R v Ludlow [2012] NZHC 360 (26 January 2012)

Last Updated: 7 March 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI-2008-004-20412 [2012] NZHC 360

THE QUEEN

v

TREVOR ALLAN LUDLOW

Hearing: 26 January 2012

Counsel: S Symon for Crown

D Collecutt for Prisoner

Judgment: 26 January 2012

_{SENTENCING NOTES OF TOOGOOD J}

Solicitors: Meredith Connell, P O Box 2213, Auckland 1140

G Collecutt, P O Box 105-270, Auckland 1143

R V LUDLOW HC AK CRI-2008-004-20412 [26 January 2012]

[1] Trevor Allan Ludlow, you appear for sentence having pleaded guilty upon arraignment on 13 December 2011 to eight counts in the indictment presented against you and two alleged co-offenders. The first count alleged that you had approved a registered prospectus containing untrue statements, contrary to s 58(3) Securities Act 1978. You are liable to a maximum of five years imprisonment on those charges or a fine of no more than $300,000 on that count.

[2] You also pleaded guilty to seven counts under s 51 of the Financial Reporting Act 1993, alleging that, with respect to a document required by that Act, you made or authorised the making of a statement in that document that was false or misleading in a material particular, knowing the statement to be false or misleading. On those counts you are liable to imprisonment for a period not exceeding five years or a fine of $200,000.

[3] Your alleged co-offenders have yet to be tried on these charges.

[4] The circumstances which brought you here were these. You were a director and the sole shareholder of National Finance 2000 Limited, a company now in liquidation, which was incorporated in 1999, predominantly to offer finance to car buyers through licensed motor vehicle dealers. The loans were generally made to purchasers who had poor credit ratings or low incomes, the vast majority of them being made to people who had purchased vehicles from companies controlled by you, the Payless group of companies. National Finance also made loans to motor vehicle dealers, a significant number of such loans being made to companies in the Payless group. You were the sole director and shareholder of all of the companies in that group so you stood to benefit personally, in the long run, from the facilitation of the purchases of vehicles from companies in the group.

[5] In promoting National Finance to prospective investors you held yourself out as having a wide and varied experience in business, particularly in the motor vehicle industry. You traded on your knowledge and experience of the industry to hold National Finance out as a company which was successful and which provided

attractive investment, offering what was said to be a good spread of risk, competitive yield, and a significantly better than market return.

[6] In September 2005, National Finance issued a prospectus for the issue of secured debenture stock and subordinated unsecured notes which were signed by you in your capacity as a director. In December 2005, the prospectus was extended for nine months by an extension certificate.

[7] The prospectus contained several untrue statements; the indictment identifies ten of them. They included understating the value of related party transactions by around $775,000, in that the prospectus failed to disclose loans to members of your family and to other companies of which you were also a director. The prospectus stated that provision had been made in the company’s accounts for bad debts, but the amount of the bad debts was grossly understated. Also, the prospectus contained false declarations regarding the company’s assets by not listing vehicles which the company had repossessed and by falsely claiming to having security over loans to other parties. These untrue statements were also incorporated into the company’s financial statements for the year ending 31 March 2005.

[8] When the company went into receivership, investments by the debenture holders totalled something over $21m. Assisted by your cooperation, the receivers managed to recover 49.1 per cent of the original principal investment made by the debenture holders. However, the holders of unsecured notes received no distribution from the receivers and their losses totalled $3m. The overall losses therefore amounted to approximately $14m.

[9] You are currently serving a term of imprisonment of five years and seven months imposed on you in the District Court on 20 October 2011, after you were found guilty of six counts of theft by a person in a special relationship under s 220 of the Crimes Act 1961.[1] You also pleaded guilty during trial to one count of false accounting under s 260 of the Crimes Act. The circumstances giving rise to those

_{convictions and the sentences imposed were closely related to those circumstances}

which gave rise to the offending with which I am now concerned. The District Court charges, brought by the Serious Fraud Office, related to how you misused the funds you had obtained by way of the prospectus and the other documents which have given rise to the present proceedings. So these charges, in a sense, predate the District Court charges in that they relate to the acquisition of the funds which you then misapplied.

[10] I accept the submission from the Crown that the offending for which you now appear for sentence is separate offending, which should be marked separately by appropriate penalties, but I also consider that the offending is so closely related to that for which you have already been sentenced that I must look at the totality of the offending in determining appropriate sentences to be imposed today.

