FMA won't take SCF civil case

The Financial Markets Authority says it has closed inquiries into potential civil claims relating to the failure of South Canterbury Finance, saying Crown Asset Management is already doing that.

The market regulator had been under pressure to pursue a claim against former directors of the Timaru firm following the end of a criminal case brought by the Serious Fraud Office.

But it says it can’t justify the cost of taking a case.

FMA director of enforcement Belinda Moffat says inquiries were carried out into several aspects of South Canterbury Finance, including whether it had met continuous disclosure obligations, and the respective roles of the trustee and auditor.

In deciding not to take any further action, the FMA took into account civil proceedings already filed against the former directors by Crown Asset Management (CAML), the Crown entity that took over the remaining assets of government-insured finance companies.

“Given CAML’s civil case and the criminal case that has recently been before the courts, the FMA doesn’t believe further proceedings are appropriate,” Ms Moffat said. "The FMA has made the decision to close these inquiries after very careful consideration of our responsibility to act in the best interests of the public."

CAML is taking civil action against South Canterbury Finance directors from 2009 and that is expected to make its way to court next year.

South Canterbury Finance's participation in the retail deposit guarantee scheme meant 35,000 investors were bailed out by the taxpayer to the tune of $1.6 billion when the company collapsed – of which about $800 million has been recovered from other parties.

Former director Edward Sullivan is the only individual to be convicted of any wrongdoing – last week he was sentenced to 12 months' home detention and 400 hours' community work from five charges involving related party lending that should have been disclosed

Former chief executive Lachie McLeod and former director Bob White were acquitted of all fraud charges.

South Canterbury’s directors from 2009 included former chairman Alan Hubbard, who died in a car accident in 2011.

Mr White resigned in August 2009 along with Stuart Nattrass. They were replaced by Stuart McLauchlan, Denham Shale and Bill Baylis.

Sullivan resigned in May 2010 shortly before the company’s collapse.

Some investors in South Canterbury Finance’s listed preference shares, who weren't covered by the guarantee, recently met the FMA to see whether it would lead a case against senior people in government and at the lender.

A large group of preference shareholders have formed an action group organised by Kapiti Coast investment adviser Chris Lee who has indicated putting together a class action case if the FMA doesn’t act.

Mr Lee has publicly criticised South Canterbury Finance’s disclosure in the months leading up to its collapse, in particular a claim in May 2010 that the company was in “good shape,” breaking even and facing a bright future.