The former trustee of a defunct South Auckland pokie trust has been ordered to pay back almost $1 million by the High Court, in a move set to cause shockwaves through the industry.
In a High Court decision last week, the South Auckland Charitable Trust, trustee Alvin Shane Cosgrave and his company, Integrated Commercial Solutions Ltd (ICSL), were ordered to repay $975,629.39 to the Department of Internal Affairs - which has declined to comment on the case.
The trust, which was licensed in 2003, operated gaming machines in the South Auckland area until Internal Affairs became concerned over its operations and did not to renew its licence in 2007.
Rather than appeal, the trust sold its poker machine operation to another trust, The Lion Foundation, on June 30, 2008.
However after reviewing its financial statements, a forensic accountant for Internal Affairs noted a "significant increase in the trust's operating costs" for the last 13 months of its gaming machine activities.
The judgement said payments identified included a change in the management agreement between Cosgrave and ICSL - two months after he was told the trust's licence would not be renewed. The new agreement included increases in the company's charges for gaming machine services, and compensation payable in the event of any early termination of its contract.
This early termination clause was triggered when the trust decided not to appeal against its licence not being renewed, and its assets were transferred to Lion Foundation.
Compensation was paid to ICSL in three payments totalling $766,782 including GST.
Payments from the trust to Cosgrave's company Clendon Inn 2007 Ltd (CIL) were also identified, including $75,202.25 used for the day-to-day running of the Manukau-based pub and restaurant, the decision stated.
According to the High Court judgement, Cosgrave admitted in an interview with Internal Affairs to signing all three cheques, and using the funds "for his own personal gain".
The trust also paid $45,202.25 for building work at the Clendon Inn, and $44,004 for a fit-out of the pub's gaming room, with additional payments for legal services ($10,750) and vehicles ($5494).
Internal affairs took a civil case over the payments. It was the first case under section 112 of the Gambling Act.
The decision found the payments were not "actual, reasonable or necessary".
"The monies paid were in fact part of the trust's 'net proceeds' ... required by the Act to be distributed only for authorised purposes." The Gambling Act 2003 states pokie trusts must conduct gambling to raise funds for "authorised purposes", and the use of funds for unauthorised purposes can lead to prosecution or licence cancellation. Authorised purposes include charities, and non-commercial purposes of benefit to the community.
Problem Gambling Foundation of New Zealand chief executive Graeme Ramsey said the High Court decision has established a precedent and he expected other cases to follow.
"When I read this judgement it was very clear. It said that the money from pokie machines must be used for community purposes."
The case illustrated the "system is open to rorts and the system is getting rorted".
Cosgrave is also facing nine theft-related charges arising out of the Department of Internal Affairs investigation.
