The Serious Fraud Office has laid charges in the Wellington District Court against Ross Asset Management's David Ross alleging he ran a Ponzi scheme and overstated investment positions by more than $380 million.
Charges laid in the Wellington District Court against 63 year-old Ross allege he operated a $400 million Ponzi scheme. They follow a joint investigation by the SFO and the Financial Markets Authority.
"The charges laid by SFO allege that Mr Ross conducted a Ponzi scheme which he disguised by falsely reporting clients’ investments. They allege that large portions of client portfolios shown as invested through a broker ‘Bevis Marks’ were fictitious and never existed, resulting in an overstatement of investment positions by more than $380 million," a joint SFO and FMA statement says.
More than 1,200 Ross Asset Management client accounts have been affected.
Ross, a Wellington-based financial adviser, faces four Crimes Act charges of false accounting and one charge of theft by a person in a special relationship. Under two of the false accounting charges he faces a maximum penalty of seven years imprisonment, and 10-years under the other two. The theft by a person in a special relationship charge carries a maximum penalty of seven years jail.
“The allegations made amount to serious criminal matters. However the saddest fact of all of this is the position that Mr Ross’ clients find themselves in," the SFO’s acting CEO, Simon McArley said.
Belinda Moffat, the FMA's head of enforcement, said the FMA was completing its investigation into conduct by Ross under the Financial Advisers Act. It will also release best practice guidance for financial advisers providing discretionary investment management services (DIMS) to ensure the regulator's expectations are well understood by advisers, as well as guidance for investors considering using such services, Moffat said.
The investigation into Ross Asset Management and related entities was launched last November after complaints were received regarding the delayed or non-payment of funds to investors. Initial inquiries by receiver PwC showed investments of only $10.2 million actually existed. See a video interview on Ross Asset Management with FMA CEO Sean Hughes here.
A statement issued last November by Chapman Tripp, lawyers for David Ross, said he had been released from hospital after receiving compulsory treatment under the Mental Health Act for three weeks and would cooperate fully with the SFO and FMA's investigation.
Background to investigation provided by the SFO
Since 1989, David Robert Gilmour Ross has operated a funds management business, Ross Asset Management Limited (RAM). The RAM office was located in Wellington. RAM was the key trading entity for the Ross Group and Mr Ross had sole responsibility and decision-making authority for all aspects of RAM.
Mr Ross was approved as an Authorised Financial Adviser (AFA) by FMA on 12 July 2011. His authorisation was suspended in November 2012 and his registration as a financial services provider cancelled in February 2013, which resulted in the termination of his authorisation as an AFA.
Mr Ross and RAM were placed into receivership in early November 2012 along with Mr Ross’ other associated entities. Eight of the Ross entities were placed in liquidation in December 2012.
Crimes Act offences:
Section 220 Theft by person in special relationship
(1) This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person—
(a) to account to any other person for the property, or for any proceeds arising from the property; or
(b) to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.
(2) Every one to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.
(3) This section applies whether or not the person was required to deliver over the identical property received or in the person's possession or control.
(4) For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements.
Section 252 False accounting by officer or member of body corporate
(Pre 2003 amendments)
Every one is liable to imprisonment for a term not exceeding 7 years who, being a director or an officer or a member of any company, or body corporate, with intent to defraud,—
(a) Destroys, mutilates, alters, or falsifies any book, account, valuable security, or document belonging to the company or body corporate, or concurs in so doing; or
(b) Makes or concurs in making any false entry in, or omits or alters, or concurs in omitting or altering, any material particular from or in any such book, account, valuable security, or document.
Section 260 False accounting
Every one is liable to imprisonment for a term not exceeding 10 years who, with intent to obtain by deception any property, privilege, service, pecuniary advantage, benefit, or valuable consideration, or to deceive or cause loss to any other person,—
(a) makes or causes to be made, or concurs in the making of, any false entry in any book or account or other document required or used for accounting purposes; or
(b) omits or causes to be omitted, or concurs in the omission of, any material particular from any such book or account or other document; or
(c) makes any transfer of any interest in a stock, debenture, or debt in the name of any person other than the owner of that interest.