Two former Canterbury Earthquake Recovery Authority staff members had obvious conflicts of interest between their roles and private business interests, former solicitor general Mike Heron QC has found.

In February, the State Services Commission said it was investigating allegations that three former CERA staff members – Gerard Gallagher, Simon Nikoloff and Murray Cleverley – used their positions to advance their private business interests.

The result of the investigation, which was headed by Mr Heron and considered the men’s conflicts of interest while employed by CERA and in subsequent public roles, was released this afternoon.

Mr Heron found “serious and sustained breaches” with Mr Gallagher and Mr Nikoloff’s conduct after they set up a private company, Property and Investment Management Ltd (PIML), to try to do a business deal for personal gain, while employed in senior positions at CERA.

The deal related to a property at 273 Manchester St, where the other party believed the two were engaging in their public capacity as CERA employees. 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 but they did not do so, Mr Heron says.

State Services Commissioner Peter Hughes has referred the conduct of Mr Gallagher and Mr Nikoloff to the Serious Fraud Office, to investigate whether charges can be laid under the Crimes Act.

"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 in New Zealand and will be treated very seriously,” he says.

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

After CERA closed in 2015, Mr Gallagher and Mr Nikoloff were employed at crown company Otakaro.

Its chief executive investigated their behaviour while employees of the company, and found the two behaved in a similar manner.

“I understand Mr Gallagher and Mr Nikoloff set up and ran a company and engaged in separate business activity while employed there,” Mr Hughes says. “These activities give me real cause for concern.

In a joint statement, Mr Gallagher and Mr Nikoloff maintain the CERA legal team, leadership and CERA’s external legal team were aware of what they were doing with outside business interests.

“We were expected to introduce investors, including our own networks, to private property opportunities in the city and we did so.”

They acknowledged they should have declared what they were doing in writing.

Murray Cleverley resigns as DHB chairman

The third employee under investigation, Mr Cleverley, was in a different position from the other two, although found to have lacked judgment.

He was a shareholder in PIML but there is no evidence he was involved in the company’s operations. Mr Cleverley maintains he was unaware the company was operating, and Mr Heron accepts that, although terms it a “significant error of judgment.”

Mr Heron’s investigation also looked at how a conflict of interest was managed, with Mr Cleverley being the director of Silverfin Capital which leased property to the Canterbury DHB.

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 chairman, this decision rests with Mr Cleverley,” Mr Hughes says.

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

Mr Cleverley resigned as chairman of the Canterbury and South Canterbury District Health Boards today.

RAW DATA: SSC report