Archive | Bridgecorp

Propbd on Q F28Nov14 – Banks gets new trial, Bridgecorp receivers lose, Building consents up

Banks retrial ordered
Bridgecorp receivers lose insurance recovery claim
Building consents up after a dip

Banks retrial ordered

Former Auckland mayor, National police minister & Act Party leader John Banks has been granted a retrial over his 2010 mayoral electoral campaign expenses conviction.

Link: Court of Appeal decision: John Archibald Banks v R 

Bridgecorp receivers lose insurance recovery claim

In another Court of Appeal decision out today, property financier Bridgecorp Ltd’s receivers have lost an attempt to recover money from a payout by Lloyds underwriters of a claim by the liquidators of Bridgecorp’s broker, Herbert Insurance Group Ltd.

Herbert Insurance arranged insurance for Bridgecorp against losses when it realised on securities given by borrowers.

The court case revolved around section 9 of the Law Reform Act 1936 and jurisdiction questions.

Link: Bridgecorp Ltd v Certain Lloyds Underwriters under policy no B0701LS05809  

Building consents up after a dip

Building consents for new homes climbed back above the 2000 mark in November after slipping just below in September – 5 months above 2000, September at 1985, October at 2152.

Consents for the October year were up 21.7% to 24,363, but Statistics NZ said today the trend was downward.

There were 179 apartment consents in October and the number for the year has almost doubled, from 1714 to 3309.

Auckland housing consents were well above a year ago, up from 476 to 591, but the latest tally has been beaten 5 times this year.

Residential consents are running $1.8 billion ahead of the previous year at $9.3 billion, and the value of all consents for the year is up nearly $2.5 billion to $14.6 billion.

Attribution: Court of Appeal, Statistics NZ.

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FMA agrees to Bridgecorp settlement, will drop civil proceedings

The Financial Markets Authority said on Wednesday it had consented to an $18.9 million settlement between the receiver of finance company Bridgecorp Ltd, the Bridgecorp directors and their liability insurers. The authority has agreed to end its own civil proceedings against the Bridgecorp directors once the settlement sum has been paid.

The authority’s head of enforcement, Belinda Moffat, said the settlement represented the best outcome for Bridgecorp investors in the circumstances, and would ensure that investors received the funds in a timely way.

Bridgecorp Ltd and Bridgecorp Investments Ltd were placed in receivership in July 2007 owing $459 million to 14,500 investors. Managing director Rod Petricevic & finance director Rob Roest were sentenced in 2012 to 6 years’ jail each on charges brought by the Financial Markets Authority.

Ms Moffat said the authority didn’t take the decision to discontinue civil proceedings lightly: “We assessed the public interest in continuing with the claim and – after considering the personal financial position of the directors & the settlement sum achieved by the receivers, and the fact that the authority would not be able to achieve a greater recovery – it was clear that it would not have been an appropriate use of taxpayers’ money to proceed.

“Our claim would have gone after the same pool of funds that the receiver has reached a settlement on, so there was little, if any, money left to pursue.

“It was also our view that the custodial sentences handed down in the criminal trial had sent a very strong deterrence message to the market which continues to be felt today.”

Ms Moffat said the authority was assessing a number of ongoing civil proceedings against finance company directors and would make announcements about them soon.

Link: List of finance company cases before the court

Attribution: FMA release.

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3 months added to Roest’s jail term

Published 20 August 2012

Bridgecorp Ltd finance director Rob Roest, 56, had 3 months added on Friday to the 6½-year jail term imposed on him in May.

Mr Roest  pleaded guilty in the Auckland District Court to one Crimes Act charge and 2 Companies Act charges brought against him by the Serious Fraud Office, and to charges brought by the Inland Revenue Department relating to misapplication of PAYE deductions.

The May sentence was on charges brought by the Financial Markets Authority for various offences under the Securities, Crimes & Companies Acts. Mr Roest is filed an appeal against both the conviction & sentence on the authority’s charges.

The Serious Fraud Office’s charges related to his role in the fraudulent acquisition & financing of t luxury launch Medici, which was bought using $3.5 million of Bridgecorp funds.

Bridgecorp Ltd managing director Rod Petricevic, 63, pleaded guilty to the Medici charges in July and had 4 months added to his 6½-year jail term.

Earlier stories:

19 July 2012: Petricevic gets 4 more months’ jail for Medici deception

18 May 2012: Roest gets same 6½ years’ jail as Petricevic, Steigrad given home detention

 

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Attribution: SFO release, story written by Bob Dey for the Bob Dey Property Report.

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Petricevic gets 4 more months’ jail for Medici deception

Published 19 July 2012

Bridgecorp Ltd managing director Rod Petricevic, 63, had another 4 months added to his 6½-year jail term yesterday after pleading guilty to charges relating to the fraudulent acquisition & financing of the luxury launch Medici.

Judge Philippa Cunningham sentenced him in the Auckland District Court on 4 Crimes Act charges brought by the Serious Fraud Office. The first jail term was handed down in April for his conviction on 18 charges arising from misleading statements made in offer documents in the last 8 months before the Bridgecorp finance group went into receivership.

The extra term was for using $3.5 million of Bridgecorp funds to buy the Medici, but hiding or disguising the purchase from the Bridgecorp board, the company’s trustee and investors. Ownership of the Medici vested in Poseidon Ltd, a company wholly owned & directed by Mr Petricevic.

SFO chief executive Adam Feeley said after sentencing that despite the small addition to the previous sentence, the public interest required the additional charges to be brought to prosecution: "We understand that conviction on the additional charges may bring little solace to investors, but offending of this scale cannot be ignored."

