Pacific Syndicates head denies charges

Press, 19 July 1983, Page 4

Pacific Syndicates head denies charges

Nine charges involving $555,835 alleging theft by misapplication, theft by failing to account and issuing false prospectuses were denied by an Auckland company director in the High Court yesterday. The trial of John Graham Williams before Mr Justice Hardie Boys and a jury is expected to take a week and a half but was originally set down for three weeks. Messrs P. G. S. Penlington, Q.C., and Mr G. K. Panckhurst appear for the Crown and Messrs B. McClelland, Q.C., and G. C. Gotleib, of Auckland, for Williams. The whole of the first day’s proceedings was taken up with the opening address. Opening the Crown case, Mr Panckhurst said the charges — three of theft by misapplication, three of theft by failing to account and three of issuing a false prospectus — all arose from the commercial activities of Pacific Syndicates (N.Z.), Ltd, which was incorporated in Christchurch in mid-1970 with Williams and David John Stewart Reid as the two directors. Evidence would establish that from the foundation of the company until 1977 when it ceased to operate, Williams was its manager and was responsible for its day to day operation. After its inception, the company was involved in the syndication of real estate projects. Glossy brochures were produced inviting the public to subscribe. It enabled persons “less well off” to invest in the property boom which was occurring about that time. The brochures gave details of the various schemes, the land to be acquired and the developments to be put on the properties, such as ownership or rental flats, factories, or motels. The construction work was to be undertaken by H. P. Holt, Ltd. After three months, the investors were to be paid interest of 10 per cent at three monthly intervals. Pacific Syndicates was to promote the schemes, publish the brochures, receive

the investments, arrange the construction and then finally sell the completed developments. Each syndicate was to be an on-going affair with profits being invested in a further project. Pacific Syndicates obtained a profit from admin-, istration charges and a percentage of the final capital profit, Mr Panckhurst said. That scheme was operated for three years and there were no charges against Williams arising from the promotion of the real estate syndicates during that period. The scheme did form an important background to the alleged offences which occurred later because Williams gained a good deal of experience in the field of management of funds invested by the public. By the end of 1973, a number of real estate projects had not been completed and the investors had not received interest or final payments. In 1973, the Labour Government passed the Syndicates Act which imposed stringent restrictions and controls on syndicate promotions but these did not come into force until January 1, 1974. The act required a statutory trustee, independent of the promoters, to be appointed to receive the money from the public and to put it in a separate bank account for each scheme. A deed of trust had to be drawn up outlining the rights and safeguards for the investors. Instead of meeting the requirements of the Act, Pacific Syndicates changed its method of operations and moved into two new fields — contributory mortgages and exotic cattle schemes which were promoted from late 1974 to late 1976. The nine charges against Williams referred to five of those schemes — three to contributory mortgages and six to cattle syndicates. Dealing with the charges involving ’ the Parklands Private Hospital Contributory Mortgage Scheme, Mr Panckhurst said that Parklands Private Hospital, Ltd, was incorporated in August

1972 with Williams, Reid and Holt as directors. The company built a geriatric hospital on land in Papanui Road and planned a similar one on a property in Cameron Street, Ashburton. Late in 1974, Pacific Syndicates issued a brochure which was printed by a company in the same building in Worcester Street. The brochure stated that the hospital in Papanui Road had been operating for more than 12 months, and the demand for beds had been extremely high and extensions were planned to raise the capacity by 32 beds to 90. It was anticipated that the 32-bed hospital in Ashburton would be completed in June, 1975. Extensions at Christchurch were estimated to cost $300,000 and the final cost of the project would be $BOO,OOO. There was a first mortgage of $236,000 and the funds received would be secured by a second mortgage. Both mortgages would not exceed 75 per cent of the registered valuation. The same applied to the Ashburton project. All investments would be administered by Pacific Syndicates Nominees (N.Z.), Ltd. which would act as trustees. The mortgage would be for three years when all the capital would be repaid in full. The brochure stated: “Make your savings work for you as well as for the care of the aged. Subscribe now to this secure and lucrative investment.” Investments made by patients or intending patients would enable them to receive fee benefits instead of interest payments on their investment, the brochure said. Interest rates were 12 per cent a year. The minimum investment was $lOOO and thereafter in multiples of $lOOO. There was no restriction on the amount one person could invest. At the back of the brochure was an application form which stated that the investor authorised Pacific Syndicates Nominees (N.Z.), Ltd, to utilise the investment in the terms outlined in the brochure, Mr Panckhurst said.

