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Ross Asset Management investor, with six-figure life savings invested, talks to Radio NZ's Kathryn Ryan about Ross, his documents, and plausibility

Ross Asset Management investor, with six-figure life savings invested, talks to Radio NZ's Kathryn Ryan about Ross, his documents, and plausibility

By Alex Tarrant

An un-named investor in Ross Asset Management spoke on Radio New Zealand this morning about the company's principal David Ross, the documents he presented which the investor's accountant reckoned tallied up, and how plausible Ross appeared to be.

She spoke of her shock at the news that Ross' activities appear to have been a Ponzi scheme, of double digit returns (although not in the last few years), and of how everything appeared to stack up.

Wellington-based Ross Asset Management’s assets, and a number of related companies (the Ross Group), were frozen by the Financial Markets Authority on November 2 after the FMA received complaints from investors unable to withdraw funds several months after requesting them.

The FMA had executed a search warrant from October 31 to November 2 on the offices and home of the fund’s manager, David Ross, after Ross, currently hospitalised, was unable to “satisfy serious concerns” raised by the FMA during initial inquiries.

A report released by receivers PricewaterhouseCoopers yesterday said PwC had only identified NZ$10 million of actual holdings out of purported investments worth NZ$450 million made by Ross on behalf of investors. The majority of shares held on behalf of the 900-odd investors were supposedly in the name of one of the Group entities, Bevis Marks Corporation Limited.

“The total value of shares which the Group's records show as being held by Bevis Marks is NZ$437.6 million, however, to date we have not been able to verify any material portion of these investments with external sources and there is a lack of supporting evidence in the Group’s records in respect of these investments,” receivers John Fisk and David Bridgman said.

They said historical returns had likely been exaggerated and were possibly fictitious. They noted an absence of robust systems or processes, and were having trouble finding actual evidence of holdings.

Total shock

The investor, who had a six-figure investment with Ross, said she found out her investment was in trouble when the Financial Markets Authority froze Ross' assets earlier this month. There were no warning signs, she said.

She described it as a “total shock.”

“I’ve got all my savings. Everything I have was in there. And I got a little bit of income from it as well, so now I’ve got no income and no savings. It’s huge ... devastating.”

Nine to Noon presenter Kathryn Ryan asked the investor why she put her money with Ross, and what information he was giving out. Listen to the interview here.

Ross was “very plausible,” the investor said.

“Every three months he gave you a list of your shares, what groups they were in, what countries they were in, what profits you’d made or lost or whatever each quarter," she said.

“And at the end of the year he had very detailed accounts, which were given to my accountant, which my accountant felt all tallied up – all the shares, the dividends, the profits, the money you’d taken out. It all added up.”

The investor had an accountant because it was complicated to do tax returns when dealing with overseas shares. The majority of the Bevis Marks securities were supposedly in Canadian, US, and Australian companies.

“Most people probably did have an accountant do it," the investor said.

“None of us saw any warning signs, because, basically it was probably just all made up – those shares," she said.

“But very convincing. It all looked very plausible.”

The investor said she was convinced by the way Ross presented himself.

“But funnily enough, it would have been about three times over the last few years that I’ve got into panic mode. Not because of him, but because of the share market. I [thought], ‘maybe I should take my money out of the share market’.

“So I’d go in and have a meeting with him, and he’d show me all these graphs and facts and figures. And in the end I’d come out of the meeting and think, ‘oh no, it’s fine. I’m right where I am. Which was so stupid,” she said.

Returns seemed good, but occasionally there would be a loss in a quarter.

“There weren’t double digit returns in the last few years, but there were when the sharemarket was going really well. There were some double digit returns. Each quarter," the investor said.

“They were high. But if you looked at the shares you had, and you went and checked them on the internet, they actually had risen the amount that they said.

“So you felt that it must be OK. But the problem was he probably didn’t even have the shares. They were just made up. I never thought of that, sadly," she said.

“I’m in my 60th year, and I’ve gone from having a comfortable income to basically having nothing.”

There were a lot of "intelligent people" who were investing with Ross: "Many, many intelligent people who had no idea."

“It’s easy to look back and think, what could I have done, or why did I do that, but I guess there’s not much point now.”

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Tragic - both for the marks and the taxpayers, who collectively will have to keep them.  Which is worse DPB mothers or naive gamblers?

How to spot and investment scam brochure from FMA website

It gets more complicated and then some when no one can directly be accussed of dereliction of duty and yet the incompetence and consequent loss is there for the public to see and fund.