Bridgecorp went into receivership in July 2007 owing 14,500 debentureholders $459 million.

Finance director Rob Roest, 56, was sentenced to 6½ years’ jail in May for his role in the 2007 collapse and Australian non-executive director Peter Steigrad, 66, was sentenced to 9 months’ home detention.

The Serious Fraud Office has also laid charges against Mr Roest over the Medici acquisition & operating costs. His 3-week trial is scheduled to start on 24 September.

Bridgecorp’s other 2 directors, chairman Bruce Davidson, 73, and Australian non-executive director Gary Urwin both pleaded guilty at the end of last year. Mr Davidson was sentenced in October to 9 months’ home detention & 200 hours’ community work, plus $500,000 reparation, and Mr Urwin was sentenced to 2 years’ jail.

Mr Petricevic was adjudicated bankrupt in 2008 and discharged in September last year. Mr Roest filed for bankruptcy on 9 September 2009. Both men were also banned in May 2009 from running a company for 5 years.

Earlier stories:

18 May 2012: Roest gets same 6½ years’ jail as Petricevic, Steigrad given home detention

18 May 2012: Bridgecorp director Roest jailed, Steigrad gets home detention

28 April 2012: Bridgecorp choice: Telling truth & collapsing in 2006, lying & surviving a few more months

26 April 2012: Petricevic gets 6½-year jail term

18 April 2012: Crown wanted 4 years’ jail for Bridgecorp director Urwin, judge says 2 years enough for denunciation & deterrence

10 April 2012: Verdict illustrates poor state of Bridgecorp books well before final prospectus & collapse

7 October 2011: Pretrial guilty plea wins Bridgecorp chairman home detention

19 July 2011: 3.5c interim dividend for Bridgecorp investors

7 January 2010: Momi debt all but written off, likely Bridgecorp return stays at 10c

5 June 2009: Petricevic & Roest banned from running companies

26 April 2009: Likely Bridgecorp return from NZ assets goes under 10c

24 December 2008: Securities Commission lays criminal charges & civil claims against Bridgecorp directors

7 August 2008: Petricevic bankrupted 9 days after criminal charges laid

29 July 2008: Bridgecorp convicted, Petricevic & Roest remanded without plea

3 July 2007: Receivers at Bridgecorp

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Attribution: SFO release, story written by Bob Dey for the Bob Dey Property Report.

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Roest gets same 6½ years’ jail as Petricevic, Steigrad given home detention

Published 18 May 2012

Bridgecorp Ltd finance director Rob Roest, 55, was sentenced to 6½ years’ jail today for his role in the 2007 collapse of the finance company. That’s the same sentence that Justice Geoffrey Venning handed down to Mr Roest’s boss, Rod Petricevic, 62, last month.

Australian non-executive director Peter Steigrad, 66, ecaped jail when Justice Venning delivered the 2 sentences in the Auckland High Court today. Mr Steigrad was sentenced to 9 months’ home detention, starting Monday, and is to pay agreed reparation of $350,000 by 1 June.

Bridgecorp’s other 2 directors, chairman Bruce Davidson, 73, and Australian non-executive director Gary Urwin both pleaded guilty at the end of last year. Mr Davidson was sentenced in October to 9 months’ home detention & 200 hours’ community work, plus $500,000 reparation, after pleading guilty to 10 charges of breaching the Securities Act through untrue prospectus statements. Mr Urwin was sentenced to 2 years’ jail, also on 10 charges.

Justice Venning found Mr Petricevic & Mr Roest guilty last month on all 18 charges they faced, Mr Steigrad guilty on 6 of 10.

All were charged under the Companies Act & Securities Act over offer documents they signed in December 2006 & March 2007. In addition, Mr Petricevic & Mr Roest faced Crimes Act charges of making a misleading statement in the offer documents with the intent of inducing persons to invest in Bridgecorp or Bridgecorp Investments Ltd, knowing the statement was false.

Justice Venning said $91 million was reinvested and $28 million of new money came into Bridgecorp through the December 2006 prospectuses & extensions. When receivers took control on 2 July 2007, $459 million was outstanding to 14,500 debenture investors (expected to get a return of less than 10c:$1) and $29 million on notes (no return).

The judge told Mr Roest: “You said you regretted the losses but were doing everything for investments to be repaid. I can apply a reduction of 10% for a first offence, but none for remorse. You do not accept the verdicts and still apparently regard yourself as innocent, you have no insight into your offending, for the harm you have caused. There is no prospect of reparation – you are bankrupt and have no assets.

“In the absence of other factors, a term of imprisonment of 6 years 9 months would be the result. However, Mr Petricevic got 6 years 6 months and I do not consider you should receive ultimately a longer sentence than Mr Petricevic.”

Mr Roest faced a maximum 10 years’ jail under the Crimes Act. Splitting the sentences up, the judge sentenced him to 6 years 6 months on those charges,  4 years on the Companies Act charges and 4½ years on the Securities Act charges, all concurrent for an effective term of 6 ½ years.

Mr Steigrad’s counsel, Brian Keene QC, sought a sentence of 300 hours’ community work & $350,000 reparation. Justice Venning accepted that Mr Steigrad didn’t act dishonestly, did not intend to cause investor loss, didn’t act in self-interest and was the least culpable of all 5 directors, but his failure to perform his functions as a director still extended over a number of months, particularly after he took over from Mr Davidson as acting chairman in the dying stages of the group.

