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July 2011 Edition ----

We think it appropriate to again condemn the NZ Financial Markets Authority and its "lets start afresh" approach. These members and its CEO are just whimps of the Government who have undertaken to get all the Government's friends off the hook so that the Government can maintain its unauthorised function of being the chief offender with respect to commercial corruption.

"Lets start afresh" is never practiced with respect to laws involved in personal physical attack. It is never said "let's forget about these murders but we will be ruthless in tracking down the offenders of murders which occur from now on". The government is not an offender in such crimes. But it will do anything to acquire Olympic medals (not so much bronze ones, w're not into that shrapnel) and other things wanted by the public but are dubious in nature no doubt.

The NZ Financial Markets Authority is the country's securities commission (without the capitals). It is a member of the International Organization of Securities Commissions. But it wants in the short to medium term to have nothing to do with the with the country's former securities commission which was called the Securities Commission, if you can understand that. The old Securities Commission had a few members replaced every year or two. With the change to the FMA eight members dropped out and four came in, plus another three "lower grade" members. Well that is a bigger change than there had been in the past but is still just an evolvement.

The Securities Commission had on-line most all the public documents it had produced since its inception about 1980. To leave them there would constitute transparency but the FMA is having nothing to do with that. It has chopped them all out except for a few current documents and no doubt they are going soon. It of course wants to be seen as a new broom which is going to sweep clean in order to put some confidence back into the markets. But in reality they are just the same Government lackeys who are prepared to do whatever the Government says while pretending to be independent, and true to form the Government will have skull drudgery that it wants them to do. First on the list will be to get their mates and Securities Commission members off the hook even although many of them deserve many years in gaol. David Jackson, a former Ernst and Young stalward, when a Securities Commission member was personally charged by this very commission with neglect as a director of Nuplex Industries. Nuplex had failed to report certain matters which was likely to affect its share price. But then there was a negotiated settlement whereby the company settled the matter with its funds and Mr Jackson just carries on as ever. He is still on Nuplex. This NZ company has two NZ directors (including Mr Jackson) out of a total of six. And he is on the Fonterra board along with 12 other NZers (11 male).

Sir Douglas Graham, a former Justice Minister and No 3 minister in the past National Government, is still supposed to be in the cart though. He is charged with an offence which can carry a prison term. We can't see an conviction resulting there FMA or no FMA. Its not what you do its who you are with this government and the FMA will just do what its told as will the judges if necessary. But of course it is the Feltex IPO an subsequent happenings with that company which is by far the biggest scandal which we know about.

We have already disclosed that the Securities Commission quorum dealing with Feltex was all female, something the news media all fail to reveal. The bloated Commission had 5 members of each gender, something its Chairwomen was proud of. The chairwomenship was to her a piece of cake, as she cruised the world in her capacity as chairwomen of the International Organisation of Securities Commissions. All she had to do was to obey everything that Helen Clark secretly told her to do and the world was her oyster. It would be similar no doubt for her 3 cohorts on the Feltex quorum. Actually we suspect that one of the 5 women members and the quorum of 4 was born male in physical terms. But that does not change anything since "Miss" Clark took such people under her wing just as readily as genuine wayward females. Remember "Dr" Maryanne Thompson, the state servant who had the ear of the Prime Minister. She first had to resign because she gave her family preferential immigration treatment. The Scoop blogger was "sorry to see her go". Then it was revealed that she did not have the doctorate which she had assumed. One John Davies got 3 months in clink for declaring an MBA from a non-existent US university. There is no title for an MBA and it ranks lower than a Ph D. But Ms Thompson avoids clink. Then we have the story of the vacant Justice Minister position. This occurred at the end of Miss Clark's first term. So she put a lawyer, one Margaret Wilson, at No 5 on the party list. Any woman would do. She obviously didn't perform. Her hobby was listening to cricket commentaries. How time wasting can you get. She was the speaker the next term then she was out. We accept however that perhaps she would not go along with corrupt practices.

