Lavish lifestyle of $17.8 million bank swindler

Stephen Versalko in court on Thursday. Photo / Dean Purcell

If it wasn't for Bernie Madoff, Stephen Versalko could still be stealing millions.

The largest employee theft in New Zealand history was discovered only after an ASB Bank client saw a television show about Madoff, America's US$50 billion fraudster.

In August, a woman who had invested more than $3 million with ASB adviser Versalko became uneasy about the fact he was the only staff member she had dealt with.

If something happened to her, she reasoned, 52-year-old Versalko would be the only person who knew anything about the funds into which her money had gone.

At about the same time, she watched a documentary about Ponzi fraudster Madoff that rang alarm bells. Madoff's technique of fobbing off his victims reminded her of Versalko.

A phone call to ASB confirmed the investor's worst fears - her multimillion-dollar investment portfolio was fictitious.

And that was only the tip of the iceberg of Versalko's prolific offending.

He immediately admitted his wrongdoing to ASB investigators - and was promptly sacked.

Then a Serious Fraud Office inquiry found nearly 30 wealthy clients had been defrauded of nearly $18 million over nine years.

Criminal charges were laid in the week before Christmas, and Versalko pleaded guilty in February.

Yesterday, he was sentenced in the Auckland District Court to six years in prison, with a minimum-non parole period of four years.

Suppression orders have been lifted, allowing the Herald to report how Versalko got away with his deception for so long - and how he spent the money.

He told SFO investigators that after nine years of stealing millions of dollars, he thought he was "Mr Invincible" in regards to his offending.

He lived a lavish lifestyle with his ill-gotten gains.

He spent $3.9 million on luxury properties in Remuera and Coromandel and more than $2 million on his credit cards - including $300,000 on stocking his wine cellar.

He used seven different credit cards to withdraw cash from ATM machines.

But one of the more sordid details of the case is that Versalko paid $3.4 million to two prostitutes with whom he had long-term arrangements.

SFO prosecutor Patrick McCann said Versalko tried to mislead the SFO about them.

"He deceived the SFO in the identities of the two ladies ... describing them initially as ASB clients who had fallen on hard times and were in dire straits."

The SFO says the pair were "significant beneficiaries" of Versalko's frauds.

The total of $3.4 million was from recorded payments only. Both women told the SFO they also received large cash payments.

The Herald understands Versalko took one of the women - instead of his wife - on a business trip to Dubai to stay in the Burj Al Arab Hotel, where the cheapest room costs US$2000 a night.

In court, Versalko's lawyer, Stuart Grieve, QC, said one of the women blackmailed Versalko for $1.2 million.

She used the money to buy a $1 million property, now the subject of a legal bid by ASB to recoup the money.

Versalko's blue-chip properties in Remuera and Coromandel have been sold, and more than $4 million is being held in a trust account.

Not only has the bank had to suffer the embarrassing publicity, and pay the money back, but it is also honouring the outlandish investment promises Versalko made to his victims, costing it a further $1.35 million.

The fraud is so large that it is thought to have contributed to the bank's net loss of $10 million between July and December last year - ASB's first loss in 21 years.

The bank has been reluctant to reveal how Versalko's frauds went undetected for so long. Yesterday, it issued a written statement but would not answer questions.

The SFO file shows that Versalko started out small. In the 1990s, he managed money markets for several financial institutions and received an annual salary of more than $200,000, plus bonuses.

But he was made redundant, and eventually got a job as a senior investment adviser with ASB in 1997.

He was still being paid a six-figure salary, but it was less than his previous pay packet. Unable or unwilling to curb his spending, he amassed credit-card debts of $40,000 by the year 2000.

Searching for ways to increase his income, Versalko started a property development project, which went well over budget. By August 2000, he needed another $70,000 to avoid having to sell the property at a loss.

To obtain the money, he committed his first fraud, targeting a long-time client who had about $400,000 invested in a term deposit and with whom he had a good relationship.

Crucially for Versalko, the client lived overseas and did not monitor account balances, relying on written statements.

Versalko suggested re-investing the money in another "opportunity". Once he had secured banking authority, he began using a theft technique which he repeated for the next nine years.

He would send the investor periodic "statements of account" that he forged using bank paper. The investor had no reason to suspect anything was wrong. The pattern would be repeated.

Versalko targeted the elderly, the financially unsophisticated, women and those living overseas or with no phone- or internet-banking access.

The fictitious investments varied, but all had higher-than-normal market interest rates, no tax, on-call funds, absence of administration fees and government guarantees.

But the schemes never existed. Millions of dollars that Versalko was supposed to have invested were instead transferred to his personal accounts, or to a "ghost" account to repay other investors.

He was able to disguise the fact that money was missing by making interest payments to clients on time.

He created bank statements and certificates to show payments, signing them and distributing them when needed.

But there was no prospect of all the investors being repaid and the eventual collapse was inevitable.

SFO graphs show a significant escalation in Versalko's thefts between 2007 and his exposure in 2009.

He stole more than $3 million in 2007, using nearly $2 million to repay principal and interest payments to his victims.

In 2008, he stole $5.5 million, and nearly the same amount in the first nine months of 2009. In all, he stole and paid back $4.7 million to deflect suspicion and perpetuate his fraud.

To explain his opulent lifestyle, Versalko told family and friends of his success in on-line trading of stocks and bonds.


PONZI SCHEMES - DOOMED TO FAIL

* A true Ponzi scheme is a fraudulent investment that incorporates the paying of abnormally high returns to investors out of the money paid in by subsequent investors, rather than from revenues from legitimate business activity.
* To meet those returns requires an ever-increasing flow of money from new (or returning) investors in order to keep the scheme going. Ultimately, such a system is doomed to collapse because there are little or no underlying earnings.
* In the US, Bernie Madoff operated a Ponzi scheme and when the new investor market dried up, he no longer had any fuel to keep the fire going and it all imploded.

Gib Beattie, assistant SFO director