23 December 2021

Ponzi Fraud: re Strahl

The judicial axe fell to decide allocation of ANZ bank compensation for victims of the Ponzi fraud perpetrated by Wellington-based David Ross.  Different investors had differing interests in litigation which propelled ANZ into settlement talks.  They could not agree on how compensation should be divvied up.

Ross was jailed for his fraud in which clients’ money was stolen and investment returns to earlier investors paid out of money put in by later investors.  When the scheme collapsed in late 2012, then current investors potentially waved goodbye to some $440 million.  Diligent work by Ross Asset Management Ltd liquidators looks to have narrowed losses to about $115 million.  Some 550 of Asset Management’s 700 victims banded together in a class action to sue ANZ Bank alleging the bank was party to the fraud.  Because of the irregular manner in which the Ross Asset Management account was operated, the Bank knew Ross was misappropriating client money, they alleged. ANZ has at all times denied knowledge of Ross’ fraudulent activity.  After failing to get the case thrown out before trial, ANZ quietly settled with investors for an amount all agreed to keep confidential.

When signing up for the ANZ class action, all agreed an investor committee could decide allocation between investors of any compensation recovered and that this allocation was to be put to the court for approval.

Investors were divided into two categories: Class A investors who put new money into Asset Management after the date ANZ was presumed to know Ross was acting fraudulently and Class B investors who had previously put money into Asset Management but had since rolled over or amended their investment instructions.  Legal advice was that Class A investors were a slam dunk to get their money back from ANZ, if it could be proved the bank did have knowledge of Ross’ dishonesty.  Class B investors would likely get some compensation, legal advice confirmed, but it was not clear cut.

The investor committee recommended Class A investors share 75 per cent of the ANZ payout (after deduction of legal fees and the litigation funder’s costs) with Class B investors sharing the remaining 25 per cent.  Class B investors objected.  The investor committee was biased, they said.  The committee was dominated by Class A investors.  The ANZ payout should be distributed equally, split pro rata across all Class A and Class B creditors, they said.

Justice Mallon ruled a 67/33 split was more appropriate.  Class A creditors clearly had a better chance of success if the ANZ case had gone to trial.

One critical issue was the so-called ‘knowledge date;’ the date at which the investor committee assumed ANZ Bank would have had knowledge of Ross’ fraud.  New money put in after that date meant you were a Class A investor; money in one day before that date and you were a Class B investor.  For purposes of allocating compensation, the investment committee assumed 31 May 2010 as the knowledge date.  For reasons supressed in the publically-available High Court judgment, Justice Mallon approved this date as the knowledge date.

The amount to be received by investors was also supressed.

re Strahl – High Court (23.12.21)

22.027