R v O'Leary
[2013] NZHC 2784
•24 October 2013
IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY
CRI 2012-016-241 [2013] NZHC 2784
THE QUEEN
v
NIGEL GRANT O'LEARY JOHN PATRICK GARDNER
Hearing: 24 October 2013
Counsel: G J Burston and C Dwerryhouse for Crown
J G Krebs for Defendant O'Leary
A C Balme for Defendant Gardner
Sentence: 24 October 2013
SENTENCING REMARKS OF SIMON FRANCE J
[1] This sentencing relates to two directors of the failed finance company, Rockforte Finance. A third director, Mr Colin Simpson, has already been sentenced. I begin by giving an overview of the offending.
[2] On 10 May 2011 Rockforte Finance, a Gisborne based finance company, failed. At the time it owed approximately $3.8 million to 90 investors. Ultimately these investors would recover their individual investments because they were covered by the Crown Retail Deposit Guarantee Scheme. That means that the
taxpayer has borne the loss, with prospects of recovery being very low.
R v O'LEARY & GARDNER [2013] NZHC 2784 [24 October 2013]
[3] Finance companies like Rockforte operate under a trust deed which controls the types of loans the company can make. The trust deed is supervised by an independent trustee who must consent to any departures from the rules. The trust deed is a key mechanism in protecting those who invest in these type of businesses, and in preventing their money being misused.
[4] The directors of Rockforte breached these rules, and hid what they were doing from the trustee. They made loans they were not permitted to make. The rules are there for a purpose. Amongst other things they control the risks by limiting for example, how much the company can lend to any one borrower. That way if the borrower gets into difficulty, the company is not over exposed and can ride out the situation.
[5] In this case the directors breached the rules in two ways:
(a) they exceeded what are called the exposure limits which control how much as a percentage of their assets they can invest in any one borrower;
(b)they made what are called unauthorised related party loans. These are loans to borrowers who have a connection to the directors. It is a common area of concern and the rules are strict.
[6] Concerning the related party breaches, the main situation concerns a firm called Gisborne Haulage. It was originally the recipient of legitimate loans but it got into difficulty. Concerned about what would happen to Rockforte if that business failed, the directors took over ownership of it and then proceeded to advance more loans to help the business get through its difficulties. Because the directors now owned the business these new loans were related party loans, but they were not disclosed to the trustee.
[7] Indeed quite the opposite is true. A relative of Mr O’Leary’s, at his instigation, was introduced so that the relative would falsely appear to be the owner. So active steps were being taken to be deceitful, and prevent the trustees, on whom Rockforte investors depended, from knowing what was happening.
[8] In relation to the other form of rule breaking, the breaches of the exposure limits, this happened in relation to several borrowers, but one needs particular mention. Michael Ward Ltd was a business in which Mr O’Leary had an interest. There was a dispute as to whether it was an ownership interest or just an investment interest. The Crown has not pursued the ownership charge so there is no related party component, but the reality is that loans were made improperly by Rockforte to Michael Ward. What distinguishes this situation from say Gisborne Haulage, Mr O’Leary, is that these loans were not made to protect Rockforte but rather to protect your personal investment in Michael Ward. It is a component of the offending not shared by the other directors and is a main contributor to you being seen as more culpable than Mr Simpson. You put Rockforte at risk to protect your own personal position.
[9] The other offending can be generically described. There are false accounting charges, which relate to a series of nine loans that are falsely recorded so as to disguise their true nature. There are two charges relating to the issue of a prospectus in consecutive years; the falsity is that the prospectus relied on accounts that did not disclose the related party lending and the breaches of the exposure limits. Those accounts were also used when Rockforte sought and obtained entry into the Crown Retail Deposit Guarantee Scheme, and that is the subject of a charge of obtaining by deceit. And finally there are two specific instances of misappropriation of investments where investments of individuals were recorded as having been paid back to them, when in fact they had been illegitimately re-invested, without the knowledge of the victim, in a different entity. This was straight deliberate mis-appropriation of money and should not be misunderstood as anything less dishonest.
Individual charges
[10] I turn to the individual charges to which you have pleaded. Mr O’Leary, you
pleaded guilty before me to nine counts:
(a) five counts (two of which are representative) of theft by a person in a special relationship. One representative count covers the related party loans to Gisborne Haulage. The other counts address different breaches of the exposure limits, with Michael Ward being the subject of its own representative charge;
(b)two counts of a false statement by a promoter, being the charges relating to the issuing of a prospectus;
(c) one charge of obtaining by deception, which is entry into the Crown
Retail Deposit Guarantee Scheme;
(d) one representative count of making false entries.
