Share Investor: Allan Hubbard Saga: Third Grant Thornton Report reveals more dirt

Friday, October 1, 2010

Allan Hubbard Saga: Third Grant Thornton Report reveals more dirt

With the release of the third Grant Thornton Report today the public has got a much better view of what Allan Hubbard and his fellow directors have been up to over at the now defunct Aorangi Securities, Hubbard Management Funds and numerous other business entities put into statutory management a few months ago.

While Thornton Reports 1 and 2 outlined the main points at issue in the case against Allan Hubbard, Report 3 gives us the detail and further evidence. Unfortunately because of the way Allan Hubbard eschewed paperwork, much of the detail has yet to come forth and may not be revealed at all, as there are simply no records on many loans and we would have to rely on the generosity of borrowers to put their hands up and identify themselves. Really who is going to do that.

What we see in the third report are the following main points:

* Aorangi previously advanced Southbury Group Limited (“Southbury”) the sum of $10 million. Southbury’s principal asset appears to be its interest in South Canterbury Finance Limited. Since the last Thornton Report South Canterbury Finance has been placed in receivership. The consequence of that is that Aorangi's investment in Southbury Group is unlikely to be recovered.

* Most assets held by the various entities in Statutory Management have been well overvalued.

* Accounts are either missing, were never in place or confusing.

* The possibility exists for a 23c return on the dollar to investors in Aorangi sometime in the future.

*Securities and assets were used as security for 3rd parties that had interrelated ties and therefore material to other investors easily getting their money back.

* Investments made by Hubbard were high risk, high return.

* Most assets were highly illiquid and therefore had to cash up when needed by investors.

* The majority of shares held were of the unlisted variety which are difficult to sell, especially in a depressed market.

* Many loans made inter-party were given security from other Hubbard related business entities - highly risky

* Hubbard Management Funds made big loans to Allan Hubbard's private businesses.

The worst part of this report reveals in more detail that Allan Hubbard built his investments on the foundations of a very large interrelated domino game. That is to say loans were made here, to related businesses there and if one fell, as they did months ago, the other had the distinct possibility of falling as well.

The other poor reflection on Hubbard was his lax and illegal accounting practices. No paperwork for some loans and he relied on his borrowers to be honest and pay back this and that whenever they could! Now that is not "old fashioned business done with a handshake" as he calls it, and his supporters would back up, it is plain and simple stupidity and very high risk. Old fashioned business did do business with a handshake but they always did the paperwork.

So much for looking after peoples money like it was his.

I am of the view now that the statutory managers have uncovered enough facts -as they are - to pass on their findings, the relevant information to the appropriate regulatory bodies, including the Serious Fraud Office, as to enable prosecution of Mr Hubbard and whoever else was involved in his various financial shell games. I am not confident that Mr Hubbard and his fellow travelers will get their just deserts but at least now charges can be brought and we can see the process proceed from here.

Meanwhile the Serious Fraud Office is finalising its second interim report over the fraud case against Hubbard and multiple business entities and would be considering three options: charging Mr Hubbard, continuing the investigation, or closing it.

Another report from Grant Thornton will be released at the end of October and it is likely to be the forth of many more to come.