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Ross Asset returns may have been made up – receivers

The receivers for Ross Asset Management have found just $10.2 million of investments, slightly more than 2% of the total of $449 million.

PwC receiver John Fisk says it is likely the historical returns advised to investors are exaggerated and may be fictitious.

In a progress report to the High Court, released today, receivers Mr Fisk and David Bridgman say RAM and its nine associated entities are insolvent and should be liquidated.

The report comes nearly a fortnight after the group’s assets were frozen.

Mr Fisk says they have identified investments of nearly $450 million held on behalf of more than 900 investors across 1720 individual accounts.

However, there is still a “significant gap” in the identified market value of the investments as they have only managed to identify $10.214 million so far.

He says because the returns have probably been exaggerated, the actual cash loss which may eventually be suffered by the remaining investors will differ from the amounts currently showing as the “value” in individual investors’ portfolios.

“In our opinion, the investment fund managed by the Ross group is insolvent, as it cannot repay the value of the portfolios reported to investors as they become due in the ordinary course of business.”

He says a recovery strategy needs to be looked at immediately to maximise returns to investors.

To do that, Messrs Fisk and Bridgman have recommended the group’s entities be placed into liquidation as this will help to release some of the assets.

“We are fully aware the situation is distressing for investors and it is our aim to provide as much certainty as quickly as possible,” Mr Fisk says.

bcunningham@nbr.co.nz

More by Blair Cunningham and Caleb Allison

Comments and questions
64

Are we finally allowed to use the word 'ponzi' now? If it walks like a duck and quacks like a duck then in all probability it is a duck, after all.

If Pwc is correct, relative to the size of the US economy and more particularly to the size of the financial services industry in the US versus that of NZ, David Ross's ponzi scheme is on a grander scale that that of Madoff!

NZ sure knows how to breed world class financial con-artists!

No... NZ sure knows how to breed suckers for investors, where as the due diligence!

If you're so clever why didn't you give us your opinion before he crashed and burned?

"...the returns have probably been exaggerated.."
Were there ever any returns at all? Probably not.
So. is the 450mill the total sum of the portfolios including the fictitious returns? If so, they should really only be interested in finding the total amount of cash deposits received from investors.
What is this figure?

Somewhere well north of $100m would be my guess. Average investor 'value' was $500K, I have heard Ross's minimum investment was $500K but I suspect he took less than this from clients. If you assume an average $250K invested per client x 900 clients that's $225m. Oh dear.

Page 18 sets out the flow of investor funds. Shows $303m of contributions and $289m of withdrawals between 2000-12. With a portfolio "value" of $449m, that seems to be a lot of compound growth. Oh dear indeed.

Actually investors paid in $303m and received $289m, hey at least you got your capital back as a group. Thing is I wonder if the receiver will now take action against investors who received more. It happened in Madoff case.

Read the report before you comment.

Come on all you trusting clients - let's hear it from the "Pro-David Ross Supporters Club" one more time.........

Actually, if this is a good old Charlie Ponzai, then the original clients will have the new clients' money. Hence the rump of the money missing might not have been lost - but rather distributed back amongst the investors.

If you originally got introduced to RAM by a mate who was a long time client, then I guess you can take some comfort in the knowledge that maybe your mate has your cash.

This is very sad really, friendships will be tested to the max and familes will be stessed and tested to the max. Imagine the poor hubby or wife who has been entrusted to look after the families savings...2 weeks ago they thought they had done the right thing by all. Even if it is a small portion it will be an emotional slap to all.

If you are a good mate, and you don't need (some/all) of the gains you made from your investment, it would be a restoration of man's faith in human kind if you could say "here fella, your my best mate, I don't need all this money, have some". Its going to be difficult for it to get back any other way.

Extremely sad to read of the postings in the other articles on RAM of the faith some of the investors obviously had in David Ross.

Interesting that there is no photo or picture out there yet of David Ross. He sure kept a low profile.

Who were the auditors? They will be rather nervous one would think.

I would suggest that there weren't any.

Read the PwC report. There were no auditors.

Graeme Fountain, described by NBR ONLINE readers as the firm's accountant, shares the same office address as Ross Asset Management and also cannot be reached.

He left a message on his office answer phone, recorded on November 4, saying: "You may be aware that I'm away from the office recovering from surgery.

"It seems that I'm not going to get back here full-time until some time in December.

"In the meantime, I'm hoping to get a gradual return to work. But that is not going to happen in the forthcoming week."

Wasn't audited and didn't have third party custody or reporting. Why do people invest in this stuff?

Early days on this, but the really telling information is on page 16

Exposures - by market value
34% of portfolio in Australia $152,393,272
1% of portfolio in New Zealand $ 3,763,012
30% of portfolio in Canada $136,123,067
35% of portfolio in USA $156,390,350
0.03% of portfolio in Other $ 943,332

Total $449,613,033

NZ is just under 1% of the purported investments. From the above PwC and the FMA will need to understand broker accounts in North America -and quickly.

