Priest 'intuitively knew' what shares Ross was holding on his behalf, court hears
Duncan Priest, who is fighting to keep a $2 million share parcel from swindled Ross Asset Management investors, tried to transfer his shares before fraudster David Ross's assets were frozen and says he "intuitively" knows what belongs to him.
In a hearing in the High Court at Wellington, Mr Priest is seeking to remove a claim against his shares by RAM liquidator John Fisk of PwC, arguing his investments through Ross were separate from the Ponzi scheme. The shares were worth $2 million as at June 30, and about 80% of the investment is in Diligent Corp, counsel for the RAM liquidator, Mike Colson, told Justice Denis Clifford yesterday.
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. He is currently serving a 10-year, 10-month jail term, which carries a minimum non-parole period of five years and five months.
Mr Priest, who has been a stockbroker for 50 years, signed a deed of arrangement with Ross Asset Management 25 years ago initially because he wanted to buy some Canadian stock and very much saw the deal as a custodial arrangement while he managed the buying and selling of the shares. Complicating matters, Ross used the single ANZ Bank current account to run all transactions through – making it difficult to trace who bought what, and leading the liquidator to pool all transactions through it into a single pool for distribution.
In October 2012, after a "golfing mate" contacted Priest because they couldn't get their money out of their Ross investments, Mr Priest decided he would move his shares. Under cross examination from Colson, Priest said this had always been the plan and he'd stopped investing via Ross Asset Management, and the related Dagger fund, because Ross had told him his staff were complaining about the administration related to his holdings.
Mr Priest met Ross on a Saturday morning but denied he did it under urgency, rather because he "was out swinging a golf club that way" but the transfers could have waited until the Monday. Of the nine transfers Mr Priest presented, Ross refused to sign share transfers in Mowbray Collectables, Savoy Equities, Glass Earth and Sealegs because they didn't have the correct number of shares on them.
The broker said he "intuitively knew" what the holdings were, and hadn't kept formal contemporaneous record. He had also relied on Ross's quarterly statements and stock broking software, Iris, to keep track of what he owned.
Mr Colson queried Mr Priest's record keeping, especially when it took three quarters for his $100,000 purchase of 200,000 Diligent shares from his employer McDouall Stuart in September 2009 to show up in Ross' statements. While it is clear the shares were bought, the dispute centres on whether Mr Priest can lay claim to them given their purchase through the single pool of funds.
"I knew what was there – I was running the ship," Priest said. He was "brought up in an era of broking where we weren't trained well in record keeping – we were trained in getting our memories right.
"To a degree I've used that same system."
He said from June 2011 the quarterly reports from Ross on his investments stopped coming because it was at a time he was undertaking a large number of transactions in Diligent as they became more valuable
"It's called prudent portfolio management," Priest said of the increased trading.
Mr Colson took Mr Priest through emails with a Ross Asset Management employee, which showed confusion over what was held on his behalf and included evidence of Ross trading shares without Mr Priest's knowledge. Mr Priest said at the time the discrepancies were sorted out and it was clarified what his holding was.
Colson asked whether Ross' selling of his shares without telling him sounded "warning bells."
Priest said it didn't at the time. "It should have in retrospect, but no it didn't because we fixed it up, we thought we fixed it."
"It was what it was," Priest said. "I had no reason to believe funds were at risk. In 50 years I've seen the odd share broker go belly up, and most of them have had custodial assets that have been the first port of call for liquidators - but generally arrangements with clients prevail because it's quite a clean cut arrangement."
Currently, there is between $3-4 million available to be distributed to investors, excluding the $2 million of shares in this dispute. Defrauded RAM investors expect to receive 3c in every dollar invested.
Ross Asset Management's assets were frozen and receivers appointed in 2012 by the Financial Markets Authority after the watchdog received complaints about delayed or non-payment of investor funds. Ross wasn't available in the early days of the investigation due to his hospitalisation under the Mental Health Act.
PwC's Fisk and David Bridgman were appointed to preserve the assets of the Ross family and related trusts as part of the wider investigation into Ross Asset Management.
The hearing before Justice Clifford continues.