with only three of the five charges laid. A $240,000 contribution to McLeod’s defence
costs was awarded in respect of two charges where Justice Heath said there was
insufficient evidence to go to trial.
South Canterbury was placed in
receivership in August 2010, triggering a $1.6 billion government payout for investors. South Canterbury investors were covered by a
government guarantee then in place to provide stability in the face of world-wide
fears of a general run on financial institutions.
McLeod was later acquitted of five fraud
charges arising from South Canterbury’s business dealings: Two of theft by a
person in a special relationship, one of obtaining a benefit by deception and
two of false accounting. Following a
judge-alone trial, Justice Heath ruled three charges were not proved and two
should never have been laid. The first
of these two charges concerned a $12 million loan to the director of a company
related to South Canterbury, allegedly routed through the director to avoid the
need to disclose any related party lending.
Justice Heath ruled there was no artifice. It was a loan to the director personally and
was repaid by the director. The second
was an allegation that McLeod provided Treasury with false information to induce
the government into accepting South Canterbury into the government guarantee
scheme. Justice Heath ruled McLeod had
no personal responsibility for the criticised documents forwarded to Treasury
as part of the application. When
interviewed by the Serious Fraud Office, McLeod was not questioned about the
documents or the government guarantee scheme, His Honour said.
Justice Heath was scathing in his
criticism of the Serious Fraud Office investigation. There was an insufficient level of supervision
and co-ordination. The investigation
team lacked an experienced leader capable of conducting regular reviews of the
work undertaken. Potential defendants
were not given an opportunity to comment on allegations that might be made
against them in criminal charges. So far
as the major charge concerning provision of false information to gain entry to
the government guarantee scheme was concerned, the standard of investigation
was poor, he said. Prior to charges
being laid, no steps were taken to interview staff of Treasury or the Reserve
Bank.
This contrasted with a December 2011
Serious Fraud Office press release trumpeting the fact charges had been laid
against five individuals associated with South Canterbury Finance after a detailed
fourteen month investigation into what was billed as the biggest white-collar
crime ever.
Successful defendants can apply under the
Costs in Criminal Cases Act to recover legal costs incurred. The Act is not a mechanism to punish
prosecutors for undertaking a poor investigation. It is intended to provide compensation for
legal costs in defending charges which should never have been laid.
McLeod
v. R – High Court (19.02.16)
16.033