Blue Chip investors' battle for justice

Tasman Mortgages was wholly owned by the Blue Chip parent company in 2005 and 2006, and enabled many investors to borrow against their homes in order to invest in the schemeā€¦"How in God's name do people with no income in their 70s and 80s with no assets get hundreds of thousands of dollars in loans?".

The New Zealand Herald
May 3, 2008

Blue Chip investors' battle for justice
Maria Slade

A central North Island couple living on the pension face ruin because their mortgage has mysteriously blown out from $200,000 to half a million dollars following their investment in a Blue Chip "joint venture".

The $247,000 deposit a Taupo couple put down on two Auckland apartments has vanished, while the apartments themselves are now being developed by an unrelated company for new investors. They too are having to sell their home.

While these tales of woe may have become depressingly commonplace since the collapse of the Blue Chip structured property investment scheme, one thing has become obvious - the stories are more than examples of an investment gone sour.

It's now 2 1/2 months since the first 19 Blue Chip-related companies were placed in liquidation. So who, exactly, is investigating whether investors have been the victims of dishonest activity?

There have been cries about the Government abandoning the estimated 4000 people who have lost at least $84 million. There is the appearance that the founders of the scheme have emerged from its ashes unscathed.

The structures in place in this country for investigating corporate wrongdoing are convoluted. At least four different agencies could have a go at picking apart aspects of the Blue Chip tangle. That's aside from a range of private civil actions in the wind.

Place that arrangement alongside the complex, diverse and unwieldy set of problems that characterise the Blue Chip collapse and it's far from clear who should be in charge of determining what went wrong.

The Securities Commission is limited in what it can do about Blue Chip because it was property investment. Property is not covered by the Securities Act, the main piece of legislation the commission uses.

Commission senior counsel Liam Mason says if you invest in shares in a property company, for example, then the commission has an enforcement role. But "if part of your investment is that you should get title to the property, then that's just excluded from the act", he says.

The agency is keeping in touch with the Blue Chip liquidators to find out whether there are any parts of the deals that come under securities legislation, but other than that Blue Chip is not its turf, Mason says.

The National Enforcement Unit of the Ministry of Economic Development investigates offending by company directors under the Companies Act.

However it can only act on complaints from liquidators, receivers or administrators. Just four relating to Blue Chip have so far been made.

The liquidators of 21 Blue Chip-related companies have complained that scheme co-founder Mark Bryers didn't attend the March 26 creditors' meeting as he was required to.

The administrators of a 22nd Blue Chip-related company, Swordfish Lodge Management, have this week complained that Bryers, as the sole director of the company, failed to give them a statement about its affairs and also did not turn up to a creditors' meeting. They also say Swordfish failed the solvency test under the act by having more liabilities than assets.

The liquidators' ability to investigate the Blue Chip setup is limited by how much money is in the pot for them to be paid. Liquidator Jeff Meltzer has said there is "no pool of funds available in any of the Blue Chip companies in liquidation". However, he said the liquidators had obtained funds from a special account administered by the Registrar of Companies to investigate "possible areas of recovery".

Looking at whether aspects of Blue Chip's operation breached the Fair Trading Act is the Commerce Commission's domain. It has received a raft of complaints from property commentator and consultant Olly Newland, who is acting on behalf of a group of investors. It has handed over all the information to the Serious Fraud Office.

Commission chair Paula Rebstock says: "It's clear to us in this case that there's a course of conduct there that is best investigated as a whole."

While the commission is concerned with whether there's been misleading conduct, that would appear to be the tip of the iceberg. "It doesn't really get to the heart of the issue if you just attack the misleading conduct," Rebstock says. "We're looking for the most effective way to have this matter investigated. The Serious Fraud Office is best placed to do that."

Which places the Blue Chip ball firmly in the soon-to-be disestablished SFO's court.

SFO investigators are due to report back to director Grant Liddell on the matter next week.

Liddell says the SFO has spent "a substantial amount of time and resources" on Blue Chip since the February liquidations.

"We have had over 150 investors contact us and have made a large number of inquiries concerning the issues in this case, and we're nearly at a point where I will determine whether an investigation using our statutory powers ought to proceed."

The Weekend Herald understands an investigation is likely, and if it does go ahead will be among the biggest the SFO has ever undertaken. With about 4000 investors, 53 Blue Chip-related companies and $84 million in lost funds, any resulting prosecutions will be a long time in coming.