[11] You have waived the right to the presentation of a separate pre-sentence report and you have been content for me to rely on the pre-sentence report prepared for the District Court late last year. I have also had regard to the four victim impact statements presented to the District Court as being relevant to the matters now before me. Although a significant number of other investors who have suffered as a result of your present offending have not provided victim impact statements, I consider the material before me to be representative of the financial and emotional harm which your offending inflicted upon the victims of it.

[12] One victim has suffered depression and stress following the loss of her savings to a point where she could no longer afford important medication for a debilitating illness. She says she relied upon your repeated assurances as to the safety of the investments you invited her to make. Another victim describes the stresses and strains on his marriage and his health as a result of the losses incurred. And yet another victim also suffered a relationship breakup through financial pressure and describes the loss he suffered as a “financial calamity” which has caused him to no longer trust people. Finally, the trustee of National Finance has noted that the offending has caused significant financial loss to a total of 2,026 investors causing psychological and emotional damage to many of them.

[13] The sentences to be imposed today should take account of the interests of these victims. You also have suffered loss through your offending through personal emotional distress and loss of assets. I note you lost your home as a result of the receivership and that you made a contribution of some $350,000 from that source in the recoupment of losses by investors. I acknowledge also that you have expressed, and continue to express, remorse for the serious effects of your offending on your victims.

[14] In determining the appropriate sentences, I am required to take into account the need to make you accountable for the harm done to your victims and to the community; to hold you responsible for that harm and to denounce this type of offending; and to deter you and others from it. I recognise that it may be unlikely that you would be in a position in future to offend again in this way, but in cases such as this the courts are obliged to consider also the importance of deterring others who seek investment funds from members of the public from acting in the way you did.

[15] I am required to assess the gravity of your offending, including the degree of culpability or blameworthiness; to assess the seriousness of the type of offending and, in particular, the damage it does to the financial markets in this country; to adopt an approach which is consistent with the approach taken in other similar cases; and to impose the least restrictive outcome which is appropriate in the circumstances.

[16] I take into account the particular circumstances of your offending in determining what is an appropriate starting point for sentencing, before then considering personal factors related to you which may be regarded as either aggravating or mitigating factors, and then I give you credit, as may be appropriate, for your pleas of guilty.

[17] Aggravating factors relating to the offending which contribute to my assessment of the appropriate starting point are these:

(a) Investors lost a total of over $14m;

(b) As managing director, you were in a position of trust and you held yourself out in attracting investors as a man who has knowledge about the industry, was successful in it and could be relied upon;

(c) Your offending involved a degree of premeditation in that you deliberately withheld information as to the nature of the transactions and endeavoured to cover up losses which had been incurred; and

(d) By reason of the related party loans and the uses to which you put the money obtained by the making of false statements, you stood to gain personally from the breaches of your duties.

[18] Many of your victims were retired and elderly and therefore vulnerable but I do not consider there to be any evidence that you particularly targeted vulnerable, or gullible, investors.

[19] I have taken into account sentences recently imposed in this Court in relation to offending by the directors of Nathans Finance, one of whom (Mr John Hotchin) pleaded guilty to charges under the Securities Act that he had been a party to the making of untrue statements in three documents issued for the purposes of soliciting investments from the investing public. The other three persons sentenced in relation to offending in the management of that company were found guilty after a trial before Heath J of five counts under s 58 of the Securities Act of distributing various

documents containing untrue statements.[2]

[20] In the Nathans Finance case, the losses totalled $26m. The Judge who sentenced Mr Hotchin noted that his breaches did not involve deliberate dishonesty and they did not continue over a lengthy period of time.[3] The starting point was set at three years imprisonment. Taking into account Mr Hotchin’s guilty pleas and other mitigating factors, he was sentenced to a period of 11 months home detention, coupled with 200 hours community work and an order for payment of reparation of

_$200,000.

[21] Upon their conviction, two of the other defendants in the Nathans Finance case (Messrs Moses and Doolan) were sentenced to varying terms of imprisonment.[4]

Justice Heath considered that their offending should be characterised as gross negligence in failing to comply with their duties as directors and managers of the company and he adopted a starting point sentence of three years three months in respect of Mr Moses and three years four months for Mr Doolan. The starting points were considered appropriate by the Court of Appeal when it dealt with those

matters.[5]

[22] Mr Young was considered to be in a different category from the others and he received a sentence of home detention.

