Commerce Minister Kris Faafoi has shelved plans to pass laws to protect investors in future Ponzi schemes, leaving a victim of one of New Zealand's largest frauds furious.
On Monday Faafoi announced changes to insolvency law, which includes protecting some of the value of gift cards or vouchers when the issuing company becomes insolvent.
But papers released by Faafoi show he has indefinitely put on hold reforms he announced in May last year which could have given liquidators greater scope to claw back money from those who withdrew money from a Ponzi scheme before it collapsed, to repay those who lost everything.
Instead, the changes could actually assist those who withdrew money. Faafoi is proposing to cut the period before an insolvency that transactions can be voided and reversed from two years to six months.
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Ponzi schemes are a type of fraud where the perpetrator uses money from new investors to cover the withdrawals or returns paid to existing investors.
Such investments tend to end in sudden collapse when new funds cannot be attracted, leaving remaining investors with heavy loses.
Faafoi said he put the Ponzi law reform on hold because he did not want to delay other changes. He added that most submitters on the plans did not consider Ponzi law to be a high priority issue given the relatively small number of such frauds, around one or two a year for a decade.
The news has angered one of the victims of Ross Asset Management (RAM), New Zealand's largest ever Ponzi scheme, Bruce Tichbon.
Hundreds of people believed founder David Ross was managing close to $450 million on their behalf before RAM's collapse in late 2012.
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However after the Financial Markets Authority raided the company's offices on The Terrace in Wellington, receivers were able to locate only a few million dollars.
Ross, who attracted investors with claims of consistent excellent returns, is still in jail after twice being denied parole .
The collapse kicked off years of legal battles, with liquidators PwC taking investors who withdrew money before the collapse to court.
Some of the cases were not completed until this year.
Investors who withdrew no money before the collapse of RAM are being paid just under 20c in the dollar of their original investment, with the final return paid on November 1.
Tichbon, a customer of RAM who has been acting as an advocate for fellow investors since the collapse, was "gobsmacked" by the latest news.
He had believed the Government was preparing to pass laws which would have protected victims of future frauds and he now plans to seek a meeting with Faafoi to get an explanation.
"I am driven by the profound injustice inflicted on Ross Asset Management investors and I do not want New Zealand to continue to treat small investors so contemptibly," Tichbon said.
"Everything was just a disaster that was avoidable if we had proper protection for small investors."
Tichbon said it was "especially galling" that Faafoi was shortening the time that liquidators could claim money back, because it could mean less money in the future for those who lost everything.
Faafoi appeared to back this claim, writing in a Cabinet paper that the changes "will reduce the amount clawed back from investors who withdrew funds from a Ponzi scheme" leaving less "to be shared amongst other investors".
PwC partner John Fisk, who has been working on the RAM liquidation since 2012, said reducing the amount of time under which transactions could be voided may not affect future Ponzi schemes.
The precedent the RAM liquidation set was won because of claims under the Property Act, which allowed liquidators to make claims for up to six years, Fisk said.
He believed reforms would be fraught because each Ponzi was unique, but could be useful in some cases.
"One of the problems with having Ponzi legislation would be defining exactly what a Ponzi is" and what was insolvent trading or "straight out fraud", Fisk said.
"Having said that, specific legislation that says 'that investors who received recoveries of profits rather than capital over a specified period have to pay them back' would certainly make life very clear in terms of what has to be done."