[11] You were the main person in Rockforte. There is some dispute as to respective roles between you and Mr Simpson. A letter you have filed for today’s sentencing continues to make that point; some of the letters filed by others in your support tend to portray you as a victim of your two co-defendants. I do not know if that reflects how you have communicated the situation, but it is not accepted by the Crown and it was not the basis that was advanced before me when you pleaded guilty.
[12] More importantly Mr Simpson has been dealt with and today is about you. Regardless of his culpability, you were behind all the offending and you deliberately acted deceitfully and dishonestly to protect your own interests. I accept there was some aspect to trying to save Rockforte, but more than Mr Simpson you were also motivated by personal interests. You were a much larger shareholder in Rockforte than him, and you were behind the Gisborne Haulage deceit. The letters filed in your support carry much positive comment about your past efforts and your remorse and I
accept those observations. To the extent they offer comment on your culpability in this offending, they appear to be misinformed.
[13] Mr Gardner, you pleaded guilty before me to:
(a) two counts of theft by a person in a special relationship. These relate to the related party and exposure limit breaches that occurred in relation to Gisborne Haulage. It was also accepted that you had a general knowledge that other related party loans were occurring but did not know the detail, and were not involved in facilitating or implementing them;
(b)two counts of making a false statement by a promoter, being the charges relating to the prospectus;
(c) one charge of obtaining by deception, being the Crown Retail
Guarantee Deposit Scheme offending.
[14] You were a director of Rockforte from the outset. You and Mr O’Leary put up the original money. You were a successful businessman but did not have the finance and accounting background of your co-defendants. The lesser number of charges you face reflects your reduced culpability, but you were complicit in and knowingly involved in the deceit involved in disguising the true situation with Gisborne Haulage.
Victim impact
[15] Although individual investors were spared the fate that has befallen so many around the country, the taxpayer has had to carry the burden of the loss which has come about because of your offending. Further, the liquidator advises that the offending has had an impact on the community. Rockforte was seen as a local business run by local people known in the community and able to be trusted. Your offending has betrayed that trust. I record that material filed on your behalf, Mr O’Leary, disputes this statement by the liquidator but I have no reason to doubt
it, and have mentioned my doubts about the accuracy of the basis on which some of those are commenting.
Starting points
[16] In previously sentencing Mr Simpson I took a starting point of four to four and a half years. That figure captures many factors – the level of dishonesty involved in the offending, the individual motives behind it, the amount of loss caused, the duration of the offending, and the premeditation involved. It also involves the need for on-going denunciation and deterrence. Those who are entrusted with other people’s money must honour that trust. This is not about the risk of investment or bad loan decisions; it is about the absolute requirement, when soliciting people’s money, to deal with that money honestly and in accordance with the rules on which it was invested.
[17] The question today is where each of you stand compared to Mr Simpson:
(a) for you, Mr O’Leary, I focus on your role from the outset, your greater share of Rockforte ownership, your personal interest in Michael Ward and your deceitful acts in relation to Gisborne Haulage. These are components that make your situation more serious than Mr Simpson and I take a starting point of five years;
(b)for you, Mr Gardner, your role and responsibility is plainly much less but it is not minimal, and many of the core culpability factors remain, albeit over many less charges. You are not involved in Michael Ward, nor in the false accounting, and for many of the related party loans your involvement was at the periphery. For you I take a starting point of two years six months’ imprisonment.
[18] At this point I focus on the individual outcomes for each of you.
Mr O’Leary
[19] Mr O’Leary you are you are 57 years of age and married with two adult children. You have previously had an offending free past and are assessed as having a low risk of re-offending. This offending has had personal consequences as, having previously been a very successful businessman, you are now bankrupt.
[20] I comment first on the guilty plea. A minimum of 10% has been indicated. Today Mr Krebs seeks more, while the Crown submits that 10%, though available, is generous and resists the idea more is possible. The plea came but two days before the start of a delayed trial. Mr Krebs has referred to an evolving case, with changes occurring once Mr Simpson decided to testify as a Crown witness and the disclosure in early September of the Crown’s expert accounting evidence. The charges ultimately changed as well, but this was really a consolidation rather than anything substantive. You have focussed on the dropping of the related party charges on Michael Ward as pivotal. I do not see that anything significant occurred that supports departure from the reduced credit available for such late pleas. To the extent the changes such as Mr Simpson testifying strengthened the Crown case, whilst that might explain the change of heart, it does not support greater credit. The accounting evidence is not in my view overly significant and the reality with Michael Ward is that you did have significant investments in it and Rockforte money was improperly advanced to it. That never changed. I remain of the view that
10 per cent is the most available credit for the plea.
