Former ponzi investor McIntosh argues he's entitled to 'fantasy' returns from RAM

David Ross

Former Ross Asset Management investor Hamish McIntosh told the Supreme Court he was entitled to fictitious returns on $500,000 he invested with the failed Ross Asset Management that one judge on the bench said were "a fantasy" based on stolen money.

The Wellington lawyer, representing himself, is appealing against a Court of Appeal ruling that he must repay the $454,000 in fictitious gains from his investment while keeping his $500,000 principal payment. The liquidators of RAM are cross-appealing that they should be entitled to claw back his principal as well. RAM was New Zealand's biggest-ever ponzi scheme.

Mr McIntosh has attempted to keep his circumstances private. He lost a bid for name suppression last year. Today the Supreme Court agreed to suppress some parts of his evidence, including details of emails with his banks, architects and to RAM principal David Ross, who had to be nagged to repay the investment ahead of RAM's eventual collapse, as Mr McIntosh tried to get his finances in order to buy a development property in Wellington. However, Justice William Young said the suppression order would be reconsidered in the court's judgment.

He argued that he shouldn't have to repay the $454,000 because the investment had been terminated "in very normal circumstances" and paid out "as if the contract had been fully informed." In public court, Mr McIntosh cited emails to RAM thanking it for "a very good result.

"That's what I rely on to say there was a conclusion or discharge of this contract," he said. The return on his four and a half-year investment wasn't so unusual as to trigger alarm bells with his accountants. Anyway, he was entitled to rely on RAM's reports of the returns on the investments, whatever actual use the money had been put to, he said.

"The actual use of the money is irrelevant?" Justice Susan Glazebrook asked to which he replied "yes." Justice Mark O'Regan then said: "But the returns you were told about were a fantasy. Your money was stolen and from then on everything was a fantasy."

Liquidators John Fisk and David Bridgman of PwC took their action against McIntosh as a test case and have previously said they would pursue other investors who pulled out their funds before Ross Asset's collapse. Defrauded investors are expected to receive 3c for every dollar invested.

In the High Court, Justice Alan MacKenzie had ruled the liquidator's bid to claw back funds from former Ross investors didn't need an 'all or nothing' approach, and the principal invested could be viewed as separate from the investment scheme's fictitious returns. But today in the Supreme Court, McIntosh said it was "completely artificial to bifurcate that amount."

Justice Glazebrook: You're saying $950,000 or nothing?"

Mr McIntosh: "Yes."

Justice Glazebrook: "Well that's interesting. It may be you don't like the answer."

Mr McIntosh reiterated his argument, unsuccessful in the lower courts, that he had faced a change of circumstances because of a property development on Wellington's Palliser Road, which involved taking on $3 million of debt, pushing the venture into negative equity. Justice MacKenzie in the High Court had dismissed the Wellington investment defence, finding the funds he got from RAM were used to buy a property in Queenstown. He also reprised the argument from the lower courts that there had been a transfer of value in terms of the Companies Act.

Evidence suppressed by the Supreme Court today built McIntosh's case that reliance on the RAM money had been a key part of his decision to buy the Wellington property and that by the time RAM was put into liquidation he would have faced an additional loss of funds expended on his development plans.

He also argued that he had no way of knowing, even with the liquidation, whether his portfolio was valid or not.

Lawyers for the liquidators were due to make their counter-appeal this afternoon and the decision of the court is expected to be reserved.

Wellington-based Ross built up a private investment service by word of mouth, producing regular reports for shareholders indicating healthy but fictitious returns. Between June 2000 and September 2012, Ross reported false profits of $351 million from fictitious securities trading as part of a fraud that was the largest single such crime committed by an individual in New Zealand. Mr McIntosh today said his broker recommended Ross to him and the investment was accepted by both his accountant and bank.

In June last year, the Court of Appeal turned down a bid by Ross to reduce his 10-year, 10-month jail term, which carries a minimum non-parole period of five years and five months.

(BusinessDesk)

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This is marvelous. If the Court is to be consistent with their decision in the Allied Concrete case they will need to find in favour of McIntosh.

McIntosh is entitled to keep his money if he;

A) had no knowledge of the fraud (tick)
B) acted in good faith (tick)
C) Gave value (his initial investment; tick)

McIntosh maybe self represented but he has no fool for a client.

