‘Crumbs’ to console victims of ponzi

Almost five years after its collapse, liquidators of New Zealand’s largest ponzi scheme are making preparations to finally return some money to investors.

Lawyers acting for liquidators of Ross Asset Management are working on a proposed formula for an interim distribution, which will be presented to the liquidation committee in the coming weeks.

Liquidator John Fisk of PWC said the proposed formula would then be sent to the High Court for consideration.

Assuming it is approved, liquidators could be freed to return around 10c in the dollar of capital to those who had lost out.

Fisk declined to say when investors might receive a payment but hoped to file submissions with the courts within ‘‘the next month or so’’.

‘‘Everyone appreciates it should happen as soon as possible.’’

Ross Asset Management’s offices were raided by the Financial Markets Authority in late 2012, as clients of the Wellington fund manager complained they could not contact founder and principal David Ross.

Hundreds of clients believed Ross was managing a total of almost $450 million on their behalf.

However, a report released just days after the collapse said assets worth only around $10m had been identified. Ross used the investments of new investors to cover the withdrawals of others.

Stripping out the inflated returns, investors lost around $110m, and Ross was later jailed for more than 10 years.

Since then liquidators have managed to claw back just over $10m from investors who managed to withdraw money from Ross before it collapsed.

More might have been recovered, but the Supreme Court ruled that Wellington lawyer Hamish Mcintosh could keep the original capital he invested in Ross but later withdrew.

Mcintosh only had to return what were, in effect, fictitious profits on top of the $500,000 investment, a decision which has implications for others who withdrew more than they originally invested.

Liquidators are still trying to claw back money from more than 100 investors, including in some cases initiating more court proceedings.

Exactly how much money might be returned to investors is up for debate.

Fisk said typically investors would receive money in proportion to their net loss at the time of the liquidation.

Because Ross lasted longer than most ponzi schemes, the formula presented to the court was also likely to attempt to take account of the time value of money, meaning longer-term investors would receive more.

Fisk said some investors were arguing that those who had withdrawn some of their original investment from Ross prior to the collapse should not be able to take part.

Bruce Tichbon, a Palmerston North investor who runs a support group for those who lost money in the collapse, said he did not believe those had received some of it back should be able to participate.

‘‘We would like to get back to a situation where, basically, everyone is equally disadvantaged,’’ Tichbon said.

‘‘We’re now arguing about the crumbs underneath the table, but if they’re distributed more equally, then that is a good thing.’’

Fisk said liquidators were examining the possibility of using an amicus curiae to assist the court on the various distribution options.

Meanwhile, Fisk continues to negotiate with investors in a bid to recover millions more in fictitious profits.

The process was becoming increasingly complicated, Fisk said, with liquidators often now dealing with parties who had inherited the returns or who claimed they were not in the financial position to repay. In some cases the investors could not be found.

Sean O’sullivan, a partner at law firm DLA Piper who represents a number of clients who were facing ‘‘clawback’’ claims in relation to Ross, said the publicity around the Mcintosh case created a mistaken perception that others were in a similar position.

‘‘The majority of investors we act for placed life savings, inheritances or the proceeds of sale of assets into [Ross Asset Management] with a view to living off the investment proceeds in their retirement,’’ O’sullivan said.

‘‘Consequently, they face the prospect not only of enduring their retirement without that ‘nest egg’, but also facing a claim for the return of funds that they withdrew in total ignorance of any wrongdoing.

‘‘They are invariably prudent and responsible people who have always met any financial commitments they incurred. In these circumstances, being labelled now as a defaulting debtor and facing the prospect of legal proceedings is devastating for them.’’