Ross Asset compromise upheld
The Supreme Court has upheld a compromise over what should happen to the funds that innocent investors in Ross Asset Management withdrew before the investment company’s collapse.
Ross Asset Management (RAM) director David Ross fleeced investors out of $115 million from his offices on The Terrace in Wellington and was jailed for 10 years in 2013.
Wellington lawyer Hamish McIntosh withdrew $954,047 from RAM before it was discovered that the company was fraudulent.
The Court of Appeal – and now the Supreme Court – upheld a High Court ruling that RAM’s liquidators were entitled to make McIntosh repay the profit he made from his investment, which totalled $454,047, but not the $500,000 he originally invested.
McIntosh had appealed the Appeal Court ruling saying he should be allowed to retain the entire $954,047, while RAM’s liquidators also appealed, saying he should repay the whole sum.
The Supreme Court dismissed both appeals in a majority ruling on Friday.
The ruling has implications both for investors who didn’t get their funds out – some of whom have been left destitute – and at least some of those that did.
RAM’s liquidators, John Fisk and David Bridgman of PwC, have recouped several million dollars by settling with dozens of the latter investors over the return of their profits, and the ruling is expected to help further recovery efforts.
However, it means losses won’t be evenly shared between investors who got out of RAM in time and those who didn’t, as other investors – like McIntosh – who cashed in their investments before RAM’s 2012 collapse may be able to keep their original capital.
One Supreme Court judge, Susan Glazebrook, issued a dissenting judgment saying she would have sided with RAM’s liquidators in requiring McIntosh to repay the entire sum.
The Supreme Court described RAM as a ‘‘Ponzi scheme’’, as it transpired the payouts to investors were funded from the deposits of other investors – making eventual collapse inevitable.
The court ruled that when RAM accepted the original $500,000 investment from McIntosh, it became indebted to him for that amount, meaning it was not something he could be forced to repay.
But the ‘‘profit’’ of $454,047 was other investors’ money and not something that had been earned from his investment.
Tax accountant Bruce Tichbon, of the Ross Support group – which advocates for victims of the fraud – criticised the ruling.
He said it ‘‘lacked empathy for widows we are acquainted with who were once well off after a lifetime of hard work, now living in bed-sits on a benefit and antidepressants’’.
The support group had wanted all of the money repaid to set a precedent that would have helped the worst-hit victims.
‘‘Their mistakes were to let their husbands invest in Ross Asset Management and to believe there is a legal system in New Zealand that will provide them with any meaningful help and protection,’’ he said.
The Supreme Court is the highest court, meaning there is no further avenue for appeal.