Defrauded by Hokitika accountant Lindsay Beckett Smith, FM Custodians Ltd lost $784,000 lent on behalf of investors in its NZ Mortgage Income Trust (No. 2) Fund.
FM Custodian lost a High Court battle to recover $648,100, proceeds of land sold at Blue Spur subdivision near Hokitika. This money potentially goes to Michael and Lilian Ross, ruined financially by Smith’s dishonesty.
The High Court was told of a 2013 FM Custodians loan made supposedly to business interests associated with Mr Ross and Smith. Mr Ross knew nothing of the loan. Smith forged Mr Ross’ signature to three documents: a loan application, a mortgage and a guarantee over the Ross family home. Smith subsequently pleaded guilty to forgery and was sentenced to over two years imprisonment. FM Custodian appealed a District Court order that it forfeit the benefit of its loan. The Sentencing Act allows forfeit of legal rights where a benefit is derived from illegal activity. FM Custodians protested; it was a victim, not the perpetrator, it said.
Evidence was given of Fund Managers Otago Ltd acting as fund manager for FM Custodians in processing Smith’s loan application for funding to develop Blue Spur. Otago sent instructions to a law firm in Hokitika to act as FM Custodian’s agent in getting signatures to the loan documents and guarantee. Unbeknown to each of FM Custodian, Otago and the law firm, Smith forged Mr Ross’ signature to all the documents. Whilst not itself guilty of fraud, FM Custodian must accept responsibility for the illegal acts of Smith, Justice Nation ruled. The Hokitika law firm, acting as agent for FM Custodian, had certified the signatures as being that of Mr Ross, without actually seeing him sign. In the alternative, said Justice Nation, Smith acting as agent for the law firm when asked to get Mr Ross’ signature became also an agent for FM Custodian. FM Custodian’s rights as mortgagee were forfeit. Proceeds from sale of the mortgaged land are now held by the Official Assignee. The court was told Mr and Mrs Ross are currently $670,200 out of pocket from their original investment in Blue Spur.
FM Custodians Ltd v. R. & Smith – High Court (22.05.19)
19.097