By Deborah Hill Cone
Friday 14th February 2003
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Behind the bench: two justices of the peace, neither of them lawyers.
At issue: whether the Serious Fraud Office can prove a prima facie case of fraud and moneylaundering against tax maestro John Reid and three other businessmen involved in the Digi-Tech investment scheme.
This extremely complex depositions hearing got off to an inauspicious start in the Auckland District Court Monday, with the JPs Barry Lepper and Donald Harrow not recognising James Farmer, possibly the country's most famous QC, and confusing him with another lawyer Chapman Tripp's Murray Gilbert, acting for Mr Reid.
Once they had that sorted out they showed they were not to be underestimated "their worships'" first ruling was to knock back Paul Wicks, lawyer for Australian-based defendant John Currie, with an order that a warrant be issued for his client's arrest if Mr Wicks did not provide submissions by the end of the day to excuse Mr Currie.
There was a sense of absurdity to the start of the seven-week depositions the legal equivalent of using a sledgehammer to crack a nut.
Is it really necessary to have a dress rehearsal of the case entailing almost as much work as the case proper?
Even one of the defendants muttered it was a foregone conclusion it would go to a full hearing and all the lawyers seemed to be in agreement: "There has to be a better way to get an exchange of documents."
But Dr Farmer spared no effort in his opening of the SFO's case the written version running to the length of a good thriller, containing just as many blockbuster elements. He started with a description of the charges against Mr Reid, Peter Russel, Peter Connolly and John Currie conspiracy to defraud the public through the Digi-Tech and NZIL investment schemes.
Mr Reid, Mr Russel and Mr Currie are also accused of laundering money obtained by fraud. They could go to jail for seven years if found guilty of fraud and five years for moneylaundering.
The Digi-Tech investment scheme, put together by Mr Reid in 1995, involved a 10-year sale and purchase agreement for investors to buy shares in Wellington electronics firm Digi-Tech. Most stakes were for $1 million but investors did not have to part with much cash upfront the bulk of the purchase price, 83.5%, was payable only in year 10.
Investors were offered the option to take out a loss-of-profits insurance to cover them in the event the $1 shares were not worth $3 at year 10, ostensibly "de-risking" the investment. To pay for the $1 million insurance premium investors would stump up with $40,000 and borrow the balance from an offshore bank, all part of a deal set up by Mr Reid and his cohorts.
The benefit for the well-heeled investors was that the premium and interest payments on the loan could be offset against existing income although later those deductions were disallowed by the IRD.
But the SFO's case is that the insurance policy and the bank loan were shams and no premium was ever paid.
Dr Farmer outlined the SFO's case, showing how the defendants used several of their own companies and unsigned transferable certificates of deposit (TCDs) to give the impression a loan was being obtained and an insurance premium paid. The TCD went from a Currie-controlled company Asian Growth Fund to so-called insurer Epicharmus to so-called underwriter Swiss Underwriters Group and back to Asian Growth Fund.
"No real insurance premium was paid, there was no loan money to pay it with and no real insurance," Dr Farmer said.
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