Finance, family & fraud
Investment banker to criminal offender
Great dad, pillar of the community and financial success, Kelly Tonkin harboured a terrible secret, writes Martin Van Beynen.
It was conceivably the worst moment in Kelly Tonkin’s humiliating slide from international investment banker to criminal. The small, fitlooking economist and family man, wearing a long black coat, thick black hair combed back, was approaching the entrance of the building housing Christchurch District Court in June.
Beside him on the broad footpath was his tall, stooped father, Philip Tonkin, a soil scientist and former Lincoln University academic known for his kind nature and deep knowledge of his subject.
Kelly Tonkin, 52, was coming to court to plead guilty to Serious Fraud Office charges of cooking the books of his international investment fund. He looked warily at the approaching media, as if a chill wind was blowing his way. The father and son walked slowly up the footpath, Tonkin keeping pace with the slow gait of his dad.
Philip Tonkin would later say he would without question stand by his son.
Kelly Tonkin’s parents might have expected better from him. He was a top student at school and university and a representative footballer. The early promise had borne fruit, with Kelly apparently forging an impressive career in finance that culminated in his international investment fund with offices in Christchurch, the Cayman Islands and London.
He was happily married with three beautiful children, a generous and committed junior football coach, a valuable member of his children’s school board and a caring boss who had earned his staff’s enduring loyalty. He was respected for his intelligence and humility.
‘‘He was very plausible. I would have said he is the most trustworthy person I have ever met,’’ says one former colleague.
Unfortunately that confidence would prove to be misplaced. Tonkin was living a lie, his international investment fund, apparently worth hundreds of millions of dollars, a disaster.
And like a compulsive gambler who deludes himself the big return will wipe out all the losses, he had kept digging a bigger hole until there was only one thing to do. Lie and cheat.
A star from early on
Tonkin and his sister, Robin, were adopted by Philip and his wife, Jacqueline Horowai Tonkin, at an early age. Jacqueline is a member of the accomplished Jackson family from the Bay of Plenty, which includes key figures in Ma¯ ori activism, brothers Moana and Syd Jackson, and latterly politician Willie Jackson.
Tonkin excelled at school and was good at sport. At Cashmere High School he finished his seventh (Year 13) form year first in German, accounting and statistics, winning the Cartwright Prize for academic excellence. He also made the Canterbury under-19 football team and appeared as gambler Liver Lips Louie in the school musical Guys and Dolls.
‘‘He mixed with the nerdy group and was happy to be recognised as brainy,’’ a classmate, who asked not to be named, says. ‘‘We were all shocked when he was charged.’’
Tonkin completed a BSc (Hons) in economics at the University of Canterbury in 1989 and then joined the Treasury, where he worked as an economic analyst. He continued to play high-level football, in the national league.
After two years he shifted to the long-established American wealth manager Bankers Trust, to provide advice on New Zealand’s economy. A colleague remembers him as confident, persuasive and stubborn. ‘‘You could never really sway him from his thinking.’’
His stint as a Bankers Trust economist lasted three years and in 1995 he moved to the bank’s more lucrative funds management arm. As a fixed interest portfolio manager his results and others were published quarterly on an industry table. The results were remarkably similar because most managers followed the same strategy.
‘‘One quarter suddenly his results were way away from the index return. I found out he had taken an aggressive position, and it didn’t come off,’’ a manager for another bank remembers.
At the Bankers Trust, Tonkin found himself among high-flyers. His boss was Craig Stobo, now a professional director, businessman and investment manager, and another colleague was a man destined for high office, a currency trader called John Key.
Around this time Tonkin became a director of New Dawn Holdings, a company set up to raise money to build a Ma¯ ori cultural centre on Princes Wharf on the Auckland waterfront. A fellow director was activist Hana Te Hemara, who had been married to Syd Jackson. The bid lost out to the Hilton Hotel.
By June 1999, Tonkin was working for Lehman Brothers as an international economist. The global financial services firm collapsed in 2008 but by then Tonkin was well gone.
In 2004, he set up the Penrich Global Macro Fund, to be run by his UK company, Penrich Capital UK, and a New Zealand company, Penrich Capital. According to its website, Penrich Global was a hedge fund, operating ‘‘in the major developed markets investing primarily in fixed income and foreign exchange’’.
Disaster waiting to happen
Little is known about the early years of the enterprise, but it seemed to thrive and grow. It would never have a permanent office in London. It had a London address that was a serviced office used by numerous companies but Penrich was essentially run from Tonkin’s flat.
By 2011, Penrich was apparently posting solid returns. ‘‘The fund has a track record of seven years with returns averaging close to 10 per cent per annum. Our investments are based upon inhouse research of economic and political issues in the largest countries of the world,’’ its website said. The hedge fund had an air of exclusivity. It was available only to high-wealth individuals and those with a required level of investment experience.
Most of those associated with Penrich were good mates from Tonkin’s background. New Zealander Chris Murphy, experienced in risk analysis and risk management, was with Penrich from the beginning. They had been friends for 20 years, and Tonkin was the best man at Murphy’s wedding.
Nicholas Elms, also a New Zealander who was at high school with Tonkin, was the company’s compliance officer. He had worked for the Electricity Corporation of New Zealand and Ernst and Young.
Hamish Fraser, who was at school and university with Tonkin and a close friend, was a consultant to the firm. Fraser told Stuff from the United Kingdom he helped with the formation of Penrich in the mid-2000s but was not paid. ‘‘Going forward I retained a minor shareholding but did not work for the company. I was told last year that I was mentioned on its website. At no time did I have any involvement in, or knowledge of, any aspect of the conduct that has been subject to the criminal proceeding against Kelly,’’ he said.
