Hundreds of investors who lost thousands of dollars in an alleged high-yield investment scam now face a battle with the taxman.
Inland Revenue has been pursuing people who invested $29 million with accused fraudster Donald Moris Rea, who died on Tuesday, two days into a scheduled five-week trial in Tauranga.
The Herald understands the IRD stance is that money returned to the 260 investors by Rea was interest and is therefore taxable. Investors argue that as the money was never invested, and was in fact their capital, it should not be taxed.
"These are people who lost everything, who haven't got the shirt on their back," said one investor. "IRD is saying the money was taxable and they are to pay penalties."
Through his International Investment Unit Trust, Rea undertook to place funds in high-yielding "private placement" schemes supposedly run by European banks. The Serious Fraud Office allege he was running a classic "Ponzi" scam - using funds from new investors to pay the promised high returns to early investors. Only $2.9 million of the $29 million was invested, and all of it was lost, forensic accountant David Hassall told the Tauranga District Court.
Over the three years that the scheme ran, Rea returned $15.8 million to investors. Most thought the payments were interest, and many spent the money, only to learn later it was their capital.
It is understood the IRD was awaiting the outcome of the now-defunct case before deciding its next move.