Rest assured the FMA, PwC and First NZ Capital are all very capable of understanding broker accounts in the US.

Time will tell. I am not so sure that unravelling this wont use up the $10 million assets identified. I understand PwC have already charged $100k. This all looks increasingly ugly.

Nothing in Nigeria? There must surely be some investments in cocoa merchant firms, blood diamonds, oil futures and gold dust. The FMA would be advised to check any hotmail or other free email accounts used by Ross Asset Management.

I'm pretty sure we can see how this one ends.

It was all a lie for 20 years, disgusting.

The small punters ridiculed by the well-heeled for putting their money into finance companies run by crooks will be going through boxes of tissues grieving for the sophisticated investors who on average had "$500K" vaporised by David Ross.

Will be a great test of the new FMA rules and advisors who place their clients money with RMA.

Wouldn't you think 2 years of non filing of tax returns raise a few eyebrows. After all the other disasters you would of thought someone would of been watching!

I really hope there is a silver lining for the investors - sadly I don't think there will be.

You know the left beat the hell out of our banks and its not perfect but banks are just safer (or history has shown - with the exclusion of BNZ in the 80's).

This is a good argument for investing in the housing and let it boom - at least you can sit inside your investment and cook a meal

An accountancy practice in Christchurch amongst others was a feeder fund for RAM
Interesting to see this plays out
Accountants aren't licensed to give financial advice

Any accountant giving advise should be liable under the new regulations. I suspect their may be more accountants in other areas involved.

If you read the report a few things are clear, namely:

1. Contributions are roughly equal to withdrawals, so the net 'loss' is equal to the notional returns (p18).

2. PwC have already charged $107K in fees to the poor investors! (p21) Unbelievable.

If it only it were that simple. Withdrawals will have been paid to SOME investors (not all) and would have represented the original capital plus 'notional' returns. So anyone who didn't make any withdrawals has a net loss of (almost) everything.

PwC has a tough job unraveling all of this. Are they supposed to work for free? At least Ross managed to get $30m in fees out before his scheme unraveled. Wonder if he'll be paying any of that back?

What is the potential punishment for David Ross if what is claimed is true?

Fraud. Jail time, 5 years out in 3.

$10 mill a year.

BUT, remember we are talking about the New Zealand judiciary who pull a judges name out of the hat, so they will quite likely have has much relevant commercial law experience as if you selected someone off the street at random. So sentences are a lottery and could be anywhere between 5 years and 6 months home detention.

Out in 15 months

Depends on how bad his head injuries are.

Does anyone really know if he has head injuries. Someone enlighten us on what happened and where he is??????????????????????

Hopefully, some time soon we will be getting to the end of this appalling period in NZ's financial history.
What I would like to know is: who was the person and/or organization charged with investment monitoring before the FMA was created?
And what action does Govt propose to take against them?
A stoney silence to these questions will not be acceptable.
liberte

For those around before, during and after the heady days of the 80's - this has been a dreadful case of dejavu - how is that people have not yet learnt that if you give your money to others .... they will spend it - faster and with less care than you could ever imagine - especially if the projected return on your "investment" is too good to be true

Prior to FMA was the Sec Com NZ run by a frequent flying chairman and not much else happening. Typical NZ set up - a no.8 fencing wire regulator as Bro knows best, when they should have just mirrored a respected regulatory regime already in existence like ASIC, MAS, FSA . Whatever it doesnt matter as RAM was a private co, unregulated and Econ 101 - buyer-beware the investors may have all been shafted as they greedily thought they could achieve unrealistic return on their dusted cash.

Your comment is fairly accurate - the former SecCom head was certainly on the move a lot and appeared to know all the right people in Wellington. She was flown in from Aussie. We should look to our own talent to regulate the NZ market: Thankfully, at the moment we have very experienced senior lawyers with a lot of private practice experience in top positions (SFO head, FMA markets regulation head). Hopefully this new blood takes a more inquisitive view of cowboys like Ross.
Sure as eggs, however, the fund management industry will come out whinging about over the top regulation. They always do.

So sad, lost my 47 yo husband and was advised to put his life insurance $$ into RAM - as long as you're not taking out, the returns look magical.
I feel cr*p cos I've recommended people with precious funds to invest with RAM. Can I sleep at night ... its hard.
I was able to get funds out 6 yrs ago but as I've really needed my funds this past year there was nothing coming, and I'm talking 10k or 20k hardly big sums. The office people said not to fret it was their o/seas brokers who were being tardy!!!
What cr'*p. How sad that yet again large numbers of hard working NZers have lost their future and will be like me a beneficiary. Joy!!!

I can't believe after all the cr*p of the 1980s and 90s that he wasn't audited by and outside authority. I hate the system as much as Mr Ross now for lossing all our family's future.

Who advised you to invest with Mr Ross?

As I understand RAM offered 'wholesale advice' under the regulations - so advice to sophisticated investors, $500k plus

So they aren't entitled to the same regulatory protection as retail investors

Buyer beware!

If it sounds to good to true it usually is........