To anyone who is interested, let me give you some advice:
Have you ever received an authentic looking scam email from a bank with all the usual logos and mastheads? I could knock one up in about 5 minutes using all the graphics from ANZ, NAB, WBC, CBA or any broker, or any official Government site. Easy. An authentic bank statement or an authentic Brokerage statment would be equally simple. Then print it out on a colour printer. And post it.
I was involved with an Australian Financial Planner for 15 years doing Financial IT Systems consulting work. He had a medium sized office with 6 staff managing about $100 million for private high net worth individuals in the form of SMSF's (self managed super funds). Australian Taxation legislation requires all SMSFs to be audited. This Financial Planner, or Financial Advisor, with a whole bunch of letters after his name, including CFP SSA, had no formal qualifications. He used a close friend, an accountant, to do the annual audits for all the SMSFs.
The home page of his web site promotes :-
Wealth Manager - Retirement Planner - Estate Planning.
CFP - Certified Financial Planner - Financial Planning Association Ltd.
SSA - SMSF Specialist Advisor - SMSF Professionals Association Ltd.
Investment Portfolio Administration and Services.
SMSF / DIY Superannuation Fund Administration.
Deceased Estate Administration.
Charitable Fund Administration
One item on my resume was an assignment with a large public company whose annual accounts had been qualified by their auditors (one of the big 4). My task was to obtain an unqualified audit report. Sufficient to say I am more than qualified to provide an opinion on audits and auditing.
One area the Financial Advisor above and I clashed on was the matter of his accounting friend's lack of independence. He was simply a tame rubber stamp, employed by the planner, but paid for by the client. An auditor must be independent. Clients never saw the originating documents. They got a quarterly manufactured statement from the office along the lines of the radio caller above. The audit report stated he had seen and vouched the existence of the underlying assets represented by the documents. He couldn't.
Now consider this
fraud and the auditor
An important lesson for the auditing profession has arisen from the Bernard Madoff Securities fraud in America. In that instance Madoff produced monthly statements that were fictitious. Today most people will have been on the receiving end of sophisticated email scam / spam using authentic logos and letterheads inducing people to believe they are communications from banks. Right now it is not too hard using modern desk-top publishing to produce authentic looking bank statements or brokerage statements or any other securities statement. In the hands of a (bad apple) financial advisor (with signing authority over a clients account) who finding themselves in strife, are likely to swindle their client (because they have the means to do so). This now provides an increasing responsibility for auditors who will need to verify (vouch) the existence of every financial asset. They can no longer rely on a bank statement or a broker's statement. They can no longer rely on the representations of the financial advisor.


Thank you for that, Iconoclast. Coments like yours make up my library of investment knowledge.

I have been a financial adviser for 30 years and have never had nor wanted actual control over client assets. If the client  funds are not held by an independent trustee or custodian this should be a major warning sign, especially if the adviser is a sole operator.
People are either much to trusting or to greedy.

It's greed which cajoles them to trust;  it's the hope of a free lunch!

I have relatives with hundreds and thousands of dollars 'invested' with RMA.  I tried to warn them it was a ponzi scheme two years ago but while they acknowledged the possibility, the attraction of amazing 'returns' was too strong a pull.  From what I could tell at the time it was a Madoff-type ponzi.  It was invitation only, which made them feel special, he had a very small staff, no website presence and produced monthly statements of transactions.  The statements checked out in terms of the price movements of the companies involved, but could have been easily manufactured of course.  His statements described his investment strategy as low-medium risks, but their portfolio only ever held shares in 3-5 companies.  Some of these had a share price of less than 10 cents.  If legit, it was an extremely high risk strategy, which it would need to have been to generate 25% returns in a market that was falling.  It appears that greed overcame both Ross and his clients.  It's a very sad situation.

I disagree with your comments of the clients being greedy. They put their trust in the professionals, and they expected that NZ laws and regualtions would protect them.The same with finance company directors. We actually had more protection for consumers buying a toaster and it failing, than we do for people investing their money. 
You could use the same arguement for people buying houses, and them ending up being leaky buildings, becuase if they had got them checked out by a professinal before hand they would never have purhcased them. Yet house buyers expected that we would have regualtions to protect them without going to the expense of an expesive pre purhcase inspection.