It would be completely wrong to surmise that the practice of corrupt appointees did and does not also relate to the appointment of judges. Judges get good pay which protects against bribery by members of the public but facilitates bribery by the politicians who appoint them. " If you want a good job dear just accept this one and do as I tell you from behind the scenes and I will look after you" is the approximate gambit.

It is important that judges are not accorded any special reverence. To give them such almost ensures corruption on their part. We present here proof that JUDGE J M DOOGUE gave an improper judgement in the case of MINISTRY OF ECONOMIC DEVELOPMENT V FEENEY And Ors.

1 In paragraph 87 of page 30 of the judgement the judge states "In instructing this expert team from Ernst & Young I find the directors were entitled to believe on reasonable grounds that the work to be undertaken was within their professional and expert competence and that the transition would be undertaken successfully and would ensure ultimate compliance with IFRS. "

This assertion overlooks the fact that Ernst and Young were engaged to audit the Annual Accounts of Feltex Carpets for the year to 30 June 2006 and at some stage had been contracted to do a review of the half yearly accounts to 31 December 2005. It is a basic tenet of accounting and auditing that auditors and reviewers must be independent of the company directorate and management. Auditors and Reviewers report to the shareholders. The directors were not entitled to believe those matters the judge there referred to because the auditors and reviewers were not so independent. There were not two independent sets of accounting expertise, that of the directors or their appointee, and that of the auditors and reviewers, as required. This requirement serves to ensure compliance in two ways: (a) if one of these two parties has a weak spot in their knowledge or attitude it will likely come in conflict with the work done by the other and the issue will be resolved. In this case however if E&Y have a weak spot it will likely not come to the to the director's attention or the directors and management will likely accept it because it is the work of presumed experts, or because the particular substandard work was what the directors were hoping for, and of course the audit and review will not catch up with it. (b) Entities responsible for preparing accounts will work more carefully and honestly if they know that some other entity is likely to be or possibly going to be, auditing and reviewing their work. This would not be the case when E&Y were working for the directors. As an accountant the defendant John Hagen especially would know this.

The report of the Securities Commission on Feltex dated 11 October 2007 said this: "188. In its submission to the Commission, Ernst & Young New Zealand asserts that an accounting firm (whether conducting an audit or a review engagement) is not an adviser to the directors of a company."

The directors were effectively saying that only the auditors/reviewers should get into trouble for any deficiencies in the accounts because they were the only ones who did any work on the matters in contention. This was not an acceptable situation and the directors were responsible for it being the case.

There is no excuse for the judge not realising that this basic tenet of accounting was not being complied with.

2 In paragraph 64 on page 22 of the judgement the judge said that under the previously applicable GAAP standards, "regardless of the strictly applicable legal terms of the relevant facility, a company could still legitimately classify debt as non-current if it reasonably expected that the debt would not be called up in the next twelve months". She does not quote any references for her assertion, legal or otherwise . If there are no such references the claim is false. The traditional at call bank overdraft is surprisingly stable and can be relied on by many businesses and no doubt on many occasions its security category has been overstated but we are sure it has never been legitimate to so overstate it. No reader of such accounts has any reason to believe that that would be the case. Directors would be most reluctant to concede that it was reasonable to expect that an overdraft would be called up within 12 months. The important question this classification is designed to answer is "can the bank do that?"

Ernst and Young advised the Securities Commission according to its report of 11 October 2007 which says "172. In its submission to the Commission, Ernst & Young, New Zealand asserts there was not a significant change in the requirements for classification of debt from previous NZ GAAP to NZ IFRS." The judge should have fully considered this.

