Why NZ First president quit over party’s ‘moral and business’ failings

By Tim Murphy for Newsroom

Winston Peters was away as foreign minister at an ASEAN meeting in Thailand when an internal crisis struck his New Zealand First party in August 2019.

The party president Lester Gray was refusing to sign the annual accounts, saying he'd been denied information on donations and bank accounts.

Party leader Peters emailed Gray with what amounted to an ultimatum: the auditor says the accounts are fine as long as they are now signed. "Please ensure the documents are signed as requested."

But Gray was not swayed and would not do so. He tried to demand all income "whether or not deposited in the main account" be included in the financial reports.

He resigned from his role as president the next month, emailing fellow board members that he had been refused information and been denied support from the top.

"I refuse to sign off the 2019 financial reports with the information provided. As president, the limited exposure I have had to party donations and expenditure leaves me very vulnerable. This type of operation does not align with my moral and business practice values and I'm just not able to support the party any longer."

Details of the resignation and the accusations by Gray emerged in the NZ First fraud trial at the High Court at Auckland on Monday.

In evidence, Gray said he had been stonewalled in seeking information about the New Zealand First Foundation, which took donations made to the party, and about a business it operated running the party's membership and donation database.

He said money raised by MP Clayton Mitchell at special fundraising dinners was unaccounted for. "All of it is not in our bank accounts."

The Serious Fraud Office is prosecuting two men for obtaining by deception. More than $750,000 was given for NZ First but sent to the NZ Foundation bank account between 2017 and 2019. The money was not declared to the Electoral Commission as political donations, as would be the case by a political party.

The two men, whose names are suppressed, deny the charges, saying no offence had been identified and the money had been raised for New Zealand First and spent on NZ First purposes and projects.

The foundation was formed in February 2017, weeks before the party board voted to explore the concept. SFO evidence at the trial shows between 2015 and 2017 other donations had been diverted to another, non-party account of a business owned by one of the defendants. Most donors did not know their money was going to accounts beyond the party. Key party officials did not know about the company or, later, who ran the foundation and that it took in and spent party monies.

The trial has been presented with evidence from up to 40 donors, a number of key party board members and officials and SFO investigators.

MP's concern over $250,000-$300,000 in donations

Gray took the witness stand on Monday and revealed his then-friend Mitchell told him the night before his election as president at the party's October 2018 convention that he would be pleased Gray could look into where $250,000 to $300,000 in donations Mitchell had raised had gone. "He did not know where it had been spent."

The morning after his election, Gray was called at 6.40am by one of the defendants, told "It's time to get going", and advised it would be important to build a relationship with Jan Trotman, the non-office-holding partner of Winston Peters.

The court was shown a briefing document direct from Trotman to Gray on how to be an effective president. "It is important you own the role of president," she began... going on to say "It is important you have an excellent relationship with the party leader... it's important you operate on a no surprises policy when it comes to the leader ... it is important you drive the board to constantly understand their role - money and membership.... to ensure the party is in excellent financial shape for the 2020 election ... and that this point is highlighted and actioned from the get go."

Gray said he focused on how the party's money - and by extension the foundation's money - was being spent, rather than looking at where the money was coming in from.

He was unable to establish the ownership structure of a company running a party software system called Nation Builder via the foundation, so resorted to a Companies Office search.

He was briefed on the foundation by the second defendant, who Gray said seemed tired of performing the role and suggested Gray might take over from him. That defendant provided him with some bank account information, offered Gray the account PIN if he wanted it [he declined] and mentioned names of some donors. "I do not have a clue who they were," Gray told the court on Monday.

Gray said he visited the defendant at his home "to find information about Clayton's money".

An earlier witness, whose name is suppressed, said Gray attempted to find out how the database management company was connected with the party and who controlled Nation Builder.

US software too costly - Gray

At one point, he made a call direct to Nation Builder in California, pretending to represent an NZ not-for-profit organisation interested in using its product, to find out what Nation Builder offered and whether it should be used the way the foundation and company were using it on behalf of NZ First.

"He posed as a not-for-profit to see what the software was," the witness said. "Nation Builder made us aware that it is software meant to be used as widely as possible" within an organisation. "We had two people working on it within [the company, which has its name suppressed]."