OK Rob, I'm curious: David Ross and Ross Asset Management were operating a "Funds Management" business which, by law, requires oversight by a trustee, and all funds are required to be processed through a trust account. If you were a newcomer and had been referred to David Ross how would you have conducted your "due dilligence". Would you have done so?, and where would you have looked? What would you have looked for?. Define what you mean by "professionals" in this instance. Which professionals?

That's exactly the problem: we have children these days. They expect big government to take care of every aspect of their life.
And on you leaky home: they were created by government regulations, and therefore trusted. I.e. used government mandated (and followed) standards.
I suggest NZ would be much better off if people took responsibility for their own actions. That's what an adult is all about.

Well put, B.d.B!
Domesticated humans are easy to control. I try raising wild and woolly ones, notg sheepish!

I don't disagree about taking resposibility, but that is why we have an education system, to train professionals in certain areas, and that is what a 1st world economy is all about.. Not everyone (hardly anyone) can be an expert in every single area of life. You have to put your faith in 'professionals'. eg you would do your own dentistry, or heart operations, you have to put your faith in a professional who you expect has been trained and is up to standard. 
 I haven't had any problems with eiher the finance failures nor the leaky building crisis, as I have done my research into both before handing over my cash. But I will end up paying for it as it will come out of our taxes, rates, and higher house and building costs, as well as lower interest rates at the bank.
The leaky building crisis I beleive was more about poor materials and detailing, and building houses as cheaply as possible by developers. I think many are still being built today.

Rob Some clients are greedy. Before the finance company collapses I had people coming for advice then investing in the higher rates on offer via the finance companies, or in one case Bluechip, despite my warnings. I turned away a number of potential clients by not being willing to risk their funds. Most of these invested themselves directly not via another adviser.

Despite your warnings do you think your clients believed they deserved a high level of return and just took it as a right without much thought to the risks or did they need to take the risks to avoid the perceived consequences of a diminished lifestyle associated with lower, and hence safer returns?

Hard to say. I don't think they really thought much about risk despite the warning. They were investing in debentures with a fixed rate and "guaranteed" return of capital. In the case of the Blue Chip client they offered 13% when bank term deposits were around 7%. As they were still working I would definately put this down to greed. 

Rob, when I say the clients were greedy, I guess what I'm saying is that one might expect that us the returns became higher, clients might be increasingly suspicious and therefore more likely to withdraw their funds.  But actuallly what happened in my relatives' case is that the higher returns were a pull for them to remain with RAM, on the chance that it was all legit.  I reckon that's greed at work.  But yes, I think the lack of regulation is certainly an issue.  It's been a wild-west in investing in NZ for far too long.

“And at the end of the year he had very detailed accounts, which were given to my accountant, which my accountant felt all tallied up – all the shares, the dividends, the profits, the money you’d taken out. It all added up.”
Ouch... Double Ouch!!
The accountant should be held... well, accountable! I can understand her gullability, although I don't condone her actions and I think she is partly to blame, the accountant should have known better. Double digit returns, YoY... Come on! At least check the public records on the reported profitability of those shares, and do the math.
Shouldn't there be a fiduciary duty...? 
"Too Good To Be True" scheems have been widely publicized of late.

@victoria - The statements checked out in terms of the price movements of the companies involved, but could have been easily manufactured of course.
@Hevi Groswaite - Ouch... Double Ouch!!
The accountant should be held... well, accountable! I can understand her gullability, although I don't condone her actions and I think she is partly to blame, the accountant should have known better

Yes, if the accountant was a forensic expert maybe, otherwise unlikely If he/she cross checked as victoria suggests was done in her relative's case .

" all tallied up" not this Ross rort...I'm talking about Labour and the promises game they are starting up all over again.
It doesn't matter who the leader of the Caucus is...he or she will lead a scam!
The best news for Kiwi peasants is the news that the socialists are stabbing each other in the back in a display of pure envy...let us hope the Cunliffe Shearer Parker whomever blood letting farce continues on and on as long as possible. While they are preoccupied displaying their dirty secrets and grasping attitudes, we are allowed a respite from the usual deluge of utter shite that spews forth from the socialists as they seek to return to cause yet more damage to NZ.

You should read a book by Kenneth Fisher "How to Smell a Rat" and you will know what are the key signs to watch for before getting fleeced by fund managers.,descCd-auth...
Ken is a billionaire hedge fund manager, and the son of Philip Fisher - one of the forefather of value investing.  Phil together with Ben Graham greatly influced early investment thinking Warren Buffett.
It should be available from your local library.