Allan Hubbard

Wellington, Aug 27 NZPA - About 300 investors in Hubbard Management Funds (HMF) were told by statutory managers today that the company overstated its value by at least 25 percent on March 31, reporting non-existent investments and cash balances.

In their second report, statutory managers Richard Simpson and Trevor Thornton of Grant Thornton New Zealand also warned today that investors in another company operated by Timaru businessman Allan Hubbard, Aorangi Securities Ltd, may suffer a loss in their investments.

Mr Simpson said HMF had deposits of about $82 million and invested in public company shares, venture capital funds and unlisted companies.

But the total value of HMF was at least 25 percent less than reported by Mr Hubbard to investors in the company's March 31 statements this year.

"The reason for this is that some of those statements included investments and cash balances, which did not exist. There are also likely to have been further losses in value in the fund since 31 March 2010 due to the weakness in the markets over that period," he said in a statement.

"The investment profile is not consistent with what would be appropriate for a typical investor in HMF. There is a lack of blue chip investments and the composition of the fund's portfolio generally means that the fund is high risk in nature."

Mr Simpson said today's news about HMF and Aorangi would be a shock and a disappointment to the many people who have invested in these businesses operated by Mr Hubbard.

"We are mindful that some people depended on a flow of funds from HMF and Aorangi for their day to day living and that the freezing of the funds under statutory management has created hardship for them. For those people, an emergency fund has been established," he said.

"In the case of Aorangi, an underlying problem we are dealing with is that Mr Hubbard has allowed Aorangi to accept deposits of about $96 million from investors on call, but he invested those funds in investments or loans which are nearly all long term in nature.

"Much of the money is invested in minority interests in approximately 25 farms as well as in a charitable trust administered by Mr Hubbard and a number of other commercial entities, some of which are of poor quality.

"These investments do not generate sufficient income to pay the interest due to Aorangi's investors.

"Many of the farming businesses invested in are highly geared, the dairy farm sales cycle is currently at a low, and in the case of the charitable trust, many of the loans are interest free and some will not be recoverable."

Mr Simpson said the statutory managers hoped to be able to make a small repayment to the Aorangi investors in October, but Aorangi had only a small amount of cash and it would take a long time before the investments could be realised.

They would make a further progress report to investors at the end of September.

Their report today follows a report this week that a group of 71 investors had written to Commerce Minister Simon Power asking him to terminate the statutory management of Mr Hubbard's companies.

The letter, copied to all cabinet ministers, was sent by supporter Tony Brazier on behalf of the investors. It was circulated by law firm Chen Palmer.

The Government placed Mr Hubbard and his wife Jean, Aorangi, HMF and seven charitable trusts, into statutory management. Investors' funds have been frozen. The Serious Fraud Office (SFO) is also investigating.

The letter said it was unfair to prolong Mr and Mrs Hubbard's humiliation and distress.

Statutory management has only been used on two previous occasions in the past 10 years and it is a "top shelf" means of intervention.

The investors in ASL and HMF said the statutory management was supposed to protect their interests.

"The investigations have demonstrated what we as investors have always believed: that our interests have never been at risk, and continuing statutory management only further damages the financial situation of ASL and HMF, and causes hardship to investors, many of whom are reliant on receiving interest payments."

The statutory management process has, to date, provided no evidence of substantial wrong doing by Mr Hubbard.

The letter said that the SFO had not announced any evidence of fraudulent behaviour, and said "we understand that it is unlikely to be pressing any charges".

"As investors, we are now confident that there has been no fraudulent or otherwise misleading behaviour by Mr Hubbard, and that the changes implemented by the statutory managers have removed any possibility that our investments are at risk due to inadequate bookkeeping and documentation."