[21] As for other factors of mitigation, I accept there is remorse. I understand why the Crown has queried this, given the tenor of some of what has been filed. The pre-sentence report writer noted you appeared to minimise your responsibility. I believe there is still some of that, particularly in your comments on your co-defendants, and indeed also in how you calculate that your offending has cost each New Zealander $1. That could be taken as you recognising the scale of the offending, or alternatively as minimising the scale of the loss and I am not entirely convinced it is the former. However, you have made efforts Mr O’Leary to contact investors to express remorse and assist them, and you have not shielded your own assets.
[22] I accept you have not walked away from your responsibilities and the impact of your offending on you and your family has been great. You have not previously offended, and have been a solid citizen for a significant period prior to the present offending. It, however, spanned a period of more than 30 months and was repeated; there is strength in the Crown submission that the credit for previous good character is thereby lessened. On balance I do not consider it expunges all ability to recognise your previous contributions. The letters of support evidence the various community activities you have contributed to over the years. I propose to allow six months for all these factors. That is as much as could be expected, but it is recognition of past contributions and the reality that the offending has had a significant impact on your personal situation as well. Six months reduces the starting point to four years six months. Then, applying the 10 per cent discount for the plea, one arrives at a final sentence of four years.
Mr Gardner
[23] Mr Gardner you are 60 years of age. You are married and before this offending had built up your own business. One consequence of what has happened is that you are yourself bankrupt, and it is apparent you are embarrassed and genuinely remorseful about what has happened. That has been re-emphasised today in court and I accept it is genuine.
[24] There is general agreement that a 20 per cent is at least available. That represents 15 per cent for guilty plea and five per cent for other factors including remorse, your previous good character, and the effect the offending has had on you.
[25] Today, Mr Balme urges a greater discount based on your previous good character, the support you enjoy, and your largely offending free past. I cannot agree. I have no desire to be unduly negative here but am forced to observe you do have five previous convictions. They are not for this type of offending but there are three drink driving convictions. Likewise I accept you have otherwise been a solid citizen, contributing both time and money to various mainly sports related areas. However, overall 20% is the appropriate response as a package to these factors and your plea, given its lateness.
[26] The final sentence is, therefore, one of two years’ imprisonment which brings you within the range where home detention is available. That was the outcome for Mr Simpson and I see no reason to differ with you. It will need to be a stern sentence because it is important to continue to hold directors in your situation accountable for their dishonesty and breach of the rules designed to protect investors.
[27] However, I am satisfied that you will comply with all the restrictions, that a mixture of home detention and community work is sufficient deterrence and that this type of sentence is the best balance for the various drivers that exist. You will be sentenced to 11 months’ home detention and 200 hours community work. This is a long period of home detention, but anything less would be insufficient for this offending.
[28] Please stand. [29] Mr O’Leary:
(a) on the five counts of theft by a person in a special relationship I
sentence you to four years’ imprisonment;
(b)on the two counts of making a false statement by a promoter, the charge of obtaining by deception and the charge of making false entries, I sentence you on each to 20 months’ imprisonment;
(c) all sentences are concurrent meaning an overall sentence of four years’ imprisonment.
[30] Mr Gardner:
(a) on all five counts to which you have pleaded I sentence you to a sentence of 11 months’ home detention and 200 hours community work;
(b) the home detention sentence is on the following conditions:
(i)to travel directly to 60 Endcliffe Road, Gisborne, and wait there until your home detention connection is completed by a probation officer and security officer;
(ii)to reside at 60 Endcliffe Road, Gisborne, and to not move from that address, without the prior written approval of a probation officer;
(iii)to remain at 60 Endcliffe Road, Gisborne, at all times, unless an absence from the residence has been authorised by a probation officer;
(iv)to abstain from the consumption of alcohol, and illicit drugs for the duration of your sentence of home detention.
Solicitors:
Luke Cunningham & Clere, Crown Solicitors, Wellington
J G Krebs, Barrister, Napier
Tony Balme Law, Tauranga
Simon France J
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