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Digi-Tech four in the dock

By Deborah Hill Cone

Friday 14th February 2003

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Out-of-pocket investor Paul Davison QC told the Auckland District Court yesterday he would not have signed up for the Digi-Tech investment scheme if he had thought it was anything other than "commercial and legitimate."

Mr Davison is one of 36 witnesses called by the Serious Fraud Office as it outlines its fraud and money laundering case against the four men who concocted the investment product ­ former Milloy Reid Wong merchant banker John Reid, Australian-based lawyer and accountant John Currie, UK-based accountant Peter Connolly and former Gosling Chapman partner Peter Russel.

How the scheme worked: investors signed up for sale and purchase agreements for shares in Wellington firm Digi-Tech with the bulk of the price payable 10 years in the future, as well as taking out an insurance policy guaranteeing the shares' value would treble in that time and receiving a loan to pay for the insurance premium.

One of the questions at the heart of the case is whether the insurance company and bank used in the transaction were bona fide. The Crown claims the insurance and loan transactions were "entirely fictional" and the transactions were a money-go-round with no real loan and no insurance premium paid.

"The so-called financier or bank and insurer were beneficially owned and controlled by Mr Reid and his associates," James Farmer QC, for the SFO, said.

Mr Davison, whose father Sir Ronald was the commissioner who cleared the wine-box tax transactions, said he would not have invested if he thought there was exposure to taxation penalties.

"As explained to me by Mr Russel all the parties involved in the transaction, including the insurance company and the bank involved ... were independent and real corporations and institutions," Mr Davison told the court.

Mr Davison signed up for $1 million worth of shares in Digi-Tech and lost his deposit of $125,000 as well as incurring penalty tax and penalty interest.

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