At a modest Christchurch office on February 26, 2020, the financial controller of boutique investment fund Penrich discovered a hidden cell in company spreadsheets that added eight billion Yen ($103m) to assets claimed to be available to investors.
That Japanese currency didn't exist, and the hidden cell - in a collapsed column using white digits on a white background - was inflating the value of the fund by 85 per cent and meant that most of $101m tipped into Penrich over the past seven years by nearly 200 largely rich-list investors had been lost.
That staff member asked her boss, and Penrich founder, Kelly Tonkin for an explanation. The economist, who had plied his trade at Treasury and at investment banks in London, first said he would "go and investigate", but in a March 11 email admitted the gig was up.
"I am glad you ... have uncovered the discrepancy in the fund. There are no innocent explanations for this and you are right to report this to the appropriate channels. I have been trying to hide losses in the fund with the hope that these would reverse themselves. Recently it has become increasingly obvious that this is not possible," Tonkin wrote.
Tonkin then left a letter on the desk of his chief executive saying: "I wish to confess to a large-scale fraud which I have perpetuated over a long period of time."
Penrich had been established by Tonkin in 2004 and billed itself as trading largely in foreign exchange and fixed income futures and options. Large losses were made in the six months from September 2011, leading Tonkin to make the fateful step to create the hidden cell and cover his tracks, which would culminate a decade later in nearly $100m in losses and him facing the prospect of a decade behind bars.
Liquidators were appointed in the Cayman Islands and Christchurch that March, and the Serious Fraud Office began investigating and, later, prosecuting Tonkin. The Christchurch District Court last month heard while he admitted and plead guilty to his crimes he disputed the scale of losses he had caused.
Counsel for Tonkin, who by this stage had already pleaded guilty for four charges of fraud and forgery, tried arguing that his share of responsibility for the losses amounted to only $2m - that being the fees he had collected from entry fees and his 20 per cent share of purported profits.
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A ruling issued this week by Judge Tony Crouch catalogued the scale of the mess left at Penrich and ruled Tonkin was responsible for $80m in losses, including to his own family and friends he had recruited into the fund.
Over the past seven years, $101m had been invested and $23.5m withdrawn before the house of cards collapsed. Only $1m had been recovered by liquidators so far, with the most recent statements sent to investors before the SFO became involved claiming $137m was in the fund.
Nothing has yet been repaid to investors.
The main asset found in the ruins of Penrich was a debt note issued by Luxembourg company Matterhorn worth $17.3m said to be redeemable in 2023.
Cayman Island liquidators told the court Matterhorn wasn't responding to their inquiries and expressed doubts about whether it could be realised and losses to investors reduced.
Judge Crouch said it was "surprising" given the size of the note and Tonkin's testimony the investment was real that the liquidators hadn't looked more closely. He said the note should be included as an asset for now.
Tonkin, who pleaded guilty to four counts of fraud and forgery in June, will be sentenced at the Christchurch District Court on December 21.