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McIntosh is entitled to keep his money if he;

A) had no knowledge of the fraud (cross)
B) acted in good faith (cross)
C) Gave value (his initial investment; cross)

Mate, when you open the fridge door -- and something smells putrid, you just know that the lamb flaps have passed their expiry date.

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According to Miller J's detailed dissenting opinion in the Court of Appeal McIntosh should "disgorge it in full" ie pay back the lot.

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Yes. I'd agree with that. Let's see if the Supreme does as well.

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Damien, I am interested in your view point, as surely you should be more keen for gave value to mean that it was a payment for services render/to be rendered rather than just a payment of funds

I am not convinced that this is the same, as what did McIntosh give in value - he had already given the value when he brought in, not when he withdrew, which surely means he fails that third part of the test.......

I agree that we need to wait for the supreme courts decision but I am interested in why you think his initial investment was giving value??? - I admit that this is complex but there is a difference between paying money for services rendered (trade people) and paying money for it to be managed and paid back (financial gain) especially as in this case isn't he paying Ross for their management, rather than Ross paying him for value?

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ARC; (I am assuming some rudimentary knowledge of voidable law on your part) There isn't any real question regarding the issue of did he give value. The issue has been the timing of that value. In overseas cases value needed to be at the time that transaction occurred. Typically you give a service on Monday and get paid on Tuesday then you can keep your money; but if you gave a service in 2010 and got paid in 2012 then you have to hand that money back.

If you are interested (excuse the plug) here is my snapshot of 500 years of voidable transaction history;

http://www.waterstone.co.nz/voidable-transaction/

However, in NZ the Supreme Court said that giving value could be antecedent and they did that after a lot of whining in the media by contractors who were being hit by voidables. Now; it would be unkind to suggest that the court responded to public opinion but it certainty looked like that. The result was a surprise.

Anyway; back to this case; McIntosh has an easy win with the initial deposit. His argument for the profits is harder but I think he is right. He gave value, the returns are part of the compensation for that. How do you differentiate between what is an equity investment and the return on it?

This isn't a bank loan with fixed interest; it is a speculative investment; so he is entitled to all or nothing. You can't split the baby here.

So the supreme court need to find a way to uphold the CoA; which was a nonsense decision; or side with the minority view and overturn their earlier precedent.

Or come up with a creative way of splitting the baby; which is what I think they will do but the level of legal gymnastics required here is epic.

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Damien, its going to take more than legal gymnastics to justify McIntosh keeping his capital when the money he received was stolen from other investors (as were his fictitious gains). The law being used (Companies Act and Property Law Act) doesn’t fit a Ponzi situation. This is no joke, as it has cost the investors millions in fees and nearly 4 years, to be left still in a state of despair that may never be resolved in a fair manner.
Further, it appears the liquidator is only going back 3 years with claw back claims, which means the maximum he can now recover is about $86m (if he can recover capital and fictitious gains) instead of the $115m Ross stole. This means the investors have already lost $29m. This is a serious and it would appear another consequence of the poor legal framework in NZ.
No wonder the government has been forced to do a review, gladly being done by the very industry that has created this mess.
I like your paper on voidables but you need to rewrite it to cover the Ponzi.

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Damien, your right I have a basic understanding of this, my focus is more on employment law and trust - I only pay attention to voidable when I have to or it is for once interesting

As I mentioned, I do not question that he paid in the money, nor that it was value given, but that he paid the money for RAM to give him a service, which differentiates form the Allied cement case (that or it is similar but unfortunately he is the payer, not the receiver, which complicates this). I guess this really comes down to how the court views the saving scheme, is he the one paying for value, or RAM. To put it another way this case will possibly clarify (narrow) the law around the giving of value - as currently the definition in NZ could be seen as a little bit to broad

As to speculative interest - the complexities here get worse and worse, as to what the asset was (all tied into the exchange of value), and I agree with you about his initial investment, if it is seen as separate then he should be allowed to keep it (but this ties into the question of what the asset was and when the exchanges occurred), but his approach may limit the room for the supreme court in upholding the CoA through finding a differentiating detail (I see a few, but they ruin his argument for getting back his money)

To be honest while I think allied cement had a reasonable argument for the outcome, I am not sure it was the best, as there are other ways trade people could achieve the same result, but they involve much more complicated legal structures

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His litigation clients who have been unsuccessful should go back to him and say that they were entitled to wins and therefore he needs to compensate them for their losses.

Oh, doesn't it work that way?

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