When the obvious is most clearly or doubly spelt out in a new law or regulation it is important that a judge does not interpret that to infer that something different applied previously. New laws are about the regulation (hopefully good) of the future. They are not about implying what was the case in the past. Corrupt law makers are in the business of inserting strong or excessive clarification of some law claiming this is "just to be sure it is not misinterpreted" when it is just to allow a friend who is in trouble for breaching the law as it was previously expressed to claim that the law had been different or uncertain then.

The argument was that calling "at call" loans, (or short term loans which are usually renewed), "non-current" was a general practice in the past and it was not immediately obvious that things had changed, hence the directors had no cause to query the classification of the loans. As well as there being no such acceptable practise in the past, paragraph 64 rather implies that Feltex had in the past been classifying its loans as non-current when they could have been called up in less than a year. This is not so. In the past the bank had been required to give one year's notice to call up the bulk of Feltex's loans. This changed in September 2005 when Feltex agreed to a change to one month's notice as part of a new agreement giving it further borrowing rights*. This is not mentioned by the judge. The implications are (a) the directors should have questioned whether the classification was correct given this big change in the notice required, regardless of what impressions they had about what was non-current, and (b) wherever they may have got these suggested impressions about what was non-current from, it was not from the way Feltex operated. This makes it even more unlikely that they had such impressions.

* We refer to the following paragraph in a judgement concerning Gordon Fulton of the Institute of Chartered Accountants of NZ. "6.10 Annexed to the 25 October 2005 minutes was the Group Operating Report for the month of September 2005 which purported to summarise the key changes to the Facility Agreement with ANZ. That Report did not refer to changes to covenants or (as was the case) a provision in the Facility Agreement that effectively converted the term loan of approximately NZ$100 million to a facility which could be called on 30 days notice." This judgement is available on the Institute's website.

3 We challenge the justification for paragraph 9 of the judgement which reads "[9] There is also overwhelming evidence that these directors are all honest men, and that they conducted themselves at all times with unimpeachable integrity. There is not one skerrick of evidence to suggest any intention by them to mislead the regulatory authorities, market, shareholders, creditors, potential investors, or any other person.".

Apart from any deficiencies relating to matters upon which the judge was required to pass judgement the judge inevitably received much evidence concerning the Feltex IPO. She for instance heard evidence from Mr Nichol, partner of the firm McGrath Nichol of how the ANZ bank had been concerned for it funds invested in Feltex in 2002 and had engaged his firm to do a report on the matter. Before the one shareholder of Feltex at that time would receive any funds on a wind-up the ANZ would have to be repaid in full and after that many millions of dollars would have to be paid out to creditors with lesser security. If ANZ was so concerned the value of the shareholding was zero or very near to it. Tarriffs had been reducing in Feltex' Australasian market place and its Australian plant had been bought from Shaws who no doubt had decided it was cheaper to supply these countries from offshore manufacture. Mr Nichol said that the problem in 2002 was resolved by someone taking a debenture for $50m. It appears that the terms of the debenture were that it was to be repaid from a proposed IPO of the entire shareholding of the company, which took place in May 2004 with the debenture being so repaid. I was present in the court when Mr Nicol gave this evidence.

Four of the five defendant directors were directors during the time of the IPO and the 2002 crises. The years in which they became directors is as follows: Feeney 2000 , Hunter 1999, Saunders 1997, and Thomas 1996. Why they should think that the company could be fairly sold in 2004 for $250m should have been of concern to the judge even although she was not required to rule on such matters.

The judge would also have heard of the company's wish to hide the fact that it was effectively operating from Melbourne Australia with respect to the IPO and subsequently. It for instance wished to have the Audit Report appear to be emanating from Auckland.

The judge knew that other cases against these directors were pending and it was wrong of her to make such a statement given the evidence which she had.

This paragraph (9) statement serves to give those directors greater respectability than the average business person in the street.

That completes our assertion concerning this judge. We referred the assertion to the Judicial Conduct Commissioner in mid April 2011. It was acknowledged with a warning that we would have to wait and wait we have been doing. No other information has been given. We note that this Commissioner has a knighthood. We think he ignores judicial indiscretion when it appears to be on instruction from the Government.

