An elderly grandmother with no known assets or income was lent $4 million by a mortgage fund company chaired by former prime minister Jim Bolger - a transaction now under investigation by the Serious Fraud Office.
Mortgage documents obtained by the Sunday Star-Times show that Trustees Executors, a trust company chaired by Bolger, advanced $4m to Maria de Magalhaes, a 73-year-old Portuguese speaker originally from Mozambique, who was only in the country on a visitor's visa.
She signed the loan application, which was then apparently faxed to Trustees Executors by her son-in-law, property developer Simon Turnbull. Although it is unclear what the company was told about de Magalhaes, sources close to the case say a simple check would have uncovered her true identity and financial position.
The money was lent in February 2007 against an apartment building in central Auckland linked to Turnbull and his wife, architect Monica de Magalhaes.
Maria de Magalhaes has since defaulted on the loan, has been bankrupted at Trustees Executors' request and had a high court order against her for $3.8m, which she has little or no hope of paying. She has been trying to gain an income by running Portuguese lessons at an Auckland high school.
In addition to the $4m loan, two other loans totalling almost $5m were advanced by Trustees Executors to Turnbull's sister-in-law, also called Maria de Magalhaes. It is understood bankruptcy proceedings have been started against her.
Monica de Magalhaes has also been bankrupted and owes millions of dollars. She is now on the domestic purposes benefit and looking after their three children, while Turnbull has moved to Hong Kong and is understood to be living in a hostel.
Sources dealing with the fallout of the saga say it raises serious questions about the lending practices of Trustee Executors. The money was part of the $242m Tower MortgagePlus fund, administered by Trustees Executors and frozen last April. More than 5000 investors had savings tied up in the "low-risk" fund, of which about 40% has been returned.
The Star-Times understands the SFO inquiry is into a group of 16 loans worth $33m to Turnbull, his relatives and associated companies.
Sources said Maria de Magalhaes trusted her son-in-law.
"She signed whatever he put in front of her," one source said. But the source said it was incredible that Trustees Executors had not done proper checks.
"How can they give a loan to someone with absolutely no assets? It's sub-prime stuff."
Maria de Magalhaes seemed confused about the details of the loans when approached by the Star-Times.
"I don't know anything about business to be honest, nothing at all," she said.
Other sources said that as chairman of the board Bolger had to take responsibility for the poor lending practices.
"At the end of the day, the buck stops with the board and the chairman," said William Cairns, an Auckland mortgage broker who was mortgage manager at Guardian Trust for eight years. "The board has to make sure policy is being adhered to and if it's not, people are held accountable and they should be reviewing their lending strategies."
Nicki Crauford, the chief executive of the Institute of Directors, said the board of a lending institution was responsible for properly monitoring the activities of its managers.
Bolger did not return calls. The executive director of the company, Deepak Gupta, declined to comment. Tower executives referred all inquiries to Trustees Executors.
SFO director Grant Liddell said he could not comment while the case was under investigation.
Turnbull had already shifted to Hong Kong when he was adjudicated bankrupt last year. If he returns, he will require the permission of the Official Assignee to leave the country again.
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