If you want a guarantee, buy a toaster.

- Clint Eastwood
 

Flak Flies over Flat Rock Trust Collapse

by Chris Hutching

Wellington investment manager Donald Simcock this week defended himself against accusations from investors in the Flat Rock Trust to which receivers were called a couple of weeks ago by Countrywide Bank.  Two US emigres, Jeff and Ruth Hatch, targeted Mr Simcock and business partner Stephen Reidy for steering them into the Flat Rock Trust in 1993.  Messrs Reidy and Simcock founded a company called NZEB (formerly New Zealand Enterprise Board Limited).

NZEB owned the manager of Flat Rock Trust, New Zealand Trade and investment Corporation.  Messrs Simcock and Reidy were also directors of the management company and promoted Flat Rock Trust.  This week Mr Simcock said there was no conflict of interest in any dealings with Flat Rock investors.  He and the management company had also lost considerable money and had been assisting the trust at their expense over the past 18 months when it struck financial trouble.  However, disgruntled investor Ruth Hatch claims she believed the trust was a quasi-government investment and she and her husband were keen to appear to be following the necessary advice they received in order to obtain residency in the early 1990s.

The March 1993 Flat Rock prospectus No 2 states: "NZEB evolved from the activities of the Wellington Regional Enterprise Board which was founded in 1987 by central govemment, local govemment in the Wellington region, and the private sector through the Chamber of Commerce."  According to Mrs Hatch, she and her husband were referred by the Wellington Chamber of Commerce to the NZEB which was described to them as an immigration specialist (Mr Reidy is a past president of the chamber).  At that time they dealt with Mr Reidy and were offered the investment in Flat Rock as well as subsequent immigrant assistence.  NZEB presented a special case to the minister at the time.

The Hatches placed $500,000 with Fiat Rock Trust but Mrs Hatch said she had no idea of the management fees involved.  "No one ever told me about these fees," she said.  'There's no way we could make money on this trust.  They charged more in fees than the trees grew."

When contacted by NBR, Mr Reidy was reluctant to discuss the matter and said he had ceased his involvement long ago, although acknowledged he had worked in an adjacent office and had been chairman of the Hatches' company until last December.  But Mr Simcock confirmed that NZEB had brought in more than $66 million in foreign investment for a range of trusts and said it was always made clear to investors that there was no such thing as a government guarantee of any sort.

New Zealand Development Trust also managed Local Area Financing Trust, Flat Rock Forest Trust and Phoenix Communications Trust (now a listed company in UK and operating in the US called West 175 Inc).  It runs a prawn farm at Wairakei now being converted into a theme park and has previously invested in commercial property.

Mr Simcock said the Hatches were keen to invest in forestry and he considered they were sophisticated business people who knew exactly what they were getting into.  "It wasn't a situation where they were naive," he said.  Mr Simcock was sympathetic to the plight of the Hatches but said there had been considerable misinformation about fees and commissions taken by the manager of Flat Rock.  The management fee had been dropped 0.5% after 1993 and over the past 18 months there had been no remuneration at all.  "It would be quite wrong to suggest there have been significant investment losses to migrants generally.  This is the first time we have encountered difficulty and it has resulted from a cyclical downturn in forestry.  "The standard of migrant care compared to other countries is very high and we keep in close contact with the ministry on all the regulations."

Source: The National Business Review 27 February 1998

There are three issues here on which I would like to comment: Was it implied to unitholders that they were dealing with a quasi-governmental agency?  How much was brought into these trust funds and how many investors were involved?  Was it implied to immigrant investors that there were guarantees of any sort?

