AUCKLAND, New Zealand -- John Hotchin has begun giving evidence at a trial against three of his former colleagues who face criminal charges for their alleged roles in the 2007 collapse of Nathans Finance. As a result, some 7,000 investors in vending technology company VTL, Nathan's parent company, were left owed $174 million. | SEE STORY
Hotchin, a former Nathans director, pleaded guilty to Securities Act breaches in February. His sentence was reduced from a jail term to 11 months home detention for pleading guilty. He was also required to repay $200,000 to Nathans' receivers and to cooperate with the prosecution in its case against his three former co-directors.
The other directors -- Mervyn Doolan, Kenneth (Roger) Moses and Donald Young -- pleaded not guilty. They are defending allegations by New Zealand's Securities Commission, which charges that the statements they issued about related party loans to VTL, the quality of Nathans' loan book, and its management of loan practices and liquidity were untrue.
Hotchin, whose testimony before New Zealand's high court began on May 4, detailed how he set up VTL with Doolan in the late 1990s, and how Nathans was formed as a financing vehicle for VTL in 2001.
Hotchin claimed his role in Nathans Finance was mainly focused on marketing, and that his involvement with an allegedly misleading prospectus was limited.
He told the court that VTL's inability to pay interest on the loans and its subsequent mounting level of debt concerned him and the other directors as early as October 2005. The former Nathans' director added that he raised concern to his associates when he saw a draft version of a prospectus that said VTL owed $79.6 million to Nathans Finance in June 2006.
Hotchin also admitted to the court that he requested details of a loan from a related company be removed from the risk section of the company's December 2006 prospectus prior to publication "because it didn't look all that good." He testified that he thought the information was already published in another section of the prospectus and wasn't needed in the risk section.
The case before Justice Paul Heath is in its eighth week. The maximum penalty for the purported crimes is five years in jail or a $300,000 fine.