The judge also noted that Mr Steigrad had been a positive contributor to his home community, including roles in volunteer organisations: “There is no evidence people invested in Bridgecorp because of your good character, you did not have a profile in New Zealand….

“I accept you are genuinely remorseful. The letter you have written to the court discloses real empathy for investors and contrition for your failures. You accept the factual findings in the verdicts and accept you could have done more, you accept your tangible role in the Bridgecorp failure, and I accept you continue to work in the civil case (for resolution which may result in a return to investors).”

Good character & first offence earned Mr Steigrad a 15% reduction in sentence from the starting point of 3 years’ jail, remorse & reparation combined a further reduction of 5 months, and the imposition of staying in New Zealand would be harsher for him & his family.

Justice Venning set the overall reduction at one-third of the starting point of 3 years’ jail, and therefore a sentence of 2 years’ jail. However, the judge then said home detention wasn’t a soft option and jailing Mr Steigrad wasn’t necessary to respond to the sentencing goals of denunciation & deterrence.

The Financial Markets Authority filed civil proceedings against the directors, but these have been stayed pending the outcome of the criminal case. The Serious Fraud Office has also laid charges against Mr Petricevic & Mr Roest, which are scheduled to be heard in a trial starting on 24 September. 2 of those charges against Mr Petricevic relate to a company called ABb. Both men face 5 charges concerning the acquisition of the vessel Medici.

Earlier stories:

18 May 2012: Bridgecorp director Roest jailed, Steigrad gets home detention

28 April 2012: Bridgecorp choice: Telling truth & collapsing in 2006, lying & surviving a few more months

26 April 2012: Petricevic gets 6½-year jail term

18 April 2012: Crown wanted 4 years’ jail for Bridgecorp director Urwin, judge says 2 years enough for denunciation & deterrence

10 April 2012: Verdict illustrates poor state of Bridgecorp books well before final prospectus & collapse

7 October 2011: Pretrial guilty plea wins Bridgecorp chairman home detention

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Attribution: Judgment, story written by Bob Dey for the Bob Dey Property Report.

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Bridgecorp director Roest jailed, Steigrad gets home detention

Published 18 May 2012

Bridgecorp Ltd finance director Rob Roest, 55, was sentenced to 6 ½ years’ jail today for his role in the 2007 collapse of the finance company.

Australian non-executive director Peter Steigrad, 66, ecaped jail. He was sentenced to 9 months’ home detention, starting Monday, and is to pay agreed reparation of $350,000 by 1 June.

Earlier stories:

28 April 2012: Bridgecorp choice: Telling truth & collapsing in 2006, lying & surviving a few more months

26 April 2012: Petricevic gets 6½-year jail term

18 April 2012: Crown wanted 4 years’ jail for Bridgecorp director Urwin, judge says 2 years enough for denunciation & deterrence

10 April 2012: Verdict illustrates poor state of Bridgecorp books well before final prospectus & collapse

7 October 2011: Pretrial guilty plea wins Bridgecorp chairman home detention

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Attribution: Judgment, story written by Bob Dey for the Bob Dey Property Report.

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Bridgecorp choice: Telling truth & collapsing in 2006, lying & surviving a few more months

Published 28 April 2012

The missing ingredient of Justice Geoffrey Venning’s sentencing of Bridgecorp Ltd managing director Rod Petricevic, 62, to a 6½-year jail term was the required analysis of this equation: lying in a prospectus to keep investment money rolling in, versus telling investors the company was broke and going down several months earlier than it did.

There was an accompanying factor which would have to leave you wondering why there was any money still invested in Bridgecorp to be lost in July 2007: The whole investment community knew in February 2006 that the Australian Investments & Securities Commission had stopped Bridgecorp raising further money across the Tasman.

That same investment community knew back in 1999 that Bridgecorp had been spurned in its attempt to regain an NZX listing, and in 2000 that it had been spurned again.

All of that was well before investors started pulling money out of the whole finance company sector in 2006-07 (except for South Canterbury Finance Ltd, which convinced investors it was in good shape), and before Bridgecorp had the added difficulty of a coup in Fiji killing what was always a high-risk development at Momi Bay, where it had about $51 million invested.

Bridgecorp’s accounts showed it had $405 million out on loan at the June 2005 balance date, $426 million at June 2006, $451 million in from investors in 2005, $530 million in 2006.

Receivers John Waller & Colin McCloy (PWC) walked in 2 days after the 2007 balance date, so those full accounts were never completed by the company. The receivers released unaudited June 2007 accounts for the Bridgecorp charging group which showed assets of $595 million, $487 million of investor money and net assets of $76 million. The receivers said instead of that $76 million, the accounts should have shown a substantial negative net asset position.

Fiji Finance Minister Mahendra Chaudhry said in May 2006 Momi Bay was already in trouble in October 2006, with contractors pulling out because they weren’t being paid on time. The second Fijian coup occurred on 5 December 2006. The project was taking 20% of the Bridgecorp loan book and rising, but after the coup investors in resort assets decided not to pay $48 million that came due.

Was it time, at the end of 2006, to throw in the towel or to soldier on? About $530 million (the June 2006 investment figure) would have been lost, minus recoveries which probably wouldn’t have been much better than they were starting 6 months later. The loss following receivership would be $459 million, minus recoveries totalling less than 10%, and a total loss on the $29 million of notes.

