A report by the former Solicitor-General Michael Heron QC on the investigation into former staff members of the Canterbury Earthquake Recovery Authority (CERA) has found two employees engaged in “serious misconduct”, amounting to conflict of interest.

The State Services Commissioner Peter Hughes has referred the actions of Gerard Gallagher and Simon Nikoloff to the Serious Fraud Office.

Following the disestablishment of CERA in 2015, Mr Gallagher and Mr Nikoloff moved into roles with the Crown Company Otakaro Ltd. They were both stood down from their roles when the investigation began.

The investigation focused on the activities of the two men, and a third, Murray Cleverley, in association with Property and Investment Management Ltd (PIML) and, in the case of Mr Cleverley only, the Canterbury DHB and property at 32 Oxford Terrace.

Mr Cleverley was the Chair of the South Canterbury and Canterbury District Health Boards, although he stepped aside from his duties while the investigation was underway.

Mr Gallagher and Mr Nikoloff were found to have been using PIML to attempt to participate in a business deal for personal gain. They did not disclose their personal interest to parties involved in the potential transaction or to their employer.

This created a clear conflict of interest which they were aware of and should have disclosed to CERA.

"I consider their actions to be serious misconduct that is unacceptable in the New Zealand Public Service," Mr Hughes said.

"If these two individuals were still employed by CERA I believe there would be strong grounds for terminating their employment.”

Mr Hughes has referred the results of the investigation to the Serious Fraud Office.

Conduct “completely unacceptable”

Mr Hughes was scathing of the actions of Mr Gallagher and Mr Nikoloff.

"New Zealanders need to have confidence that public servants work to the highest standards of integrity in everything they do," he said.

"It is completely unacceptable for any public servant to try to use their official position for personal gain. Any conduct of that nature is a serious breach of the standards expected of public servants and will be treated very seriously." 

"Public servants need to exercise a high standard of judgement around the management of conflicts of interest," he says.

"Those who hold senior leadership and governance positions in public organisations need to demonstrate the highest possible standards of judgement and model that to the employees in their agency."

"I expect senior leaders to put the interests of their organisation and maintaining the trust and confidence of New Zealanders before their own personal interests," Mr Hughes says.

Unaware company was operating

Mr Heron has found Mr Cleverley is in a different position to Mr Gallagher and Mr Nikoloff while employed by CERA. He was a shareholder in PIML but there is no evidence he was involved in the company's operations. Mr Cleverley said he was unaware the company was operating, and Mr Heron has accepted that position.

Mr Heron's investigation also looked into the management of a conflict of interest with Mr Cleverley being the Director of Silverfin Capital Ltd which leased property to the Canterbury DHB.

Steps were taken within the DHB to identify and respond to the conflict of interest. There remained a potential issue of perception around Mr Cleverley's involvement on both sides of this deal. The Ministry of Health and SSC recommended at the time that Mr Cleverley step down from Silverfin as this would have removed the basis for complaint, but this was not accepted by Mr Cleverley.  

"In my view it would have been prudent to step down from Silverfin to avoid any issues of perception, however as a District Health Board Chair, this decision rests with Mr Cleverley," Mr Hughes said.

"Mr Cleverley chose to take a less cautious approach, as he was entitled to do, but this left himself and the DHB open to questions about whether his conflict of interest was managed effectively, and in so-doing risked undermining trust and confidence in the Canterbury DHB," said Mr Hughes.

The investigation has cost around $140,000 in total to this point. SSC staff time is not included and has not been quantified.

Meanwhile, the National Business Review is reporting that the Prime Minister’s top official, Andrew Kibblewhite, has revealed to a select committee three more CERA staff are under investigation for alleged conflicts of interest.