German national Sandra Horsfield, who had also worked at Lehman Bros, was a member of the investment team, joining in 2011.
Back in Christchurch the operation (which did have an office) was anchored by Kelly Stansfield, who had become friendly with Tonkin in London and had worked for Credit Suisse. She oversaw the back office administration for the Penrich Global Macro Fund.
While the outfit apparently had a bunch of high-powered staff, it appears Tonkin made the final decisions. There is no suggestion anybody else in the firm knew what was going on. They trusted Tonkin implicitly, a source says. Although they worried about his mental health because he often seemed very stressed, no-one in the firm questioned his integrity.
Tonkin married his wife, Liz, in London and after their first child was born they moved back to Christchurch in 2014. They bought a new house at the top of the Cashmere hills.
Brought up in a modest house on the flat in Hoon Hay, he had come a long way.
In total control
There is no question that Tonkin worked exceptionally hard and ran a tight ship. He was not a big spender and didn’t care much about looks, clothes or cars. His kudos were reserved for qualifications, achievement and success.
He was a micro-manager and, according to a source, never allowed the fund to develop beyond much more than a ‘‘one-man band’’. It meant he got little sleep and didn’t seem to need it.
It’s difficult to know when the cheating started. But it’s clear that not long after the website assertion that the fund was achieving 10 per cent returns, Tonkin was inflating the value of assets in the fund. The company had to produce a monthly spreadsheet showing the fund’s net asset value. He regularly inflated asset values by simply entering false values in the spreadsheet.
Investors were given individual monthly statements which, due to the false values, were works of fiction. For eight years he authored a monthly report on the performance of the fund called ‘‘Fund Facts’’. It was relied on by existing and potential investors but due to the inflated values, ‘‘False Facts’’ might have been a more fitting title.
Apart from its office, Penrich had other Christchurch connections. It was involved with the Evergreen Retirement Trust, linked to two other University of Canterbury commerce graduates, Chris Wells and Simon Swallow. Evergreen’s investments were managed by a company called Clearwater Capital, set up in 2011. Tonkin was on Clearwater’s investment committee. One of Clearwater’s directors was
Kenji Steven, a selfdescribed entrepreneur, investor and innovator ‘‘with vast experience in international finance’’, who was brought up in Christchurch and did a marketing degree at Canterbury University.
Tonkin and Steven were also linked through a company called Menumate, set up in 2007 to provide software and IT to the hospitality industry. Steven was a director of the company between 2014 and 2016 and Tonkin had a 4.5 per cent shareholding. The business went into liquidation in 2019, owing about $2m. Evergreen was a superannuation fund with Qualified Recognised Overseas Pension Scheme status under UK tax rules. It was promoted to UK expatriates as a way of getting hold of their retirement savings before retirement age without paying full tax. The scheme required a complicated loan arrangement that was funded by Penrich. Swallow says despite reports the scheme was a scam, ‘‘Evergreen is not currently, nor has been in the past, subject to any regulatory or legal actions’’.
Wells and Steven are also linked to the more recent Ranfurly Superannuation Scheme. In November 2018, the scheme appointed Penrich Capital UK its investment advisor for fund hedging. The advisory services were terminated in March 2020.
Proverbial hits the fan
When the firm imploded it happened quickly. Stuff understands Penrich’s administration manager, Kelly Stansfield, became suspicious after Tonkin was unable to answer a question in March 2020. The Christchurch staff got together to discuss the anomaly and things started to fall into place.
Stansfield gave Tonkin 24 hours to provide an explanation, but the deadline passed without satisfactory answers. A devastated Stansfield then went to the Serious Fraud Office.
Chris Murphy was in town for a holiday with his American wife. The day before matters came to a head, he and Tonkin had had a convivial game of golf. Nothing seemed amiss. When Murphy found out, he was white and shaking. His wife wept. He spent the rest of his holiday trying to sort things out.
By March 27, Penrich Capital was in liquidation and horrified investors wondered how much was lost. The Serious Fraud Office began an investigation in April and Tonkin appears to have cooperated. He pleaded guilty to four charges of fraud at an appearance in the Christchurch District Court on June 18 and will be sentenced on September 16.
No doubt his good qualities, community service and achievements will be traversed as part of his plea of mitigation. It’s hard to escape the impression that Tonkin was a good man with one fatal flaw.
For many of those who worked with Tonkin, there has been a lasting impact. As one former colleague says: ‘‘If you can’t trust someone like Kelly, who can you trust?’’
Unanswered questions
The saga has, until now, left some nagging unanswered questions. One is how much is left in the fund? The liquidators, based in the Cayman Islands, are not saying and their reports are confidential. Liquidator Martin Trott says it is too early to know what the return to the investors will be. Some suggest the fund has nothing left.
A summary of facts prepared by the SFO has yet to be released by the court. Tonkin has disputed parts of it.
Another question is the identity of the 170 victims, said to include some New Zealand rich-listers. Their names have been suppressed to date and the court will decide whether that continues at Tonkin’s sentencing. It will be another test of the court’s approach to open justice.
The most intriguing remaining question is how and why Tonkin kept up the facade for at least eight years. It doesn’t appear to have been greed or avarice. Hedge funds go bust all the time, so he could have swallowed his pride and declared his losses.
One theory is that behind his humble appearance is an arrogant, stubborn man who could not accept defeat and that his decisions were wrong. Another suggests Tonkin, who has battled all his life, had too much invested in success to be able to admit failure. Maybe the questions will be answered at his sentencing. The length and scale of his offending suggest he will have plenty of time to reflect.