Two directors of the failed Nathans Finance company were jailed in the High Court at Auckland today, and one of their colleagues was sentenced to a term of home detention.
Company chairman Kenneth (Roger) Moses was sent to jail for two years and two months and ordered to pay $425,000 in reparations. Fellow director Mervyn Doolan was sentenced to two years and four months, with reparations of $150,000.
Donald Young, considered by Justice Heath to have been the least culpable of the directors, was sentenced to nine months home detention, plus 300 hours of community work and ordered to pay reparations of $310,000.
Moses, Doolan and Young were found guilty on five charges of breaching the Securities Act in July after a marathon 12-week trial in the High Court at Auckland earlier this year.
Financial Markets Authority chief executive Sean Hughes said the sentencings sent a clear message that the courts regarded untrue statements in issuers' offer documents as a serious breach of the law.
"The guilty verdict in this case, and the penalties imposed, show financial markets participants can expect to be held accountable for their conduct,'' he said.
Nathans was placed into receivership in August 2007, owing more than 7000 investors $174 million.
While found guilty on five charges, the men were acquitted on one other.
In sentencing them today, Justice Heath said their performance was inept but not dishonest and far below the standard any investor would expect.
Justice Heath said it directly caused massive financial loss to investors with consequences for their health.
He said the reparation orders should be regarded as a sentence in themselves, not "a way to buy someone out of a prison sentence''.
Crown lawyer Colin Carruthers, QC, this morning argued that the starting point for sentencing should be four year jail terms. Lawyers for the directors told the court that home detention would be more appropriate.
Carrithers said the directors had painted a picture of a finance company in good financial health but there was ``a stark contrast between what was said and what the true picture was''.
Moses earlier offered reparation of $425,000, while his lawyer acknowledged that this was "a small sum'' in contrast to the extent of losses suffered.
Doolan offered reparation of $150,000, which his lawyer Nathan Gedye said had been borrowed from family and friends. Bankruptcy was now "virtually inevitable'', said Gedye.
During the trial, the directors defended allegations that they issued untrue statements about related party lending to VTL, the quality of Nathans loan book, its loan management practices and its management of liquidity.
Nathans Finance was set up as an investment vehicle for VTL, a vending machine business.
Justice Heath earlier said the combination of statements and material omissions conveyed a false impression to investors about the true nature of Nathans' business, the true state of its financial health and the risks of investment.
Former Nathans Finance director John Hotchin was excused from the trial after pleading guilty to breaching the Securities Act in February.
He avoided a jail sentence in part because he agreed to cooperate with the Crown and testify against his former colleagues.
He received 11 months home detention, a $200,000 fine and 200 hours of community service.
Nathans acquired funds from the public by offering debt security in the form of debenture stock.
Nathans was primarily set up as a subsidiary and funding vehicle for its parent company - a vending machine business with operations in New Zealand, Australia, the United States and Europe.
When Nathans was placed into receivership in August 2007, owing more than 7000 investors $174 million. VTL suffered the same fate in November 2008.
The Crown said this case demonstrated the risks associated with related party lending from a subsidiary to its parent and its parent's interests.
