Ponzi scheme misconceptions are very common and very costly. Photo / File
An investor group has launched legal action against ANZ in Wellington High Court for breaching its duties and potentially showing negligence as a banker to Ross Asset Management.
Ross Asset Management was the biggest Ponzi scheme that ever happened in NZ when it unfolded in 2012 – it is said investors had $450 million with Ross but only $10m was recovered.
In reality the figure invested was closer to $110m as most of the $450m were accumulated fictitious returns. About 200 have signed up to the claim so far.
Meanwhile in Australia, the Financial Review profiled one of the victims of the alleged Goldsky Asset Management's Ponzi scheme along with Australian Securities and Investments Commission's (ASIC) apparent lack of action in shutting down Goldsky before too many innocent investors were drawn in.
Ponzi schemes are alarmingly common, both globally and here in New Zealand. There wouldn't be a quarter that goes by, either here or in Australia, without a prosecution for a newly discovered Ponzi scheme.
At their very heart, Ponzi schemes are able to exist because of a lack of moralities from the people running the Ponzi.
That lack of moralities is then coupled with the lack of awareness by potential investors. At this point, it's doubtful we'll rid the world of devious people, so it falls on the investor to better understand what is and isn't possible in the investment world.
The victims profiled in the Goldsky Ponzi scheme were Glenn and Karen Cartwright. Glenn was a self-made builder who lost $2.75m in the scheme. The thing that makes their story so unfortunate is they'd made the investment in Goldsky in the attempt to accelerate returns and retire earlier to spend more time with their sons, who both suffered from a degenerative condition known as Batten disease.
These Ponzi scheme misconceptions are very common and very costly.
Believing hedge funds are something to aspire to
Glenn had a chance encounter in a coffee shop with a man he knew. The man informed Glenn about Goldsky and the $50,000 figure to access the fund. This piqued Glenn's interest; he'd believed hedge funds were only available to those with multi-millions to invest so clearly thought this was a good opportunity to access something most investors couldn't.
Despite their somewhat mythological reputation, the returns aren't nearly as impressive as the hype. Since 2008 the global hedge fund index has only beaten the US S&P 500 on two annual occasions.
Believing you can always outperform the market while taking less risk
Ken Grace, the self-described "trading genius" behind Goldsky, informed Glenn they would continue to outperform the global market and take less risk while doing do.
There is no way of achieving higher returns with lower risk. The only way to increase your returns is to increase the level of risk in your portfolio.
Believing that testing the waters will protect you
Glenn initially made deposits under $100,000 with Goldsky, presumably to see how the investments did. His returns with Goldsky only continued to grow from the first deposit, so he continued to contribute money, until he contributed one massive amount.
No longer are frauds just grabbing money and running – they definitely want your money because that's the oil keeping them running, not any trading returns.
They have learned that if they have some patience, they can build trust with their victims and there is potentially a bigger contribution down the line.
Believing you shouldn't trouble someone for a second opinion
Glenn initially made small contributions, but in early July 2018 he made two deposits with Goldsky totalling $2.2m after selling a business and mortgaging his house.
These big final deposits occurred during the period his long-term accountant was away on holiday. Glenn's reasoning "I didn't want to disturb him", and Glenn had already done his own projections on returns over the years ahead.
From our years of experience, we can say with confidence that any time a client has decided that they don't want to bother us, or ask for an opinion, that's the exact time we see that client do themselves some serious financial damage. If you have a financial professional on hand, they should be consulted before any major financial transaction.
Believing awards are a signifier of trust
Goldsky took out an award for global equities fund of the year at the HFM AsiaHedge Awards.
Further confirmation for Glenn that he was on to a winner with Goldsky. What are the HFM AsiaHedge Awards and what were the metrics for taking out the gong? Your guess is as good as ours.
There are worthy awards and worthy award winners out there, but the awards marketplace is extremely crowded and is geared up for marketing and promotion.
Awards might help attract attention, but what really matters is finding an adviser who is interested in you achieving those goals. They'll then be able to devise a financial plan and risk-appropriate portfolio you can stick with, along with a realistic timeframe to be where you want to be.
• Nick Stewart is an Authorised Financial Adviser and CEO at Stewart Group, a CEFEX certified Hawke's Bay-based financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance and KiwiSaver solutions.
• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
