Share Investor

Monday, July 4, 2011

Allan Hubbard Saga: 7th Grant Thornton Report - Hubbard Management Funds

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.

We will cover off HMF here after drilling into Aorangi Securities yesterday in a previous posting.

First word of caution from me in relation to Grant Thornton managing this fund and in the process buying shares to "add value to the investors". While I don't have a problem with the statutory managers continuing to operate the fund as an ongoing concern - in fact they are legally obliged to - I do have a small problem in relation to disclosure as to which shares the managers might be buying. While I know the process of statutory management means they have considerable control over the company they have under management and can operate how they see fit - within the bounds of statutory management laws - I think it might be wise for Grant Thornton to disclose in their reports to the public the number of shares, what prices were paid and what shares are being purchased so people like myself and investors in HMF can follow their fortunes. I dont think it is enough to say the shares being purchased are "Blue Chip".

OK, enough of the barbs!

Lets take a look at the main points contained in the report.

As stated in earlier Thornton Reports there is a $31 million shortfall in the fund as has been stated in investor statements (another possible fraud charge of the 50 Hubbard has been charged with) so the outcome for investors and their payback is still uncertain and will rely on a recovering sharemarket, (which is unlikely given the current state of the economy) a court case in 2012 that will unlikely see an outcome until at least midway through that year and the order in which investors rank for payback depending on who they are and what they have invested in - or increasingly what they think they have invested in.

As with investments in Aorangi Securities, investments in HMF have more than one claim of ownership made on them:

"As part of our work we have established that certain shares may be subject to claims by third parties, in competition with HMF investors. We have not included these shares as part of the portfolio value until we have resolved the issues associated with the claims and can establish whether or not the HMF investors can receive the benefit of those shares. Some of the shares subject to claim have been pledged as security to financiers for borrowings made by Mr Hubbard or businesses related to him". 7th Grant Thornton Report - Hubbard Management Funds

Another issue no doubt that the Serious Fraud Office was concerned about when they laid fraud charges against Mr Hubbard and symptomatic of so much of Hubbard's latter investing practices right across his collapsed business empire.

Like other parts of Mr Hubbard's vast business empire, HMF has lax, missing, misleading and in some cases fraudulent paperwork. Grant Thornton is spending considerable time trying to put the paperwork jigsaw puzzle together and this is partly to blame for the delay in filing papers in the High Court to then allow the distribution of funds to investors out of pocket. This kind of sub - par financial reporting has been going on for at least 5 years.

Perhaps the most glaringly abysmal case of either lax, omitted, misleading or fraudulent parts of book-keeping carried out by Mr Hubbard is his treatment of the cash position of HMF:

"We have been able to complete our work on the cash elements of the portfolio and have continued to find a shortfall in the amount of cash held in prior years. Our assessment of the shortfall in the cash position for 31 March 2010 has altered since our last report due to the finalisation of our investigation to a number of transactions. As a result, the total of cash holdings noted on investor statements has increased by $6.5 million". 7th Grant Thornton Report - Hubbard Management Funds

In the years from 2007 to 2010 there were shortfalls in cash ranging from just over $12 million to almost $25 million. These shortfalls were not entered into HMF accounts and were only uncovered after the Grant Thornton audit. This is likely to be one of the scenarios that the more serious charges of fraud were based on, brought by the SFO against Mr Hubbard.

Hubbard supporters have made suggestions to Grant Thornton that Hubbard's assets could be used to offset losses investors have been subject to thus far but as the Thornton Report points out many of the assets that Hubbard "personally" owns are either subject to promises made to other parties as security or are compromised in some other way either in value or the ability to realise cash easily. In short it is complicated and any promise made by Hubbard to use his own assets to offset loses must be put in the context of other promises made in similar circumstances across other parts of the Hubbard empire that have thus far failed to live up to (because of the impaired nature of the assets), well, his promises.

This 7th Grant Thornton Report on HMF continues along the lines of prior GT reports and uncovers yet more detail as to what has been going on at HMF specifically and adds to the larger picture of a man who was clearly out of control, reckless with others money and willing to do just about anything to dig himself out of the hole he had dug for himself.

I am surprised there have only been 50 charges brought by the SFO.

Allan Hubbard Saga

Full SFO Statement on SCF Fraud Investigation

Hubbard Letter to Simon Power

Sunday, July 3, 2011

Share Investor's Total Returns: Hallenstein Glasson Holdings Ltd

I have written about returns for stocks on a general basis in the Long Term View series of posts and the Long VS Short series but in this series, Share Investor's Total Returns, I will be giving my actual returns for stocks in the Share Investor Portfolio for as long as I have held them.

