Sunday, July 3, 2011

Allan Hubbard Saga: 7th Grant Thornton Report - Aorangi Securities

The Seventh Grant Thornton Reports (there are two separate ones for HMF & Aorangi) into Allan Hubbard's Aorangi Securities Limited and Hubbard Management Funds which are the investment vehicles that Allan Hubbard has been charged with fraud over makes for grim reading for Hubbard and investors in the two failed entities which are now in statutory management.

These latest reports cover off some of the detail of fraud charges that have been brought to the Timaru High Court by the SFO just a few weeks ago after over a year of meticulous investigation.

Lets look at Aorangi here and we will cover off HMF in a separate post.

Investors may receive 8c in the dollar in July but this is defendant on a refinancing loan due at the end of last month. Long- term, investors also may have to wait a lengthy period for money to be returned because of the complex nature of investments, ownership issues, and questions over whether Mr Hubbard's purported transfer of assets from him personally to Aorangi are legitimate.

The first glaring inconsistency in this report is over the loan portfolio and issues are raised over what investors were told they were investing in and what actually happened.

"We have conducted a review of the Aorangi loan portfolio from 2007 to 2010. We have identified a very different investment profile in 2007 when Aorangi had $82 million invested in South Canterbury Finance Limited to June 2010 when it had $60 million invested with business entities associated with Mr Hubbard.

Aorangi’s financial records as at 31 March 2009 (before the transfer of the Hubbard Interests to the charitable trusts) had Aorangi’s assets close to $114 million which included the following investments:

South Canterbury Finance 12.2 million
Southbury Group Limited 33.6 million
Te Tua 13.7 million
Total 59.5 million

These three investments represent more than 50% of Aorangi's assets at that time and are entities closely associated with Mr Hubbard. They do not represent investments supported by mortgage security over land as requested by some investors in their investment authorities.

The Hubbard Interests purportedly transferred to Aorangi later were not included in Aorangi’s financial statements as at 31 March 2009". Seventh Grant Thornton Report - Aorangi

So this is clearly detail of false accounting and misleading investor documentation that Hubbard has been charged for fraud over by the Serious Fraud Office.

It has also been indicated that Allan Hubbard's much talked about (by himself and his supporters) injection of his own personal assets into Aorangi has strings attached. He may actually still legally own around $60 million of assets he says he put into the business so it could make this sum legally claimable by Aorangi as a lender to Hubbard. We all know Mr Hubbard has financial challenges of his own so this could clearly have further deleterious consequences for Aorangi investors considering $60 million is more than half of all the assets in this investment vehicle.

The Thornton report points out the serious nature of Mr Hubbard's claim that he put his own assets into Aorangi to stem investor losses:

"In our introduction to this report we commented on the difficulty being encountered with the purported introduction of Hubbard Interests into Aorangi. Most of the Hubbard Interests recorded in Aorangi were introduced by way of journal entry. There are no records of cash transactions in return for the introduction of the Hubbard Interests. Legal advice provided to us means that we cannot rely upon the purported transfer of Hubbard Interests into Aorangi at this time and as a result, and given the financial position of Mr & Mrs Hubbard, Aorangi investors may face a large shortfall. This means that any proceeds from the disposal of these assets cannot be repaid to investors until the financial position of Mr Hubbard is known, which may take some time and may be subject to dispute from personal creditors." Seventh Grant Thornton Report - Aorangi

Some dodgy bookkeeping and major issues over the validity of what Mr Hubbard claimed he did.

The bulk of the rest of the report basically covers off what has been canvassed many times before. Much of the lending in Aorangi is to individuals or companies which are having difficulties paying loans back - or are not paying at all - assets in Aorangi have often been pledged more than once in relation to security or more than one party may have claims on an asset. Some of these parties are related to Mr Hubbard either personally or are related businesses such as the defunct South Canterbury Finance.

This seventh Grant Thorton Report on Aorangi will put investors into further despair over what they might get back. They will get back something but when and how much are the two big questions.

For Allan Hubbard the evidence that he has been doing wrong becomes even clearer and of course we may see the genesis of all this some time in the High Court if he stands trial for the 50 counts of fraud laid against him by the SFO.

One can only hope that he decides to plead guilty as this will help somewhat expedite the repatriation of funds back to investors that he has lost for them over the last few years.

Allan Hubbard Saga

Full SFO Statement on SCF Fraud Investigation

Hubbard Letter to Simon Power

Download Grant Thornton Report 1
Download Grant Thornton Report 2
Download Grant Thornton Report 3
Download Grant Thornton Report 4
Download Grant Thornton Report 5
Download Grant Thornton Report 6
Download Grant Thornton Report 7 - Aorangi Securities

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c Share Investor 2011

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