The directors of failed Lombard Finance could be pursued for $10 million in losses after being convicted of misleading investors.
Former Cabinet ministers Sir Douglas Graham and Bill Jeffries and two other former Lombard Finance directors were found guilty yesterday on four charges of making false statements in documents seeking money from the public in December 2007.
Graham and Jeffries will also be stripped of their taxpayer-funded travel perks for former MPs.
Out-of-pocket investors want Graham to be stripped of his knighthood. But Prime Minister John Key refused to be drawn on whether Graham should lose the royal honour. The former legal ethics lecturer was made a Knight Companion in the New Zealand Order of Merit in 1998 for services to the Treaty of Waitangi settlement process.
Graham was visibly shaken and some members of the men's families were in tears after yesterday's hearing.
Lombard Finance was put into receivership in April 2008, owing $125 million to 4400 investors. Secured creditors were expected to be repaid less than 24 cents in the dollar.
The verdicts, delivered in the High Court at Wellington, also included one set of not guilty verdicts for Graham, Jeffries, Lawrence Bryant and managing director Michael Reeves relating to the distribution of a DVD advertisement.
They were granted bail without conditions. The charges carry a maximum penalty of five years' imprisonment or fines of up to $300,000.
But Justice Robert Dobson indicated that a prison term was unlikely. He instead favoured a community-based sentence and financial penalty.
Lombard Finance investor Paul Wah said the only justice for investors would come in the high profile directors' fall from grace.
He wanted to see the convicted men surrender assets to compensate investors. "That would partly alleviate the distress [that] a lot of the older investors have had to endure."
Mr Wah also wanted Graham to lose his knighthood.
While finance companies carried risk, "names like Douglas Graham and Bill Jeffries ... and so on, they are beyond reproach".
"If I can't trust Sir Douglas Graham, then who would I trust? What justice there is will be in the discrediting of those reputable people," Mr Wah said.
A spokesman for Mr Key said it would be "premature to speculate on whether consideration would be given to removing Sir Doug Graham's knighthood" while the case was still before the courts. Only the Queen can rescind a knighthood, after taking advice from the Government.
Graham would join 34 Commonwealth recipients who have been stripped of their knighthood since 1995.
Former Royal Bank of Scotland chief Fred Goodwin lost his last month after leading the bank to near collapse.
Kapiti sharebroker Chris Lee said the verdict would be welcomed by the investment community. "Many of the things stated as being kosher [in finance company documents] have proved to be complete and utter rot."
It was logical that investors would seek compensation for losses resulting from a crime committed by the directors, Mr Lee said.
The verdicts cleared the way for the Financial Markets Authority (FMA) to proceed with a civil claim seeking compensation for investors who relied on the offer documents to invest or reinvest money in Lombard Finance.
About $10m of new money or reinvestments was received by Lombard Finance between December 2007 and April 2008. Investors who already had money in Lombard before then could not claim compensation.
FMA spokeswoman Diane Maxwell said the regulator "welcomed the verdict" but would not comment further till after sentencing, which could include an order for compensation.
Meanwhile, former MPs automatically lose their travel entitlements from the date of any conviction for a crime carrying a punishment of more than two years' imprisonment.
A former National justice minister and attorney-general, Graham, 70, served five terms as an MP from 1984 to 1999 which entitled him to a 90 per rebate on private domestic and international travel.
Jeffries, 67, also served as justice minister from 1989 to 1990. As a three-term Labour MP for Heretaunga, he was entitled to a 60 per cent subsidy.
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