The return calculation will include dividends earned along with qualifying tax credits and of course any capital increase in the share price. It will be a total return over the length of holding of the share expressed in overall dollar figures with an individual value per share of what the stock currently is held at.

The eleventh stock in this particular series is one of a number of retailing stocks in the portfolio, one of the best performers and one that I have held for 3 years, Hallenstein Glasson Holdings Ltd [HLG.NZX]

The current holding of 1000 was kicked off by an initial purchase in July 2008.

The stock cost a total of $2560.00. It has returned net dividends of $743.72 and total tax credits of $350.02, with $30.00 in brokerage.

I am eligible for the full tax credit so if the gross dividend (net dividend plus tax credits)is added and brokerage taken off my full return from dividends and tax credits over the total holding period of 3 years is $1063.74

The current capital value of the company in the Share Investor Portfolio as at 1 July 2011 is $3640.00. The capital gain therefore is $1050.00. This gives a total return on this share of $2113.74 when dividends and tax credits are included. This is a 82.5% return over 3 years or a 27.5% gain per annum.

I hold HLG therefore at a total cost of $446.26 or 44c per share at current market prices.

Disc: I own HLG shares in the Share Investor Portfolio

Share Investor's Total Returns Series

Briscoe Group Ltd
Ryman Healthcare Ltd
Fisher & Paykel Heathcare Ltd
Auckland International Airport Ltd
Pumpkin Patch Ltd
Michael Hill International Ltd
Freightways Ltd
Mainfreight Ltd
Sky City Entertainment Group Ltd
The Warehouse Group Ltd

Hallenstein Glasson @ Share Investor

Share Price Alert: Hallenstein Glasson Holdings Ltd 3
Share Price Alert: Hallenstein Glasson Holdings Ltd 2
Share Price Alert: Hallenstein Glasson Holdings Ltd
Hallenstein Glassons Ltd: Should I stay or should I Go?
Mixed Retail Outlook
Long Term View: Hallenstein Glasson Holdings Ltd
The History Of: Hallenstein Glasson Holdings Ltd
Hallenstein Guidance not indicative of wider retail recovery
Stock of the Week: Hallenstein Glasson
Hallenstein Glasson Australian expansion needs expert execution
Why did you buy that stock? [Hallenstein Glasson]

Discuss HLG @ Share Investor Forum

Download HLG Company Reports
Download HLG Company History

Recommended Fishpond Reading

Buy The Intelligent Investor & more @ Fishpond.co.nz

c Share Investor 2011

Markhotchin.co.nz: When Hypocrites Cry

I just have to comment on a new website set up by Mark Hotchin to defend the indefensible, that is, the justification in his mind to investors and the public that losing half a billion of investors money under his control was not his fault but the fault of the "financial crises" in 2008 and others who may or may not have been directors of Hanover Finance at the time of its collapse.

Here is Mark justifying his position on Hanover in relation to Allied Finance.

"I am very sorry for the loss investors have experienced. No one could have anticipated the global financial crisis and the severe consequences to the NZ commercial property development market. As directors of the company we always sought to act prudently for investors. We also believed the decision to transfer the assets of Hanover/United under the Allied Farmers Proposal was the best option available for investors at the time". www.markhochin.co.nz

It would make most weep with rage rather than sympathy and his website content basically focuses on blame shifting, justification and finger pointing - at everyone else but himself that is.

Let me be clear. While nothing illegal has been found in his day to day running of the company, as yet, what is clear is that the collapse of Hanover had little to do with the financial crises but more to do with the highly risky investments made by Mark Hotchin and Eric Watson, the vast amount of murky inter party lending the company participated in and massive amounts of dividends Hotchin and Watson removed from the company.

They basically bled the company dry of cash.

Where did the money go?

Have a look at the edifice at Paratai Drive and you might start to imagine where the rest of the Hanover investor money might have gone, some of it even went towards a $36 million super yacht!

I am betting not many people who lost money with this turkey have signed up to compliment the fella.

Related Share Investor Reading

Hanover Finance: Hotchin Ponzi Scheme Suppression
Mark Hotchin Comes Out Swinging
Hanover's "White Knights" are really daylight robbers
Hanover collapse: It was just a matter of time
Money Managers Saga: 3 Story wrap
Money Managers gives First Step investors the middle finger
Greed is bad: Geneva Finance Folds
Financial 101: Learn before you leap
Kevin's Blog

Think Bigger: How to Raise Your Expectations and Achieve Everything by Michael Hill

c Share Investor 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

Share Investor

Monday, July 4, 2011

Allan Hubbard Saga: 7th Grant Thornton Report - Hubbard Management Funds

Sunday, July 3, 2011

Share Investor's Total Returns: Hallenstein Glasson Holdings Ltd

Markhotchin.co.nz: When Hypocrites Cry

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

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