	Was it implied to immigrant (and possibly all) investors that they were dealing with a quasi-governmental agency?   Our experience was that we weren't led to believe the Manager [NZTIL] was a government agency.  We were led to believe that NZEB (our "investment specialist") was quasi-governmental.  The Wellington Regional Enterprise Trust" (later renamed New Zealand Development Trusts) was executed by The Wellington Regional Enterprise Board (WREB) [the Settlor], New Zealand Trade and Investment Corporation Limited [the Manager], and AMP Perpetual Trustee Company NZ Limited (now Perpetual Trust) [the Trustee].   WREB put up $1,000 to establish the Trust.  WREB, a "promoter of investment in forestry" according to page 18 of the Flat Rock Forests Trust (FRFT) prospectus (the primary source of information for investors in that Trust), "was founded in 1987 by central government, local government in the Wellington Region, and the private sector through the Chamber of Commerce". According to page 1 of the NZDT prospectus, NZEB was "the Promoter" of the Trust and the Manager [NZTIL] was their wholly-owned subsidiary.  NZEB helped business investment migrants who contacted them to immigrate if they invested their funds in "active investments" which were "qualified".  According to pages 18-19 of the FRFT prospectus, "NZEB evolved from the activities of the Wellington Regional Enterprise Board… NZEB was created with the consent of the founders [presumably central government and local government in the Wellington region included] to provide financial management and marketing skills to support the activities of the Wellington Regional Enterprise Board [the one which "was founded in 1987 by central government, local government in the Wellington Region, and the private sector through the Chamber of Commerce"] and other local and development organisations throughout New Zealand…" We were given a copy of a letter from the New Zealand Immigration Service, on their letterhead and signed by Kevin Cameron for the General Manager which stated, "I confirm funds invested in the New Zealand Development Trusts will qualify as active investments for the purposes of the Business Investment Category of immigration residence policy.  Applicants will meet the capital investment criteria of this policy by investing NZ$500,000 in the fund."  No alternatives were suggested.
	How much was brought into these trust funds and how many investors were involved?   From Simcock's affidavit to the Court: "I would note that the Manager and associated parties had since 1987 successfully managed over $50 million of investments for approximately 150 migrants without any serious issue having arisen or any loss incurred."   A letter from Stephen Reidy to me says, "I have personally assisted more than 100 Families to obtain PR [Permanent Residency] in NZ and have facilitated more than $66 Mill. into the various Trust Funds set up through my enterprise since 1987..."   In the 17 July 98 National Business Review, in an article entitled "SFO Happy over Migrant Scheme Claims Manager," Simcock is quoted as saying, "We've dealt successfully with over 200 migrant groups."  Above, it states, "Mr Simcock confirmed that NZEB had brought in more than $66 million in foreign investment for a range of trusts..."
	Was it implied to immigrant investors that there were guarantees of any sort?   Here is an excerpt from a (handwritten) letter Steve Reidy wrote to me: The Fund IS Trustee guaranteed (AMP Perpetual Trustee) NOT by Stephen Reidy! (a)     ...I point out that it had then and indeed still has, written qualifying status as a BIC Investment Fund, which is not given lightly by Govt. (b)     I would also point out Ruth that the Fund which is under AMP Trustee status is required AT ALL TIME, to hold clear asset value of NZ$10 million, which it does.

So, do you think Simcock is 100% correct when he states above that "it was always made clear to investors that there was no such thing as a government guarantee of any sort"?

We were told by the Wellington Regional Chamber of Commerce that NZEB were immigration consultants.  We engaged NZEB for their assistance with immigrating.  We consulted with both Simcock and Reidy about immigration matters.  We were told by Messrs Reidy and Simcock that the Manager [NZTIL] was a wholly-owned subsidiary of NZEB, and that the two of them, through their company, NZEB, were both immigration and investment consultants (your basic one-stop shop for business investment migrants).  I was unaware that they were charging an investment fee as well as an immigration fee.

No conflicts!  No guarantees!  No money or trees left!  But no problem!

For news articles on the Flat Rock Forests Trust, forestry, the Serious Fraud Office, one immigrant family's experiences, immigration specialists, fraud, juries, logging, and more, pressing the "Up" key below will take you to the Table of Contents for this News section.  Or you may wish to visit the Forestry Trust Table of Contents to read how a unit trust went bust.  Or the Topics Table of Contents which offers a different approach to lots of topics - among them poisonous insects, eating dogs, what's addictive, training vs teaching, tornados, unusual flying machines, humour, wearable computers, IQ tests, health, Y chromosomes, share options, New Jersey's positive side, oddities, ageing, burial alternatives, capital punishment, affairs, poverty, McCarthyism, the most beautiful city in the world, neverending work and more...