And what homework did you do on the individual and his fund.... nothing. Don't look for someone else to regulate for your greedy decisions.

Many post poking the borax at another damned Ponzi scheme, but we forget tha there are families, mums dads grandparents etc who have just had their world crushed. No amount of jail time will make good the tourment Ross's victims will go through.

We desperately need governance and regulatory certainty over these people / companies / trusts that invest on our behalf. When we add Hubbard and Ross together it's near $2B, and to that Handover, Strategic, Nathan's, Blue Chit etc and the glaring deficiency is regulatory oversight with teeth, and in a timely expedient manner.

Enough said.

But why did these 'Mums and Dads' invest in such an unproven company.... greed. Why couldn't they just put the money in the bank.... again greed. Live by the sword, die by the sword.

Government and Treasury too busy running the ambulance service to and from the bottom of the cliff.

What is it about the financial services sector that it seems to enjoy special protection before the frauds and crimes become so blatant and transparent that the authorities are forced to act?

Ties too close between government and them?

What the hell has this got to do with the Government and Treasury, typical uninformed opinion, it always has to be someone else's fault. My mother stopped feeding me and holding my hand a long time ago.

Would love to know the IRDs take on this one.

doubt the IRD will be 'taking' anything from anyone...

Professional investors of course will claim loss on investment.

If it was Not so sad it would unbelievable the Failed Securities Commission Failed to Audit such purported Fund Managers and require reporting. It is most unlikely such a firm would manage to deceive the First tier Auditors such as KPMG. I am very pleased that the SecCom and Chairwoman are gone ! and the FMA are beginning to implement sound systems of oversight . That will eventually bring back market confidence in time.

Would it be fair to say that any one receiving a withdrawal from this investment received stolen funds?
ie from the investors still in the fund.
Should the receivers be also chasing the withdrawals???

Can anyone with legal knowledge illuminate what the options are for the receivers in this regard. Could the withdrawals perhaps be deemed voidable transactions and reversed. I understand with the Hubbard situation the Statutory Managers reversed a number of transactions.

you can only withdraw what u put in so until the day the receivers were appointed any withdrawals would be fine. You can't reverse them.

Clearly there is a major lack of understanding about what a Ponzi scheme is. Imagine 100 investors invest $1m each. The 'returns' are quoted at 30% p.a., so after 3 years the portfolios are supposedly worth $2.1m each. After 3 years, 45 of the original 100 investors withdraw their $2.1m, so $99m goes out the door. But because there were never any actual returns, the remaining 55 investors have $1m left between them. So of course it's possible to both withdraw more than you put in, AND withdraw money that was never actually yours, it belonged to other investors.

That is the approach in the states. Not sure about NZ.

Duh... you can't withdraw more than you put in so how can a withdraw be anyone else's money but your own.

you clearly don't understand what has happened. The most recent investors should have the most equity in the remaining assets. The people who invested before the gfc would have little equity at all. The fact that they might have invested a million is irelevant.

You can't withdraw more than your investment is worth. Who cares how much you put in, thats irrelevant.

Clearly you guys don't understand a ponzi scheme...Put in 100k, fake returns of 20% = 120k, take out 120k because that is what your statement said you had, but the 20k is not a real return, but the funds that another investor put in...so yes, you can take out more than you put in, and yes you can take out more than it is worth. Especially given the worth is near zero.

You don't understand a Ponzi Scheme. Say 10 people "invest" $100,000 each, so there is $1,000,000 in the pot. They are told 'everyone will earn 20% per year'.

However, the money is never used to actually buy any real investment, it is just smoke and mirrors. However, at the end of the year the 10 people get their "investment statements" that show a return of 20% was acheived and each is now worth $120,000. This just on paper and not real because nothing was ever bought. Everything will be AOK (and the 1% commission is taken out) as long as everyone just blindly beleives their fictitious Investment Statements.

But let's say at the end of the first year 8 of the people decide to withdraw their principal and "return", so they take out 8 x $120,000 = $960,000. So 8 "investors" say "He is wonderful, we made $20,000 in just one year".

But the $20,000 return the 8 investors got was in fact the original investment made by investors 9 and 10. Everything is still rosey until the bad day when investor number 9 rings up and says "I'd like my $120,000 please"

But there's now only $40,000 left. So, unsurprisingly, the request for $120,000 is not actioned........ and the rest is history....

...and in true Ponzi Scheme style the timing of the "bad day that the money runs out" can be delayed for a long time. Just so long as new "investors" keep adding more new capital to top up the pot. But the bad day will inevitably arrive when the amount of new money coming in is less than the amount of money going out as people try to withdraw their investment balance of Capital+"return"

The main body of investors here have been around sheep too long. They have the same mentality and behavioral patterns.

The problem with beileving legislation and oversight has fixed this is in this comparison.
Some years ago,as a result of a couple fo savage dog attacks on todlers, parliament passed an instant fix by way an Act of parliament. The country then rested assured that a fix had been delivered to this devilish canine affliction.

Trouble is "DOGS CANNOT READ."