How New Zealanders lost $40m in Evergreen scam

NZ investors have lost $40 million to alleged fraudsters working the New York currency market. SIMON HENDERY on the Evergreen scam.

New York investment fund salesman Justin Fauci was used to playing for high stakes, but the deal pitched to him on September 22 at a Brooklyn driving range must have been enough to put him off his golf swing.

Three executives from Fauci's firm, Evergreen International Spot Trading, called in to tell him the company's majority owner, Andrei Koudachev, had absconded with $US105 million ($253.3 million).

According to court documents, the trio told Fauci they wanted him to help recoup the loss by raising a further $US160 million from investors, money they would eventually steal themselves.

For Fauci, who would later turn his employers in to the FBI, it was the last straw.

In previous days, with the dust yet to settle from the destruction of the World Trade Center, he had begun taking calls from angry Evergreen investors around the world, including New Zealanders and Australians he had given sales pitches to in Auckland and Sydney.

The investors wanted to know what had happened to the cash they had invested with Evergreen, a Fifth Ave firm which made its money trading major world currencies.

Evergreen had looked like a speculator's dream before the terror attacks - almost too good to be true. In its bustling Manhattan offices, an army of sales staff with international business directories worked the phones, touting their company's high-return scheme to wealthy investors.

New Zealand and Australia were favourite targets among the 14 countries staff called.

Out of the blue, a smooth-talking "broker" would phone with details of a currency exchange-based investment too good to pass up, and he would not take no for an answer.

"How did you get my number?" the bemused New Zealand recipients of these calls would ask.

From a directory listing details of company directors, the New Yorker would reply.

Evergreen's 150 brokers made regular calls over weeks and months to build up the trust of their affluent clients on the other side of the world.

Initial small investments with the firm grew as investor greed was fuelled by consistently high returns of about 18 per cent a year. For several years the phenomenal returns continued, at least on paper, and New Zealanders invested at least $NZ40 million.

Happy investors recommended friends sign up for the scheme, and even offered to act as referees for the company.

Before September 11, New Zealanders wanting to withdraw funds simply faxed New York and the money was transferred from an Auckland BNZ account in the name of Evergreen's financial clearing house, First Equity Enterprises.

First Equity had offices on the 15th floor of the World Trade Center.

The first sign something was wrong was when nervous Evergreen investors wanting to pull their money out of the US after the terror attacks found their fax and phone requests to First Equity were being ignored.

Company president Gary Farberov had disappeared, although it had been established that none of the company's staff had been killed in the attacks.

The FBI now says Evergreen was an illegal "boiler room" operation "stringing along investors with blatant lies".

Most of the dozens of New Zealand victims have been reluctant to talk about their losses.

But one Aucklander says he had his $2 million retirement nest egg invested in the firm, and he knows of others who have lost more.

Takapuna-based Detective Senior Sergeant Mike Bush, who is heading the New Zealand arm of an international hunt for the missing money, says he has so far received 73 complaints from out-of-pocket Evergreen clients.

The detective says he knows of other investors who are overseas and are likely to contact police when they return to New Zealand.

First Equity's New Zealand bank account has been frozen, although its balance was described as "insignificant". Similar accounts have been frozen in Australia, where several hundred investors are out of pocket.

Auckland lawyer and investigator Mark Van Leewarden, hired by a group of local Evergreen clients, has played a key role in tracking some of the missing money.

The former police officer returned to New Zealand this month after several weeks chasing the movement of Evergreen funds around the US and Europe.

He obtained a court order freezing several million dollars transferred to Swiss bank accounts.

One of the biggest legal challenges to Evergreen comes from a Queensland investor, land developer Dirk Karreman, who alleges a plot to rip off investors going back as early as July last year.

Mr Karreman filed a claim in a Manhattan federal court this month for the $US1.975 million he says he lost.

He claims Koudachev used Evergreen funds to buy and decorate a luxury condominium, and spent $US150,000 on personal goods charged to an Evergreen credit card.

His lawsuit also alleges that chief financial officer Polina Sirotina used her company credit card to spend up to $US200,000 a year of clients' funds on furs, jewellery and clothing.

Mr Karreman's claim outlines the driving range meeting between Fauci and the three Evergreen executives - Farberov, Sirotina and Gary Gelman.

After rejecting the trio's offer to join the plot to raise and then steal more investor funds, Fauci confided in Evergreen's currency trader, Mamed Mekhtiev.

The pair hired a lawyer, who took details of the plan to the FBI and the US Attorney's office.

This week, 32-year-old Farberov was arrested and charged with stealing $US105 million from Evergreen investors. He was released on payment of a $US500,000 bond.

Koudachev, the majority owner of Evergreen and First Equity, is charged with stealing the same amount, transferring it to overseas accounts and fleeing the country.

However, his lawyer told the New York Times this month that his client was living in Moscow and was a victim of the crime, not a thief.

"[Koudachev] is himself a creditor of Evergreen," said Nathaniel Marmur.

"He is disappointed and concerned with the apparent loss of investor funds and is hopeful that every effort will be made to recover any missing assets."

Sirotina, through her lawyer, has denied any wrongdoing. Gelman has not been heard from.

Other lawsuits against Evergreen similar to Mr Karreman's look likely to follow.

A Melbourne lawyer representing about 30 Australian Evergreen investors is suing the National Australia Bank, alleging the bank knew or should have known that money transferred out of a Melbourne First Equity account by the alleged fraudsters was being held in trust for investors.

Last week, the Melbourne Age quoted a former Evergreen broker, Anthony Oropeza, saying Sirotina had been putting pressure on the company's 150-strong sales force "to raise more money".

Mr Oropeza said Evergreen brokers were paid low salaries, but received large commissions for signing up new investors and keeping them investing.

"The way it was set up, the broker had to get the client, and then keep the client in the system, trading for a year, for the broker to be paid out.

"As soon as you got the client in, about 5 per cent, 6 per cent was the commission. If the client put in a lot of money, say $US1 million, and took it out before the year was up, the broker would have to take a hit, and would have to pay the money back."

Mr Oropeza also told the Australian Financial Review that he and a group of former Evergreen brokers were setting up a new company to continue trading in the foreign exchange spot markets.

The new company would approach former Evergreen clients and Evergreen currency trader Mr Mekhtiev was expected to join.

The Evergreen case is the second alleged "boiler room" scam involving New Zealand and Australian victims this year.

In July, 31-year-old New Zealander Scott McGee was arrested and fined by Thai authorities after raids on two companies in Bangkok. Both firms pitched their investment schemes mainly in New Zealand and Australia.

Boiler room operations were highlighted last year with the release of a movie of the same name about a group of young New York brokers who became millionaires drumming up money for non-existent companies by cold-calling potential investors.


Clarification: Scott McGee

In publication on this website on 28 and 30 July 2001 and 22 November 2001 dealing with a raid by Thai authorities on alleged boiler room operations reference was made to Scott McGee, a Christchurch musician on a working holiday in Thailand.

We wish to clarify that we did not say or mean to say that Scott was knowingly involved in any dishonest activity, scam, or fraud.

The New Zealand Herald accepts that he was not so involved.