Investors
getting their money out before losses totalling $439 million surfaced from the
collapsing Wellington-based Ponzi scheme operated by David Ross are in the gun
to repay fictitious profits received but are likely to keep the dollar amount
of their original investment following a test case heard in the High Court.
The Ross Group went into receivership, then
liquidation in late 2012 when it became apparent manager David Ross was
operating a giant Ponzi scheme. Over
1700 investors placed money with Ross for investment. Client money was missapropriated. Ross provided regular investment updates to
clients which totally misrepresented their holdings. Each update highlighted profits made to
date. These profits were entirely
fictitious. At the time the Ponzi scheme
collapsed, Ross was reporting to clients investments collectively totalling a
purported $449.6 million; only $10.2 million existed. Liquidators John Fisk and David Bridgman
identified the Ross Group had been insolvent since at least 2006.
In a test case, the liquidators chased investor
Hamish McIntosh to recover $954,047 paid to him by Ross in November 2011. This was supposedly a return of the initial
investment made plus “profits” earned.
Mr McIntosh had placed $500,000 with the Ross Group for investment some
four and a half years previously.
The liquidators sued under insolvency
provisions in the Property Law Act and the Companies Act alleging Mr McIntosh received
a payment which prejudiced other creditors.
There was an out for Mr McIntosh.
Payment could be kept if it was received in good faith and where it
would be unjust to order repayment because his circumstances changed on
receiving payment.
Justice MacKenzie ruled Mr McIntosh was
entitled to keep $500,000 of the $954,000 received. This was his original investment. It was a debt owed to him from the moment
Ross stole the money, in breach of his client’s instructions and in breach of
trust. Mr McIntosh was ordered to repay
the fictitious profits of some $454,000.
Mr McIntosh argued unsuccessfully that he had
altered his financial position to his detriment after receiving payment. He pointed to an extensive property
development he was undertaking at Palliser Road, in the Wellington suburb of
Roseneath. In August 2011 he bought the
property next to where he lived for $986,000 and set about redeveloping the two
sites: changing the boundary line and commissioning work on the construction of
two new dwellings next door.
Justice MacKenzie said Mr McIntosh’s decision
to cash in the $954,000 supposedly held in his name with the Ross Group was not
motivated by the Palliser Road project.
Forging ahead with this project was the continuation of plans which had
been brewing for some time. In any event
the Palliser Road project was not carried out by Mr McIntosh personally; a
corporate structure was used for the development. Mr McIntosh and the company are not one and
the same, His Honour said. The cost of
the development borne by a company, was not the same as any costs incurred by
Mr McIntosh after he was paid out by the Ross Group.
Calling for a payout from the Ross Group was
instead triggered by his earlier decision in July 2011 to buy a property in
Queenstown, His Honour said. The expense
of the ongoing Palliser Road project could not be used to justify retention of
$454,000 from the payout representing fictitous profits.
Fisk v.
McIntosh – High Court (22.06.15)
15.070