UPDATE: Broker seeks to keep $2m away from swindled Ross investors
UPDATED: Duncan Priest, a Wellington broker, wants $2 million of shares he bought through Ross Asset Management excluded from the liquidator's distributions to investors hit by New Zealand's largest fraud.
In a hearing in the High Court at Wellington, Priest is seeking remove a claim against his shares by RAM liquidator John Fisk of PwC, arguing his investments through fraudster David Ross were separate to the Ponzi scheme. The shares were worth $2 million as at June 30, and about 80 percent of the investment in Diligent Corp, counsel for the RAM liquidator, Mike Colson, told Justice Denis Clifford.
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.
Priest, however, was using RAM as a nominee to manage transactions in shares, but had full control over buy and sell orders for the shares and was not part of Ross's Ponzi scheme, as Priest's shares were actually bought and accounted for, according to his lawyer, David Chisholm QC.
Complicating matters, Ross used the same ANZ Bank current account for all transactions, meaning Priest's investments flowed through the same account as Ross's other investors.
Chisholm argued that because Priest's investments went through the shared account they were untraceable, meaning that because investors can't single them out, they can't claim the shares the account was used to buy on Priest's behalf.
Colson said it would not be practicable for the liquidators to trace through all transactions in the account, and upon examination of the cash flow prior to purchases of Diligent shares, other investor money was used. That meant Priest's investments fell into the shared "pot" of defrauded investors, he said.
According to LinkedIn, Priest works for McDouall Stuart, which was the lead manager in Diligent's 2007 initial public offering. Since listing, Diligent shares have soared about 576 percent and recently traded at $5.76.
Colson said Priest contacted the liquidators in the early stages of the administration, but ultimately the parties disagreed over how to proceed.
Currently, there is between $3 million and $4 million available to be distributed to investors, excluding the $2 million of shares in this dispute, he said. Defrauded RAM investors expect to receive 3 cents in every dollar invested.
In June, liquidator Fisk won the right to recover cash from investors who were paid fictitious gains, although it was ruled that the investor's initial investment could be viewed separately.
Justice Alan MacKenzie ordered former Ross Asset Management investor Hamish McIntosh to repay $454,000 in fictitious gains from his investment, but he was able to keep his $500,000 principal payment.
Fisk is seeking to claw back some of the $100 million to $115 million that was lost in the fraudulent scheme for some 1,200 investors. As at June 16, they estimated the realisable value of shares held by Ross Asset Management entities to be about $5.4 million, with estimated total realisations available for investors and creditors of $3.98 million.
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.