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Doug Graham, former Lombard directors, to face civil proceedings in High Court

Tuesday 13th April 2010

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Former directors of failed Lombard Finance & Securities Investments, Douglas Graham, Michael Reeves, William Jeffries and Lawrence Bryant, have been issued civil proceedings by the Securities Commission.

Lombard went into receivership on April 10, 2008, owing approximately $127 million to about 4,400 investors, and it is unlikely that secured debenture holders will receive more than 30% of their investment back. Unsecured creditors are likely to receive nothing.

“The Commission alleges that Lombard Finance & Investments’ offer documents and advertisements misled investors by misrepresenting the investment risks, especially in relation to liquidity, the quality of the loan book, adherence to credit policies and the company’s overall financial position,” Commission chairman Jane Diplock said.

The Commission alleges that the directors made false statements in the registered prospectus dated September 7, 2007, as amended by a memorandum of amendments dated Dec. 24 2007 and investment statements dated December 28 2007. These documents stated the company’s financial position had not materially and adversely changed since the company’s last balance date, and didn’t properly refer to adverse circumstances. Additionally, the Commission alleges that a DVD advertisement distributed during 2007 and 2008 contained similar untrue statements on the company’s financial position.

The Commission has applied for declarations of civil liability and civil pecuniary penalties of up to $500,000 against each of the current four directors. A declaration of civil liability is conclusive evidence that can be relied upon by either the Commission or investors themselves in any subsequent claims against the directors for compensation.

The Commission will consider pursuing compensation claims in due course should it be in the public interest to do so.

Former Lombard chairman and director Douglas Graham said “the directors do not accept the allegations of the Commission and will be defending all the proceedings.”

“The prospectus was prepared by management, commented on by the auditors and solicitors and then accepted by the Companies Office. The document was sent to the Trustee. None of these advised the Board of any concerns with the final warning,” Graham said. “Finally, I must record my dismay that it has taken 2 1/2 years to make the allegations and very disappointed the Commission has never raised with me any concerns it had over the prospectus prior to filing proceedings.”

Graham said as the matter was now before the Wellington High Court he would not be making any further comment.

Lombard Group, the finance company’s parent, today completed its full-takeover of Australian Consolidated Insurance in a reverse-takeover bid for the Perth-based insurer to do a back-door listing on the NZX. Once the terms of the deal are completed, Lombard Group will be rebranded Insured Group and launch a new prospectus.

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