We wish to criticise Fairfax Media and the NZ Press Council over the Council's ruling number 2185.

Here is the heading and first sentence of the article concerned.

Ferry up for Surgical Boost

Passengers wanting to cross Cook Strait on an Interislander ferry in the next few months need to book early as a major revamp of the smallest ship in the fleet limits the number of crossings.

The thing is the story has decided to emphasis the reduced capacity during the Aratere's absence but is only concerned about Interislander clients missing out. What about Bluebridge clients who unexpectantly find the service they expected to be able to get onto has been booked out because people who would have used the Aratere have decided to switch? Fairfax says the Bluebridge would have got a mention if it had changed its capacity and the Press Council thought that this was significant, or so they implied. A major issue was that the Interislander did not seem to be adjusting its schedule to cater for those who preferred to cross about the time that the Aratere had been doing. Fairfax did not refer to this directly but quoted a presumed potential passenger thus "Passenger Paul Gent said it was disappointing there would be fewer times available, because it made planning trips difficult. They still had two operating ferries, and should use those to create better times, he said. " Now the Bluebridge had considerable capacity potentially available at about the Aratere's normal time, (say a hundred cars and 300 passengers) but Fairfax did not see fit to mention it. The stupid argument put up by Fairfax and the Press Council was if Bluebridge had increased this capacity by say 50 cars and passengers then Fairfax would have told about it; presumably because passengers who had intended going on the Aratere would realise that the Bluebridge was now worth investigating because although their car would be unlikely to fit into the 100 spaces previously on offer (which being clever Aratere clients they already knew about) it could quite possibly fit into the 150 spaces now provided.

We say this argument is a complete nonsense and demonstrates Fairfax's bias to the Government as a result of Joan Withers purging their staff of any anti-corruption sentiment.

Last month we reported on the death of Paul Phillip Wilson. He seemed to go out of his mind and was killed speeding uphill in a stolen car. This month we want to mention the well publicised death of David Gaynor. The thing the two have in common is they were relative young male adults who had a parent who was well versed in the in the overstatement of Feltex's projected market share in its 2004 prospectus. Davids father Brian wrote extensively on the Feltex affair. We believe both young men have got themselves into a terrible and fatal mental state as a result of having been presented with an unbalanced mental view of life because their parents have been virtually forced to go along saying this IPO distortion was a mistake. This is likely to be the case whether they have been confided in over the matter or not. Such a mental muddle has given them a predisposition to experiment with strong alcohol and/or illicit drugs, and also a predisposition to harm themselves having taken such drugs. We say this is good evidence of the Feltex IPO having manslaughter as well as mass robbery dimensions.

The other interesting aspect of David Gaynor's death is that he and about two hundred others attended a pre school ball function hosted by "prominent" (we say "failed") businessman Craig Norgate). It was. we believe, school policy that ball attendees should not have partaken of alcohol but Mr Norgate apparently supplied alcohol and of course was unable to regulate individual consumption. Mr Norgate was chief executive of Kiwi Co-operative Dairies which features on this site for it crooked takeover of Tui Milk Products. He went on to be CEO of Fonterra for a term but was not really wanted there. He then got into the Stock and Station industry where we believe he cost investors money. He is currently on the NZICA governing board along with Elizabeth Hickey who allowed the audit report to be faked knowing that the 1990 BNZ reported profit of $100m was really about $10m and Neil Paviour-Smith who as CEO of Forsyth Barr carelessly or knowingly marketed worthless Feltex script for about $100m. What a pack of crooks!

Talking of questionable accountants we wish to present the Ernst and Young top ten as we know it. Only three are still partners of the firm as far as we know. One has not been a partner we think. And the indiscretions of one occurred after she had left. They are in alphabetical order. We will fill in a few lines of detail soon.

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