In other words, Bridgecorp investors would have lost about $43 million more if the company had volunteered to die at the end of 2006 (give or take shifts in investment in the second half of 2006, and also changes to subordination of loans). It would have required admitting defeat, which is not the natural instinct of any businessman determined to succeed against occasional adversity, but it wouldn’t have involved lying (well, not the lies of December 2006-May 2007 laid open in the courtroom anyway).

Mr Petricevic & fellow Bridgecorp directors have been caught for the lie (repeated over a period of about 6 months), which encouraged some to stay or become invested with Bridgecorp while others were pulling out.

In the Auckland High Court on Thursday, prosecutor Brian Dickey told Justice Venning: “The case is really at the pinnacle of market fraud cases because of the nature of the lies told, the period for which they were maintained, the amount of investor money which was lost, the multiple breaches of trust which are engaged. We have actual breaches of trust because of the trust deed, but there’s also the broader concept of trust because the public invested their money in Bridgecorp.”

Where it began, what it was about

Mr Petricevic & property developer Pat Rippin picked Bridgecorp Holdings Ltd up in 1992 as a delisted shell. The company was originally Bridgevale Mining Ltd then, as Bridgecorp, it owned the Toy Warehouse chain of stores, which disappeared in the wake of the 1987 sharemarket collapse (Bridgecorp chairman Bruce Davidson, sentenced last October to home detention, came with the shell package).

Mr Petricevic was used to handling the public’s money as managing director of Euro-National Corp Ltd, a high-flying finance company of the 1980s which also collapsed in 1987. Over the next 5 years he fought off bankruptcy applications and settled $10 million of debts to Euro-National.

He wanted to lift his new baby, Bridgecorp, up the ranks of second-tier financiers in Australia & New Zealand and, although he said he didn’t intend it to become a Euro-National replacement, he was intent on regaining a sharemarket listing to source capital. That was denied him in New Zealand in 1999 & 2000 – the first time there was no explanation; the second application, Mr Petricevic told me, “they haven’t bothered to respond to”.

So he took Bridgecorp Holdings to Australia, leaving Bridgecorp Ltd, the New Zealand subsidiary, to carry on growing the business here. Under agreements entered into in 2000, Gary Urwin’s Urwin Fernandez (NZ) Ltd took a one-third interest in Bridgecorp in 2002, which led the finance company more into the hospitality sector in Australia, and then in Fiji. (Mr Urwin was sentenced to 2 years’ jail on 17 April, but there have been reports he intends to appeal).

Back in Auckland in 1998, Mr Petricevic told me when the company was getting involved in a Mt Eden multiple-apartment transaction: “Bridgecorp deals with assets that have gone wrong.” He followed that strategy in numerous property projects. For example, Bridgecorp financed Reg Watt into an apartment tower project on Fort St in downtown Auckland, but Mr Watt went bankrupt and Bridgecorp took the project to Australian developer Colin Godfrey, who finished the development, Harbour City, though he also went bankrupt.

While the 37-storey Harbour City was rising in Auckland, Bridgecorp was striking trouble in Australia. In February 2006, the Australian regulator issued an interim stop order on Bridgecorp Finance Ltd’s prospectus, followed by a final stop order in April 2006, both by consent. In August 2006, ASIC secured state supreme court orders stopping Bridgecorp Finance from raising any more money, including not allowing it to roll over existing funds. The orders also required Bridgecorp Finance to engage an independent expert to review its loan book and to provide its trustee with weekly & monthly financial reports.

The submissions, the judge’s view

Bridgecorp’s directors knew through the whole of 2006 their group was in bad shape, and worsening because of the ASIC stop on raising more money. Yet they pretended, in the December 2006 prospectus & March 2007 extension, that things were far better. Prosecutor Brian Dickey told the judge how cynical this was, that not only was Mr Petricevic prepared to distribute lies through the offer documents but he also participated with others in senior management in lying to individual investors who rang or wrote in: “It’s not just permitting lies to be told, it’s a very active role in telling lies to the public…. to have investor services staff lie about what had happened.”

About $120 million was invested after the prospectus and quarterly & extension certificates were issued and Mr Petricevic “knew money coming in was not ever likely to be repaid. That is the level of the cynicism.”

Justice Venning said Mr Petricevic had “said he’s sorry for the loss investors have suffered. That’s not the remorse the court can take into account.” The court could take into account acceptance of something morally wrong and acknowledgment of his part in the offending, but that wasn’t offered.

Mr Petricevic’s lawyer, Charles Cato QC, said Mr Petricevic & his family had faced inordinate media attention & scrutiny which had caused them great stress, he’d received serious threats and on one occasion was assaulted, he was a bankrupt until recently and he & his wife had been living in rented accommodation.

Mr Cato said Mr Petricevic didn’t embark on fraudulent schemes from the outset: “The object was simply to weather Momi Bay.” He said Bridgecorp losses appeared to be $94 million after the first default occurred, and he submitted that a starting point of 6 years’ jail would reflect the seriousness of the offending: “It is a severe sentence without being crushing.”

Mr Cato went on to layer innuendo about the competence of the receivers on top of the losses: “There were in the Bridgecorp group substantial assets and, in New Zealand at least, the receivership has not been able to deal effectively with those assets…. It doesn’t seem the receivership has been terribly successful in realising assets that were available.”

Justice Venning countered: “One reason might have been that Bridgecorp was trying to realise its investment book since 2006 and the receivers were left with the rump, but we could debate that.”

To investors who have lost most of $488 million, some of Mr Cato’s submissions in mitigation must sound incongruous: “A man who has gone 62 years (ie, since birth) without conviction in a sense stands to lose more than others. When an older man is imprisoned and falls from grace as he has done, is separated from family & friends, the fall is harder than for someone younger and there is less time for rehabilitation.”