This would also occur as the SFO is scrapped and its functions are absorbed into the police's new Organised Crime Agency. The controversial merger was due to be completed by July 1, but recent reports indicate the Government won't pass the legislation in time to meet that deadline.

Olly Newland sincerely hopes the SFO "will see what is plain for everybody else to see" about Blue Chip.

The nature of Newland's complaints to the Commerce Commission covered a number of areas, including:

  • Investors were told their deposits were insured, when no such insurance existed.
  • Investors' deposits were put into accounts that bore the word "trust" but which were not trust accounts in the legal sense. Deposits were then transferred to other concerns within the Blue Chip structure.
  • Investors were promised title to apartments that never eventuated - sales were settled on properties that did not have a code of compliance, effectively leaky buildings.

Newland also says the role of Tasman Mortgages needs to be examined.

Tasman Mortgages was wholly owned by the Blue Chip parent company in 2005 and 2006, and enabled many investors to borrow against their homes in order to invest in the scheme

Tasman Mortgage brokers would attend sales meetings with prospective Blue Chip clients. "How in God's name do people with no income in their 70s and 80s with no assets get hundreds of thousands of dollars in loans?" he asks.

Paul Dale, a barrister acting on behalf of about 250 Blue Chip investors, adds that a raft of allegations surrounding Blue Chip's business practices need to be investigated - such as claims of inflated valuations on apartments, and the flow of money through Blue Chip-related companies.

A PricewaterhouseCoopers report from 2005 says Blue Chip Financial Solutions advanced substantial deposits from investors on an unsecured basis to Ingot Holdings, a development company owned by Bryers.

"Tasman's not in liquidation. Ingot's not in liquidation. That's the problem," Dale says. "One way or the other there needs to be a thorough and comprehensive investigation and I just think that's difficult to do when some companies are under the liquidators' control and some aren't."

Dale has long called for the Blue Chip group to be put into government-ordered statutory management, because "a co-ordinated investigation is still what's required".

Meanwhile, Dale is about to launch a range of civil proceedings. One aims to get hapless investors out of onerous Blue Chip deals that have left them holding sale and purchase agreements on apartments they have no way of affording.

A company called Consolidated Technologies is suing Bryers for $13.6 million plus $6900 daily interest since October over subdivisions at Gulf Harbour.

It is also understood Inland Revenue is taking a keen interest in Bryers' affairs.

The tragedy is that little of it will help the hundreds of investors whose homes are on the line.

RETIRED PAIR HAVE TO SELL
A Central North Island retired couple are being forced to sell their home and their Blue Chip investment apartment because they can't service their mortgage of half a million dollars.

Lois and Robert, both 69, took out a mortgage of $214,000 on their house three years ago for a $485,000 apartment in Kingsland, Auckland.

The idea was the income from the Blue Chip "joint venture" would supplement the pension.

Late last year, a mysterious $1800 started going in and out of their account each month. "We were told that they were reshuffling things round because the Inland Revenue were looking at joint ventures," Lois says. "Then it was $1800 twice. Then they weren't paying anything."

Somehow - the couple still don't understand how - their mortgage swelled to $511,000.

They had also been told there was insurance in place in case this sort of situation occurred. "There was no such thing at all," Lois says.

When the rental income stopped and they received rates demands from the Auckland City Council, they found the Council Valuation on the property was just $385,000.

Mid-50s Taupo couple Janice and Keith are also having to sell their house to repay the $247,000 mortgage they used to fund deposits on two Blue Chip apartments.

The apartments don't exist and neither, seemingly, do the deposits.

In November 2004, the couple were promised the apartments in the central Auckland Turner and Waverley development would be finished in three months. "We were expecting to settle within six months," Janice says.

The development, now called Bianco, is being built by another company that has no knowledge of the couple's money.

The names of the people in this story have been changed

WHO'S WHO?
SECURITIES COMMISSION:
Investigates offences under the Securities Act. Property schemes such as Blue Chip are not covered.

NATIONAL ENFORCEMENT UNIT:
Acts on complaints from liquidators and receivers under the Companies Act. Has received four Blue Chip-related complaints.

COMMERCE COMMISSION:
Investigates offences under the Fair Trading Act. Has handed all Blue Chip information over to the Serious Fraud Office.

SERIOUS FRAUD OFFICE:
Investigates offences under the Crimes Act.
Is about to decide whether to begin an official investigation into Blue Chip.


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