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Lombard directors face stiffer sentences after losing appeal

Thursday 30th May 2013

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All four directors of failed lender Lombard Finance & Investments face stiffer sentences after the Court of Appeal upheld their convictions and agreed with the Crown that Justice Robert Dobson didn't send a strong enough message in the High Court to deter others from the same pitfalls.

Justices Anthony Randerson, John Wild, and Christine French upheld the convictions of Doug Graham, Bill Jeffries, Lawrie Bryant and Michael Reeves, and accepted the Crown's contention that the starting points for their respective sentences was too low which needed to "reflect the gravity of the offending."

All four avoided jail time when sentenced in March last year, when Justice Dobson said the offending was much less serious than that involving other failed finance companies such as Bridgecorp. They had been found guilty of making untrue statements in investment documents and advertisements in late 2007 and early 2008 and the Crown had initially sought jail terms.

"We are satisfied that the sentences imposed on each of the respondent directors were manifestly inadequate," Justice Randerson said in the written judgment.

"By adopting a non-custodial starting point, the judge did not give sufficient weight to the sentencing purposes of accountability, denunciation and general deterrence nor to the serious consequences to those who invested in reliance on the truth of the statements in the amended prospectus," the judgment said.

That meant a sentence of home detention was the lightest that could be imposed to meet the purposes of the Sentencing Act, the judges said.

The Appeal Court won't make a final decision on the Crown's appeal until it has received updated reports on the availability of suitable addresses for home detention.

In turning down the directors' appeal of conviction, the judgment dismissed concerns that including information in the amended prospectus might have sped up the demise of Lombard, as the board's obligation is first and foremost to investors when a public offer is made.

"That obligation overrides the duty directors owe to the company to act in its best interests (where those duties may conflict," the judgment said. "It also means that if the directors cannot be satisfied that the statements contained in the offer documents are true and are not misleading by omission, the offer should not be made irrespective of the consequences that might then flow."

The size of the Lombard failure was substantial, and investors should have been made aware of its precarious position when it was seeking to raise funds in late 2007, the judgment said.

"The investing public is highly dependent upon the truthful disclosure of relevant information in offer documents," the judgment said.

"Failure to meet the required standards has a number of potential consequences: loss of investor confidence; a lack of trust in this country's financial institutions; damage to capital markets and the wider economy; and loss of funds invested by the public," it said.

Some 4,400 Lombard Finance investors were owed $127 million at the time of the receivership in April 2008. The failed company's major asset was a property loan book of 27 loans with a book value of $136.8 million, mostly for bare land subdivisions or development properties. Of the 27, only nine were first ranking security.

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