Justice Venning mentioned only a couple of Mr Petricevic’s victims, the first of them a retired professional man of 69 who initially invested $150,000 with Bridgecorp in January 2007, sold his home in June 2007 and invested $1 million with Bridgecorp, followed by another $1 million: “Those monies have been lost. He is still forced to work, an active retirement is but a dream, his wife has suffered a nervous breakdown.”

Another investor & his wife, aged 79, had previously left their money in banks but started investing in Bridgecorp in June 2006: “They have little savings left and minimal interest payments supporting their pension. There is not a day they haven’t woken up and thought about it. It is the most depressing period of their lives.”

Justice Venning found Mr Petricevic guilty on 18 charges arising from misleading statements made in offer documents in the last 8 months before the finance group went into receivership. The maximum penalties were 10 years for charges laid under the Crimes Act, 5 years for those under the Companies Act & Securities Act.

The judge said: “Mr Petricevic, I accept you did not set out to cause investors harm, but you did make false statements inducing people to invest in Bridgecorp. The new money was used effectively to keep the company going and to repay investors who wished to withdraw their money…..

“I do not feel your misplaced optimism is a factor reducing the offending… You knew for a time you could not receive anything from Momi Bay, you felt you could get away for a time rather than admitting you were doing anything wrong. You knew what the actual position was….

“You are not before the court to be sentenced because the property market collapsed or the global financial crisis or even because Bridgecorp failed as a business. You made false statements in offer documents inducing people to invest substantial sums where, if they had been told the truth, they would not have invested.”

The judge set a starting point of 6½ years under the Crimes Act, 4½ years for the others, a combined 7½ years, gave a 10% discount for past good character, first appearance and an acknowledgement that jail would be hard at this stage of Mr Petricevic’s life, a modest reduction for what amounts to community hostility towards a thief (my words, not the judge’s), but nothing for remorse.

The net sentences were 6½ years under the Crimes Act, 4 years under the Companies Act, 4½ years under the Securities Act, a combined 6½ years, all terms concurrent – out in a couple of years.

Bridgecorp finance director Rob Roest was also found guilty on all 18 charges he faced and Australian non-executive director Peter Steigrad guilty on 6 of 10. They will be sentenced on Friday 18 May.

Earlier stories:

26 April 2012: Petricevic gets 6½-year jail term

18 April 2012: Crown wanted 4 years’ jail for Bridgecorp director Urwin, judge says 2 years enough for denunciation & deterrence

10 April 2012: Verdict illustrates poor state of Bridgecorp books well before final prospectus & collapse

14 November 2011: Bridgecorp trial starts in earnest

7 October 2011: Pretrial guilty plea wins Bridgecorp chairman home detention

19 July 2011: 3.5c interim dividend for Bridgecorp investors

20 May 2010: SFO lays charges against Petricevic & Roest

7 January 2010: Momi debt all but written off, likely Bridgecorp return stays at 10c

5 June 2009: Petricevic & Roest banned from running companies

26 April 2009: Likely Bridgecorp return from NZ assets goes under 10c

24 December 2008: Securities Commission lays criminal charges & civil claims against Bridgecorp directors

7 August 2008: Petricevic bankrupted 9 days after criminal charges laid

29 July 2008: Bridgecorp convicted, Petricevic & Roest remanded without plea

3 July 2007: Receivers at Bridgecorp

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Attribution: Sentencing, earlier interview notes, ASIC, story written by Bob Dey for the Bob Dey Property Report.

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Petricevic gets 6½-year jail term

Published 26 April 2012

Bridgecorp Ltd managing director was sentenced to 6½ years’ jail today on 18 charges arising from misleading statements made in offer documents in the last 8 months before the finance group went into receivership.

Crown prosecutor Brian Dickey suggested a starting point of 7-8 years all up on a combination of charges laid under 3 acts – Companies, Crimes & Securities.

Justice Geoffrey Venning allowed a 10% discount for past good character, first appearance and an acknowledgement that jail would be hard at this stage of Mr Petricevic’s life. He’s 62.

The judge allowed no discount for remorse because he said there hadn’t been any, as Mr Petricevic still protested his innocence, but gave a small discount (it looks like 3 months) for some harassment during the nearly 5 years since the 2 July 2007 receivership, including a smack on the chin at a restaurant and “material” deposited at the family’s home.

Although defence counsel Charles Cato QC tried to impress on the judge the extreme media scrutiny Mr Petricevic & his family had been under, Justice Venning commented: “I have to say intense media scrutiny is a consequence of your and your fellow directors’ actions in this case.”

The discounts reduced the sentence by a year from the starting point of 7½ years the judge said he had set.

Earlier stories:

26 April 2012: Bridgecorp choice: Telling truth & collapsing in 2006, lying & surviving a few more months

18 April 2012: Crown wanted 4 years’ jail for Bridgecorp director Urwin, judge says 2 years enough for denunciation & deterrence

10 April 2012: Verdict illustrates poor state of Bridgecorp books well before final prospectus & collapse

14 November 2011: Bridgecorp trial starts in earnest

7 October 2011: Pretrial guilty plea wins Bridgecorp chairman home detention

19 July 2011: 3.5c interim dividend for Bridgecorp investors

20 May 2010: SFO lays charges against Petricevic & Roest

7 January 2010: Momi debt all but written off, likely Bridgecorp return stays at 10c

5 June 2009: Petricevic & Roest banned from running companies

26 April 2009: Likely Bridgecorp return from NZ assets goes under 10c

24 December 2008: Securities Commission lays criminal charges & civil claims against Bridgecorp directors

7 August 2008: Petricevic bankrupted 9 days after criminal charges laid

29 July 2008: Bridgecorp convicted, Petricevic & Roest remanded without plea

3 July 2007: Receivers at Bridgecorp

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Attribution: Sentencing, story written by Bob Dey for the Bob Dey Property Report.