However, the scheme raised only $48,000 and not the $540,000 required to complete the two hospital projects. The money was received from four persons and the amounts they put in ranged from $lOOO to $25,000. Those funds were received between November, 1974, and March, 1975. It was the Crown’s case that that was trust money which was only to be used for the schemes detailed in the brochure. Williams was well aware of the position because of the statements in the ;brochure which he drew up. It was beyond argument that the money was paid over for specific purposes and could not be used in any other way. Proper mortgage security had to be provided. But in fact, the nominee company was never formed and the money was paid into the hands of Williams and the account of Pacific Syndicates at the Bank of New South Wales. The first $5OOO was used in December, 1974, to clear a company overdraft of more than $4300. Two investments of $20,000 and $23,000 each received in February and March, 1975, were deposited in Pacific Syndicates Simmental Cattle Investment Account and the $43,000 was withdrawn a few days later. An accountant, John Edward Barton, investigated the Simmental account in 1976 and found that a distinct pattern emerged. The cheques drawn on that account were signed by Williams. The money was not used for the hospital projects but was spent “willy-nilly” to satisfy the day-to-day running expenses of Pacific Syndicates. By May 12, the account had almost been bled dry and contained only $2500, the $43,000 having disappeared. The money had not been used for the purposes for which it had been invested.

An examination by another accountant, Michael John Keyse, in 1976, showed that Pacific Syndicates owed Parklands Hospital $125,000. It was most significant that Williams was a director of both companies. That meant that he wore two hats. The same people were running the two companies.

The Crown alleged that the money was used contrary to directions and that the misapplication was in violation of good faith and was fraudulent. It was a deliberate misuse of funds for other purposes not specified in the brochure. Williams was charged with misusing money while in a position of trust. He was not charged with stealing the money. Dealing with the third charge involving $lOB,OOO, Mr Panckhurst said it related to the Commodore Contributory Mortgage Scheme which was launched with a brochure similar to that for the Parklands project. It was promoted towards the end of 1974. Chateau Commodore (Hotels), Ltd had been established under a different name in 1972 with Williams, Holt and Reid as directors. It was engaged in hotel projects at Christchurch, Blenheim and Timaru..

The brochure also sought funds for the Parklands Hospitals at Christchurch and Ashburton so that there was an element of doubling up from the previous scheme. Investors were provided with a booklet of post-dated cheques to cover interest payments which were at the rate of 15 per cent. The investments were to be handled by a trustee company, Commodore Investment (Nominees), Ltd, according to the brochure. That investment proved to be more popular than the previous one and between December, 1974, to May 1975, 62 persons invested a total of $lOB,OOO in amounts ranging from $lOOO to $7OOO. It was the Crown’s case that the funds were not secured by mortgage, no trustee company was ever set up and the money was paid into Pacific Syndicates Simmental Cattle Investment Account. Then most of the money was withdrawn for purposes which had not been authorised — mainly for cattle expenses. Investors had been told that at all times their money would be protected but that was not the case. In 1976, one year after the last of the funds were received, Mr Barton made a search of land titles to ascertain what mortgages had been arranged to secure the total of $156,000 which had been obtained from the public. A second mortgage of $25,000 was found on land at Ashburton. It was in favour of Pacific Syndicates but that had been later changed to a third mortgage which was outside the terms of the investment. Land belonging to Pacific Syndicates in Sherborne Street was subject to a second mortgage for $13,000 but this was in favour of Williams personally. A caveat in support of an unregistered mortgage for $20,000 in favour of Pacific Syndicates had been put on Parklands Hospital land in Christchurch but that had not been registered until October, 1975. During police inquiries, Reid, one of the original directors of Pacific Syndicates, was interviewed. He would give evidence that Williams was the manager of Pacific Syndicates. Reid would say that in August, 1975, he became aware of the disposal of Parklands-Commodore money without the required security. On August 25, he wrote to Williams stating that he had no option but to resign as a director. In October, 1975, a meeting was held in the office of a Christchurch solicitor at which Williams, Holt and Reid were present. It was decided that a second mortgage be taken over a substantial house Williams was having built in Jacksons Road in favour of Reid as trustee for Commodore investors. It was the Crown’s contention that this was a belated attempt to repair the damage “after the horse had bolted.” What it amounted to was an admission by Williams that investors’ money had not been used, and mortgages taken, as required by the brochure. Williams had received $lOB,OOO which had been used in an unauthorised way and which had not been secured as had been promised, Mr Panckhurst said.

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