David Ross was released from prison, after serving almost seven years of a ten year sentence for fraud, before investors received clarity on recoveries from his $115m Ponzi.
David Ross was released from prison, after serving almost seven years of a ten year sentence for fraud, before investors received clarity on recoveries from his $115m Ponzi.
The last rites for Ross Asset Management - New Zealand’s largest Ponzi scheme - were finally read just before Christmas. The end of liquidation followed years of protracted civil litigation that went all the way to the Supreme Court to determine how investors owed $115 million should be treated.
Theprocess dragged on so long that the Ponzi scheme’s architect, Wellington accountant David Ross, had time to be investigated by the Serious Fraud Office, tried and convicted, serve nearly seven years of an 11-year prison sentence, and be released on parole in early 2020, before liquidators PwC last month wound up their administration of his cluster of related companies. That administration lasted just one day short of a decade.
The final liquidators’ report from PwC’s John Fisk and David Bridgman shows $34.5m was recovered, enabling investors to be delivered just under 20c of each dollar they had put into the schemes. Further recoveries for investors came in 2021 after the ANZ settled a lawsuit claiming the bank was negligent in enabling the long-running Ponzi.
The liquidators’ report also shows the key reason for the long half-life of Ross’ fraudulent scheme: liquidators clocked up $3.85m in legal fees over the period, with another $2.4m charged directly by PwC for service as liquidator. This mammoth legal bill is largely due to needing to make case law enabling clawbacks, or the recovery of funds from investors who, before the collapse, had withdrawn what turned out to be fictitious profits.
Liquidator Fisk acknowledges the totalled-up legal bill is eye-popping, but notes that wealthy investors he had to chase for repayments probably spent similar amounts or more opposing his moves. Clawbacks also enabled the collection - and ultimately distribution to investors - of $25.7m. In the end, clawbacks accounted for nearly 80 per cent of all Fisk’s recoveries.
“It made a material difference to the outcome, even though that outcome was still disappointing for many investors,” Fisk told the Herald this week.
PwC Partner John Fisk spent nearly a decade overseeing the liquidation of Ross Asset Management, New Zealand's largest Ponzi. Photo / Supplied.
Bruce Tichbon, whose near-indefatigable agitation on behalf of investors pursuing the then-novel clawbacks also spanned a decade, agrees that the Ross Asset Management outcome averted a worse result - “it’s better than zero” - but says the process of setting precedents in higher courts was draining.
“At the end of the day, I learned a lot of how the system works in New Zealand. It’s just gob-smackingly and ridiculously unfair, expensive and time-consuming,” Tichbon said.
Brent Norling, of insolvency practice Norling Law, said the legacy of the Ross case was imperfect but it did leave administrations with far better tools for the inevitable next Ponzi, which will hopefully save millions in legal fees and years spent trying test cases.
He drew parallels between the Ross administration and Grant Thornton with the cryptocurrency exchange Cryptopia, which has also involved the expensive carving out of court precedents over the ownership and distribution of cryptocurrencies.
“It’s not perfect, and I think no matter what decisions get made somebody is going to complain about it. The benefit of this litigation is that we do have an answer, and there is some certainty,” Norling said.
“At least in the next one - because there will certainly be other Ponzi schemes that crop up - liquidators won’t have to repeat that work.”
Both Fisk and Tichbon agree that while the clawback mechanism and its fresh case law was better than letting Ponzi losses lie where they fall after a scheme inevitably imploded, a legislative fix could provide for fairer outcomes.
The bones of the clawback mechanism, confirmed in a 2017 Supreme Court ruling brought by Fisk, allows administrators to recover withdrawals of interest - but not capital - in order to more fairly distribute to the wider pool of investors.
“From a policy point of view, it needs to be that everything someone got needs to be paid back,” Fisk said.
Fisk also says a “change of position” defence established by the courts, allowing investors to resist clawbacks if Ponzi proceeds had been committed elsewhere, was “perverse” as it penalised conservative investors and rewarded the spendthrift.
“But there’d need to be a change in legislation to allow that.”
Tichbon agrees the law needs to change: “The problem is there’s no specific Ponzi law to give equitable outcomes. It’s very, very unfair that some investors got everything back, while some only got a quarter,” he said.
“Precedents that have been set provide a framework, but it’s a framework that is completely unfair, cumbersome and comes with massive legal and other costs.”
