Directors of a failed finance company should have realised income estimates in a prospectus were woefully incorrect, a court has been told.
Nathans Finance was placed into receivership in August 2007, owing 7000 investors $174 million.
Three directors - Donald Young, Kenneth Moses and Mervyn Doolan - are charged with six breaches of the Securities Act. They have pleaded not guilty.
At the Auckland High Court on Tuesday, the Crown said cashflow statements in Nathans Finance's 2006 prospectus were inaccurate by many millions of dollars.
It said the "misleading" statements were compounded by an extension certificate the following year, lengthening the period the prospectus could be used.
The Crown said the application required the directors to confirm there was no adverse material changes in the prospectus, which it said was also untrue.
The Crown told the court that investors were misled into believing Nathans Finance was a prudent lender.
It says investors were told of Nathans' diversifying its loan book, when in fact its interests were dominated by loans to parent company VTL.
Investors were told loans were assigned only in accordance with their loan policy.
But the Crown says this was untrue, and gave an example of a loan which was granted despite failing Nathans' criteria.
The Crown says Nathans made poor lending decisions, resulting in limited chances of recovering the funds.