[23] I have also had regard to the sentences imposed in the District Court in relation to the directors of Five Star Consumer Finances (Messrs Kirk and McDonald) where the Court set a starting point of six years and five years respectively in relation to losses totalling approximately $42m.[6] The defendants in that case were found to have engaged in deliberately wrongful, but not dishonest conduct. Taking those sentences and the factors which led to them into account, and

relating them to the circumstances of your case, I regard the losses here as being significantly less than in the Nathans Finance and Five Star Consumer Finance cases. But your level of personal culpability is greater than in those cases because of the deliberate dishonesty involved in making misstatements for the purpose of covering up the fraudulent use of investors’ funds.

[24] In those circumstances, I accept the Crown submission that the appropriate starting point for sentence for you on the charges now before me is one of four years imprisonment. I do not understand Mr Collecutt, in his submissions, to raise any disagreement with that point. I have taken into account what he has said about the

_{relationship between the other cases and yours.}

[25] Having set that starting point, I now turn to look at the factors which relate to you personally. You are aged 53 years. Although you are no longer married, you have five children, one of whom was living with you at the time of your imprisonment in October and two younger children lived with you from time to time during access periods. You were self-employed doing contract work for business owners at the time you were sentenced by the District Court. There are no personal factors which I regard as aggravating factors.

[26] To your credit, and in mitigation of what would otherwise be an appropriate penalty, I acknowledge your previous good character, although that might receive a little less weight than would otherwise be the case given that you traded on your reputation to attract funds in breach of your legal obligations. I acknowledge your expressions of remorse and I give you some credit for those, although I do not consider your remorse to be of such a degree as to justify a substantial discount on that basis alone. You are certainly entitled to some credit for your cooperation with the receivers and liquidators which enabled them to recover close to 50 per cent of the investments which were at risk. I would allow a discount of the order of 5 – 10 per cent on account of those factors.

[27] You are entitled to a further discount on account of your guilty pleas which, although not made at the earliest possible stage, were made at a time which would have saved the Crown and the judicial system considerable expense had it not been for the fact that your co-offenders have maintained, as they are entitled to do, their pleas of not guilty. I would allow 10 – 15 per cent on the basis of those pleas.

[28] Although that would result in a period of around three years imprisonment on these charges taken in isolation, I am required in this case to have particular regard to the totality principle in sentencing and, as I have said, to take into account the fact that you are already serving a substantial term of imprisonment on related charges.

[29] The approach to be taken in this case is to ask what the appropriate overall sentence would have been if you had been sentenced on all of the charges, including those in the District Court, at the same time. In the District Court, Judge Bouchier noted that a period of six and a half years imprisonment was appropriate for the

offending she dealt with, to which she then applied a 15 per cent discount for mitigating factors.

[30] The question is what would be an appropriate starting point taking all of the related offending into account. I consider that to be one of eight years imprisonment.

[31] Bearing in mind the discount factors I have referred to, and noting that you pleaded guilty during trial to one count of the seven counts in the District Court indictment and were found guilty after trial on the others, I regard a total period of imprisonment for all of the related offending of six years four months to be appropriate. As I say, that is the end sentence I would have imposed if sentencing you on the District Court charges as well as these present charges at the one time.

[32] In order to achieve that outcome, therefore, I impose sentences on the charges before me today which are considerably lighter than the three years imprisonment which would have been imposed had they been treated on their own.

[33] Mr Ludlow, please stand.

[34] On each of the counts in the indictment to which you have pleaded guilty, I sentence you to a term of imprisonment of nine months, those terms to be served concurrently with each other but to be served cumulatively upon the period of imprisonment of five years seven months which you are currently serving. The total effective period, therefore, is six years four months.

[35] Please stand down.

.........................................

Toogood J

---

[1] R v Ludlow DC Auckland CRI-2009-004-023758, 20 October 2011.

[2] R v Moses HC Auckland CRI-2009-004-1388, 8 July 2011.

[3] R v Hotchin HC Auckland CRI-2009-092-20927, 4 March 2011.
[4] R v Moses HC Auckland CRI-2009-004-1388, 2 September 2011.
[5] Doolan v R [2011] NZCA 511.
[6] R v Kirk & McDonald DC Auckland CRI-2009-004-24026, 21 December 2010.