Gray said of his approach direct to Nation Builder that he and others wanted "to go through their system as if we were a new customer".

He eventually concluded the foundation was wasting money in its operation of the Nation Builder system, and wrote a secret report delivered by hand to Peters' Auckland address - telling Peters and Trotman "I'd like to avoid email".

The report said the company running the database was costing too much, delivering too little and should be made to be self sustaining and net positive for the party.

At a meeting at Parliament in early December 2018, which excluded one of the defendants because of "a huge conflict of interest", Gray's approach was endorsed, but the company was given four months to make a positive contribution "or we pull the pin".

Gray calculated, using "any information I could get my hands on" that the Nation Builder system brought in just $3635 between November 2017 and November 2018, while costing $219,176 - a net cost to the party of $215,540.

"Nation Builder was not bringing in hardly enough of anything to make itself sustainable."

And the company structure "is like a big anchor that's not stopping the boat from going forward but pulling the boat under. It needs to be cut".

However Gray told the court the agreed reining-in and new management of the company and database did not occur. He, as president, was not given access or information and one of the defendants and Trotman continued to sign off activities for its staff member, a family member of that defendant.

By April 2019, Gray was told by former deputy leader Fletcher Tabuteau to "stay away" from the activities of the company, and Gray was concerned the MP Mitchell wanted the ability to transfer money "in and out of the party's accounts as he sees fit".

Gray told Crown prosecutor Paul Wicks, QC: "Clayton was the fundraiser for the party. His job was to bring the money in, not spend it."

Suppression order confirmed

Earlier, a key witness in the trial, who has been granted permanent name suppression because of concerns for the person's safety, also outlined repeated efforts to get to the bottom of the firm's agreement with the party.

Justice Pheroze Jagose made the suppression order under a provision in the Criminal Procedure Act "if the court is satisfied that publication would likely endanger the safety of any person". The application for name suppression was supported by both the prosecution and defence.

The witness told the court difficulties in obtaining information about the company and foundation accounts, and agreements between those entities and the party, had gone on for years.

An email from the witness to Tabuteau said the inability to obtain a copy of an agreement between NZ First and the company was "a major red flag for me".

In court, the witness said: "It seemed to me like there was something very much missing in the equation.... because it should have been so simple."

The witness had separately texted Gray in March 2019 noting a media article about "the last time the party was taken to the Serious Fraud Office" involving the Spencer Trust in 2008.

"Clearly, nothing has been learned," the text said, adding the hashtag: "#NZFirstFoundation."

A text presented to the court from Gray to party leader Winston Peters said: "I really need you to have a conversation with [one of the defendants] that will allow me full access to Nation Builder and the staff."

The witness said the behaviour of that defendant in repeatedly promising and failing to supply an agreement between his company and the party (detailing the commission rates it would take from donations) was mystifying. The defendant claimed no commission had been taken because no donations had been received through the Nation Builder system.

But "Nation Builder had generated donations which had been counted and marked as donations in their own reporting," the witness told the court.

"By that stage I was fairly frustrated. For any other service in the party we had financial records, but for this particular arrangement we did not. We had been seeking this document for over a year. Just not knowing what the financial implication of it was was hugely concerning for me."

Cross-examined by the defence, the witness disagreed that Gray had shown "paranoia" about people in the party and foundation he believed were not supporting him. Rather he was showing a "fair degree of demand".

To a suggestion Gray "wanted to get the dirt on Clayton Mitchell", the witness said: "I had discussions with Mr Gray where he asserted he felt there were underhanded things happening and he was going to look into them."

'Serious situation brewing'

An email presented in court showed that after the existence of the foundation and its role in handling donations was revealed by news reports in early 2020, then NZ First secretary general Liz Witehira told Peters, the new president Kristin Campbell-Smith and Tabuteau: "We have a serious situation brewing that we need your assistance to resolve."

The party had sought "specific information from [the company handling Nation Builder via the foundation] which to date has not been resolved. Given current media ... we need to know that all party expenses have been [listed] accurately."

Eventually a defendant, on behalf of the foundation, replied that after an investigation it had been established that the only change needed was that the foundation would seek a further reimbursement for $920 from the party.

When that was queried by a party official, the defendant replied: "Please pay this sum as soon as practicable."

The Crown's case is expected to conclude today.

This story first appeared in Newsroom.