Frustration at lack of Ponzi reform
WELLINGTON: Victims of the country’s largest Ponzi scheme are angry proposed insolvency law reforms have been shelved, leaving future investors vulnerable.
A Ponzi scheme is a fraudulent scam that masquerades as a legitimate business, whereby investors are promised high returns, but those returns are then paid to older investors through revenue paid by new investors.
In May last year, Commerce Minister Kris Faafoi hinted at reforms which would allow liquidators to win back more money for those who lost everything.
But when the minister announced a number of reforms to insolvency law on Monday, there was no mention of Ponzi specific policy — leaving former victims furious.
Bruce Tichbon was among those. He fell victim to New Zealand’s largest ever Ponzi scheme when Ross Asset Management collapsed in 2012.
Since then, Mr Tichbon has become a representative for the hundreds of New Zealanders who lost close to $100 million.
He was preparing for the Government to announce new insolvency laws that would ensure people would never get caught in such a scheme again.
‘‘We were promised Ponzispecific legislation that was very crisp, very clear, very fair and would have provided a very, very quick settlement.’’
However, Monday’s announcement fell short, with the Government announcing a raft of changes to protect people who owned gift cards from companies which went into liquidation.
Mr Tichbon said the news was frustrating because the Ponzi specific legislation was long overdue. He said the with no changes, small investors were left vulnerable in a market he described as the wild west.
‘‘It is just completely unsatisfactory and with proper regulation and an environment that focuses needs on investors, not the best interests of liquidators and lawyers, we could have an environment where small investors can invest confidently, not be ripped off, and if there is failure they can get reasonable recovery — that’s what we’re aiming for.’’
Mr Faafoi said addressing Ponzi schemes now would have held up the other straightforward fixes to insolvency law.
‘‘We can still continue to look at the Ponzi scheme [but] that will take a lot more time than the other insolvency issues that we’ve dealt with.’’
Victoria University law lecturer Victoria Stace said it was sensible decision for the Government to move forward with the other changes, because they were simple and easy.
She said Ponzi schemes, on the other hand, would be complicated, and the Government would need time to consider the best avenue to legislate against them.
‘‘It might be that insolvency law is not the place to deal with [legislating Ponzi schemes], but it might be better dealt with in some respects through the Financial Markets Conduct Act . . . because of the fraudulent state of the management of this scheme.’’
She said insolvency law does not really deal with fraudulent behaviour.
Part of the added difficult of Ponzi schemes for the law, is that each one is unique.
For instance, as Ms Stace pointed out, some Ponzi schemes can start out as legitimate business that soon take a turn.
‘‘Because it wasn’t initially a Ponzi scheme, you couldn’t apply reasoning from previous cases to an investor that had put their money in when it was a genuine investment business.’’
She said there was no debtorcreditor relationship at that point because the money was not misappropriated by the manager of the scheme.
‘‘So that just highlights another of the complexities around how you deal with the issues that arise on the insolvencies of Ponzi schemes.’’
Ms Stace said the Government would need to research how Ponzi schemes are dealt with in other jurisdictions to determine what is the best option for New Zealand.
The changes announced by the Government on Monday will be included in a future Insolvency Law Reform Bill. — RNZ