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Crown wanted 4 years’ jail for Bridgecorp director Urwin, judge says 2 years enough for denunciation & deterrence

Published 18 April 2012

Gary Urwin, 62, was listed as a non-executive director in Bridgecorp Ltd’s prospectuses but was actually a major force in the parts of the business that eventually brought the Auckland-based financier down. The prosecution wanted a start point of 4 years for his jail term on Securities Act charges, but in the Auckland High Court yesterday Justice Pamela Andrews started lower, took positive reports about him into account and decided on a 2-year term.

Start points, followed by discounts, are the key to sentences in trials like the Bridgecorp one, where 3 directors ended up on trial, chairman Bruce Davidson pleaded guilty to 10 charges in October and Mr Urwin pleaded guilty, also to 10 charges, just as the trial was getting under way in November.

Mr Davidson, 73, was sentenced to 9 months’ home detention & 200 hours’ community work, plus $500,000 reparation.

The maximum penalty he & Mr Urwin faced was 5 years’ jail or a $300,000 fine on each of 6 charges of making false statements in a prospectus and 4 of making false statements in an investment statement.

Justice Geoffrey Venning found managing director Rod Petricevic and finance director Rob Roest guilty on all 18 charges they faced and Australian non-executive director Peter Steigrad guilty on 6 of 10. Mr Petricevic will be sentenced on Thursday 26 April, the other 2 on Friday 18 May.

Crown counsel Brian Dickey said Mr Urwin was in a better position than others to disclose Bridgecorp’s adverse circumstances which had arisen from late 2006 (the relevant prospectus, investment statement & extension were issued in February & March 2007 and receivers took control of the group on 2 July 2007).

At Mr Davidson’s sentencing, the prosecution said the appropriate starting point was 4 years’ jail, and the defence put it at 2 years, but Justice Andrews put it at 3 years 3 months. Justice Andrews accepted Mr Davidson had shown sincere & deep remorse and he’d assisted the receivers & other authorities voluntarily & at his own cost. With his guilty plea, the jail term was reduced to one year 8 months. Saying home detention shouldn’t be considered a soft option, she imposed concurrent terms of home detention on all charges.

Mr Dickey told the judge yesterday Mr Urwin and parties associated with him owned about 25% of Bridgecorp and he also owned 50% of Barcroft Holdings Ltd, which was described in Bridgecorp prospectuses as unrelated but which Justice Venning found was related.

Barcroft was the entity through which $76 million of Bridgecorp money was channelled to some Australian projects and the Momi Bay resort in Fiji

Mr Dickey said: “It is Barcroft and its nondisclosure as a related party which is a key lie in the offer documents. The reason it is a related party is because of Mr Urwin. He of all persons at Bridgecorp knew best that Barcroft was a related party and could have exposed the lie that was made in the offer documents.

“Mr Urwin is an experienced accountant and an experienced insolvency practitioner, so his ability to claim reliance on third parties such as auditors is very limited, probably nonexistent. He ran Bridgecorp’s affairs in Fiji and he ran Bridgecorp’s affairs in respect of the Australian hotels & the Guam hotel which were packaged as an unrelated party.”

Mr Dickey said the scale of that part of the business had to be considered in relation to the $488 million owed to debenture & noteholders at receivership. Not to consider scale would give a hollow ring to the sentence as far as investors were concerned: “With scale must come, surely, responsibility.”

The latest word from the receivers is the likely return to investors in the $459 million of debentures is less than 10c:$1, and maybe considerably less than that. The likely return on the $29 million of convertible notes is nothing because they are subordinate.”

Mr Dickey said $110 million was invested or reinvested in Bridgecorp after the untrue statements were made in the 2007 offer documents, including $26 million of new money.

Conveying the reach of the lie, Mr Dickey said: “It’s the loss of a nest egg, the breach of trust, it’s the feeling of helplessness which occurs because somebody’s life savings are lost and lost because somebody has lied. It’s the harm this has caused to the New Zealand finance market, particularly the debt market which has yet to recover, and that has consequences for the domestic economy. And the scope of offending – the documents remained live for 5 months.”

Mr Dickey said Mr Davidson “showed sincere, genuine & deep remorse. Mr Urwin still has not. He has contested this case until its eve. There is no evidence of contrition. Mr Davidson provided $500,000 reparation, which considerably reduced his asset base, Mr Urwin nothing. Mr Davidson provided genuine co-operation with authorities, Mr Urwin nothing.

Mr Davidson’s guilty plea was late but there had been indications for months that he would (plead guilty) Mr Urwin is guilty of reckless conduct in respect of Barcroft because he must have known it was related.”

“What is crucial to this case is he was influential at the meeting with the investors to prop up his own personal interest. That sets him apart from the other directors, with the potential exception of the managing director.”

Mr Urwin’s lawyer, David Reece, told the judge Mr Dickey “has effectively made Mr Urwin an ogre, responsible along with Mr Petricevic for the fall of Bridgecorp. The practical nature of Mr Urwin’s role was, he was engaged in Fiji & Australia to further the interests of the Bridgecorp structure. Sure he had an interest in Bridgecorp, he said about 20%.

