Hanover Finance: Hotchin Ponzi Scheme Suppression; Investors failed by SFO & SEC

The lifting of name suppression yesterday for Mark Hotchin and Kerry Finnigan, a former director and chief executive of the Hanover Group on a case involving their "investment " of personal money in a ponzi scheme, opens up a number of questions for investors in the failed Hanover Finance that went bust in 2008, taking with it over half a billion of investors money.

Hotchin's lawyer, on Hotchin's instruction, at the time argued that disclosure of his name would inflict the following on Hotchin:

* "There would be concern over the investment strategies adopted within the Hanover organisation because of the loss of credibility and damage to my reputation."

* "Investors and third parties with whom Hanover and its entities deal could well come to the conclusion that if one of the directors of Hanover was making inappropriate investment decisions personally then he could well be doing the same for the group. This in turn could cause a lack of investor confidence and support potential for a run on funds, the possible collapse or restructure of the group with obvious impact on its 600 employees."

* "The commercial relationship Hanover has with commercial partners would also be placed under stress. In those circumstances I anticipate that my fellow shareholder [London-based Eric Watson] and director could well request my resignation as a director."

Of course the claim that name disclosure for Hotchin would seriously affect the Hanover Group, in terms of lost investor confidence, may well have an element of truth to it but the main reason for the, until now, permanent name suppression, was self preservation on Hotchin's part, as the lifting of the suppression orders would have put a dent in his own ponzi scheme happening at Hanover Finance. NZ Herald, April 13 2011

The ponzi scheme that Hotchin lost money in promised 160% returns over 2 months, yes, you read that right a 960% annual return! The deals lacked paperwork and clear investment details and the recipients of the funds spent the money on personal items, like real estate, jewelry and extensive luxury travel - much like Hotchin and Eric Watson were doing with Hanover investors moola in fact.

The fact that Hotchin and Finnigan put their own money into this obvious ponzi scheme points at the risks they were taking with others money within the walls of Hanover's head office in Auckland. Clearly if investors knew about Hotchin's involvement in a get rich quick scheme they probably would not have piled more of their money into Hanover.

Disclosure of Hotchin and Finnegan's involvement in such a scam was clearly in the public interest then but the courts decided, wrongly in my opinion and probably in the opinion of most of us, to keep name suppression a permanent thing.

Judge Weir at the time stated:

"there is a failure also to identify any person or past person who would specifically benefit by publication of the details of the case".

It can be argued of course, as I have above, that those that would have benefited from lifting name suppression would have been prospective investors in Hanover.

Putting aside that poor judgement The Serious Fraud Office (SFO), that was directly involved in the case, and other legistlative arms of the State such as the Securities Commission (SEC) who are tasked with protecting investors from financially reckless individuals such as Hotchin and Finnigan, were happy to keep this kind of disclosure, that is normal in business, secret from investors.

The court judgement lay unchallenged by either the SEC or the SFO and therefore they failed in their duty to make investors aware of the poor judgement and financial ability and therefore the inability of Hotchin and Finnigan to be competent managers of other peoples money.

The New Zealand Herald should be congratulated for overturning what the SFO and SEC had no interest in.


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