“The joint venture (UFB Pacific, originally Urwin Fernandez Bridgecorp) was not illegal and common practice. The joint venture was trying to make its property in Fiji at the Momi Bay resort work. That was a huge undertaking and effectively took 20% of the Bridgecorp loan book and had huge investment from the Fijian Government.

“Over the period of initiation of Momi Bay, Mr Urwin was completely committed to the success of the project. He had all his life assets tied up in the Bridgecorp shareholding.

“There’s no evidence at all to suggest he was intentionally trying to deceive investors by saying Barcroft was an unrelated party. He was committed to the success of the Momi Bay venture and the success of the other hotels. He was a committed worker trying to make profits on behalf of the company, which had been successful for many a year prior. It had gained the confidence of the public.

“One of the key factors which came out of the trial was well known in the finance community, it was nothing to do with business, it had everything to do with a military takeover in Fiji. $48 million of receivables which weren’t received (from investors who’d signed up for Momi Bay) were a very significant reason Bridgecorp fell over. Mr Urwin could not do very much about the military intervention in the project.”

Apart from the relationship issue, Mr Reece said the Barcroft transaction was both legitimate and viable. But, Mr Reece said, “Around the corner was the global financial crisis and that probably would have put an end to it anyway. The facts were before the notional investor as to Fiji, the relationship between Bridgecorp & Urwin Fernandez. Calling Barcroft unrelated wasn’t a mischief, it was a mistake by the directors.”

Although Mr Urwin had signed an agreed statement of facts, Mr Reece filed a second set of submissions which he said didn’t disopute that summary but did dispute some Crown submissions: “What Mr Urwin is disputing is the Crown theory that Barcroft was a cover-up, a facade, a set of bad loans, hidden, a mischief, effectively a sham.

“The Crown submissions effectively fall flat on their face. Mr Urwin has not been shown in the recent trial to be a man creating mischief, a sham or feathering his own nest in a joint venture.

“Mr Urwin is not now in a position to offer any recompense to the investors. The fact is, he lost everything in the Bridgecorp failure. He had a little bit, but lost it in a domestic separation. He has described to me his remorse about the ineptitude. The wheels fell off, he accepts he was inept, he didn’t do enough in relation to liquidity.

“Mr Davidson was a managing director (at Bridgecorp, chairman) in this city on a daily basis. Mr Urwin was a worker overseas trying to make Momi Bay a success. Mr Urwin deserves a significant credit for his guilty plea. He has shown considerable remorse. He has worked a considerable period with the receivers after the receivership.

“Mr Urwin sought refinancing sources and was of considerable help to the receivers in reconstructing where Bridgecorp lay in mid-2007. He offered, although it wasn’t taken up, the charging of that fee by Bridgecorp in early 2007, the fee that was charged in relation to Barcroft, which amounted to about $8 million. Mr Urwin didn’t know anything about that.

“This is not a situation where a man was blatantly dishonest, propping up his own economic interests ahead of those of investors in Bridgecorp. He also lost everything. What we have is a man who was working hard, was trying to make Momi Bay a success, he didn’t fully take account of the advice and he wasn’t looking after his own interests first.

“This type of defendant should not be in prison. It’s a situation where home detention is an appropriate sentence.”

Justice Andrews said Mr Urwin chaired Bridgecorp’s credit committee until January 2007 and was on its audit committee: “The way the Barcroft transaction was reported distorted the Bridgecorp accounts…. It looked like new lending when it was in fact related-party loans.”

The judge said the Barcroft transaction wasn’t devised quickly, but took 5 months to be structured, and Mr Reece failed in his submissions to take note of Justice Venning’s finding that it was untrue to call Barcroft unrelated: “I am satisfied you were fully aware of the parties to that transaction, that you were well aware or should have been aware Barcroft was a related party and that should have been disclosed.”

It looked as though unrelated parties were prepared to pay $76 million: “That is the mischief of the Barcroft transaction. Bridgecorp failed to monitor loans properly. Investors were led to believe Bridgecorp was a prudent lender and followed prudent lending criteria. The nondisclosure was material to whether a notional investor would invest or not.”

Although Mr Urwin & Mr Davidson had begun an inquiry 2 days after Bridgecorp defaulted on payments – and didn’t get much help from other directors – Justice Andrews said the damage had been done: “All of the untrue statements led to investors being misled. About $25.3 million was invested and $88.5 million reinvested. $459 million was outstanding to 14,500 debenture investors and $29 million on notes.

“I have read victim impact statements from 4 of the investors, ranged from $10,000-2 million lost. For each it was money invested for their retirement. It was money they could not afford to lose….

“When you became aware of the company’s lack of liquidity you reported the matter to the Companies Office… Your offending is distinguisahable from that of the Nathans directors (directors of Nathan Finance Ltd, who were jailed on similar charges) by virtue of the amount. But the starting point is not less because you had direct knowledge of the Barcroft transaction and knowledge of illiquidity….

“I do not accept that you were let down by poor financial or legal advice. Your offending caused a significant loss to many, many people. It is apparent from the summary of facts you were grossly negligent, were aware of Bridgecorp’s liquidity position. Directors are required to exercise judgment and to test the competence of management. I have concluded therefore that the appropriate starting point for your offending is 3 years & 3 months’ imprisonment.

“You have had a distinguished & successful career and are highly regarded by the business community. Your experience and business qualifications were selling points…. I intend to discount for good behaviour, you exercised remorse and are at a very low level of (likelihood of) reoffending….

“I accept that (inability to recompense) should not count against you, but nor can I apply a discount.

I accept you have given assistance, but it did not extend to giving an evidential statement.

“In Mr Davidson’s case I allowed a discount of 35% to account for mitigating factors. I have concluded the appropriate discount is 12 months, leading to an adjusted starting point of 2 years 3 months before your guilty plea. The appropriate discount for the guilty plea is 3 months.

“That leads to a final adjusted sentence of 2 years’ imprisonment, and that leads me to whether imprisonment is appropriate. A sentence of home detention can only be imposed for a maximum of 12 months.”

Justice Andrews concluded home detention would not meet the sentencing purposes of denunciation & deterrence, referring again to Mr Urwin’s dual Barcroft roles and his knowledge of Bridgecorp’s illiquidity.

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Attribution: Judgment, story written by Bob Dey for the Bob Dey Property Report.

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Verdict illustrates poor state of Bridgecorp books well before final prospectus & collapse

Published 10 April 2012

Even without the benefit of hindsight, Bridgecorp Ltd was in evident financial trouble a year before receivers were called in.

But Justice Geoffrey Venning didn’t need to go back to the declining cashflow in the second half of 2006 to reach his guilty verdicts last Thursday against managing director Rod Petricevic, finance director Rob Roest and Australian non-executive director Peter Steigrad. Their knowledge about the state of the group, when they signed the extension of the finance company’s prospectus at the end of March 2007, was enough to make them guilty of issuing misleading statements.

When the directors signed that extension, they were well aware cashflows had slumped from July 2006, the Fijian coup of 5 December 2006 had reduced the likelihood of big returns from the Momi Bay resort in Fiji, and that Bridgecorp had decided in May 2006 to cease fresh lending.

Justice Venning found Mr Petricevic & Mr Roest guilty on all 18 charges they faced, Mr Steigrad guilty on 6 of 10. Mr Petricevic will be sentenced on Thursday 26 April, the other 2 on Friday 18 May. Australian non-executive director Gary Urwin pleaded guilty just as the trial was getting under way last November, and chairman Bruce Davidson pleaded guilty to 10 charges in October. Mr Davidson was sentenced to 9 months’ home detention & 200 hours’ community work, plus $500,000 reparation. Mr Urwin will be sentenced on Tuesday 17 April.

All were charged under the Securities Act over offer documents they signed in December 2006 & March 2007. In addition, Mr Petricevic & Mr Roest faced Crimes Act charges of making a misleading statement in the offer documents with the intent of inducing persons to invest in Bridgecorp or Bridgecorp Investments Ltd, knowing the statement was false.

The Serious Fraud Office has also laid charges against the Bridgecorp directors, which are scheduled to be heard in September.

A big issue in the trial was whether a company called Barcroft Holdings Ltd was a related company – and if it was, telling investors otherwise in a prospectus would have been misleading. Justice Venning found that Mr Petricevic could not have had a genuine & reasonably held belief that Barcroft was not a related party, Mr Roest likewise, but Mr Steigrad was more distant as a non-executive director and could reasonably hold the view that Barcroft wasn’t related to Bridgecorp.

The prospectuses said the 2 Bridgecorp companies sold $77 million of loans to Barcroft under a June 2006 agreement. But, rather than being unrelated, Barcroft was controlled by Bridgecorp directors Urwin & Roest and 7 related-party loans were incorporated in the Barcroft transaction. These included loans on hotels in Australia in which UFB Pacific Ltd (Urwin Fernandez Bridgecorp) was involved, and loans on the Auckland council depot down from Nelson St.

When receivers were appointed to Bridgecorp & subsidiaries on 2 July 2007, 14,500 debentureholders were owed $459 million. Bridgecorp Investments Ltd owed investors $29 million. $107 million was owed by the developers of the Momi Bay resort, which has since been taken over by Fiji’s National Provident Fund, the first mortgagee, with no return to Bridgecorp.

While that’s a very big loss for investors, it would have been bigger if the company had folded in the early stages of its cashflow problems. In June 2006, Bridgecorp had $620 million of loans on its books. Fiji Finance Minister Mahendra Chaudhry said on the Government website in May 2007 that contractors had started pulling out of Momi Bay by October 2006 because they weren’t being paid on time.

In New Zealand, many of Bridgecorp’s finance transactions were far from straightforward. On that point, Justice Venning took issue a number of times with the view expressed by insolvency expert Grant Graham, a partner at KordaMentha Ltd, who identified numerous defects in Bridgecorp advances.

But on one, the council depot development proposal, the judge agreed. Mr Graham said the feasibility analysis was a one-page work-in-progress document, the loan:value ratio at origination was 161%, the loan:value ratio calculation was based on lessee valuations which assumed the resource consents were approved, but at that stage the development didn’t have resource consent.

Justice Venning concluded: “The evidence satisfies me that whatever the commercial justification for the advance, the moneys advanced in relation to the Victoria Quarter project were in clear breach of Bridgecorp’s internal credit approval policies.”

In other cases, though, the judge was satisfied when work-out loans – loans where a borrower had defaulted and the project had been taken over, sometimes enabling Bridgecorp to take a share of profit – didn’t meet internal policies if there were other mitigating factors, such as a good level of presales.

The judge seemed satisfied with these complicated transactions as a means of recouping a return to Bridgecorp or creating an exit strategy, even when it meant subordinating the Bridgecorp loan.

Link: Court decisions

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Attribution: Judgment, story written by Bob Dey for the Bob Dey Property Report.

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