sign uplog in
Want to go ad-free? Find out how, here.

FMA boss Sean Hughes says buck stops with him on Ross Asset Management debacle, urges investors to ask their money managers the hard questions

FMA boss Sean Hughes says buck stops with him on Ross Asset Management debacle, urges investors to ask their money managers the hard questions

By Gareth Vaughan

Financial Markets Authority (FMA) CEO Sean Hughes says he accepts the ultimate responsibility for the Ross Asset Management (RAM) debacle and the FMA is likely to seek law changes in the wake of it. He's also urging investors not to be shy about asking hard questions of their financial adviser or money manager, and to report any major concerns to the regulator.

In a Double Shot interview with Hughes said the buck ultimately stopped with him and the FMA.

"I accept accountability for what has happened here. It happened on my watch. We authorised Mr Ross (as an Authorised Financial Adviser, or AFA) and we've had to sit back and take a long hard look at what happened here," Hughes said.

After complaints from RAM investors about delayed or non-payments, the FMA launched an investigation and exercised a search warrant on founder and director David Ross' offices on The Terrace in central Wellington and at his home between October 31 and November 2. It then had RAM assets held within New Zealand frozen and brought in PwC as receiver. PwC has thus far found just NZ$11 million of a purported almost NZ$450 million held on behalf of about 900 investors.

PwC has suggested RAM has the characteristics of a Ponzi scheme. David Ross is now cooperating with PwC, the FMA and Serious Fraud Office after a spell in hospital getting compulsory treatment under the Mental Health Act. See the FMA's timeline on its RAM inquiry here and see all our stories on RAM here.

INFINZ provided testimonial on Ross

Hughes says he's "absolutely confident" the FMA made the right decision to authorise Ross as an AFA based on the information he was required to provide. This included testimonials from the Institute of Financial Professionals (INFINZ) and from clients who Hughes says indicated they were "very happy" with the services Ross, a chartered accountant, had been offering them over 10 years. He was authorised in July 2011.

"I utterly accept that what we now understand about Mr Ross is an absolute tragedy, it's gut wrenching," Hughes says.

A key question now was what could be learnt from the sorry tale.

"In terms of the monitoring work, clearly we're going to have to think about how we allocate our resources and how we identify the sorts of threats and risks to investors that could arise from this sort of situation again. I can't give any cast iron guarantees that it won't happen again (but) we want to minimise the opportunity for that," says Hughes.

"But for that to happen, investors have got to start asking the right questions and the hard questions of their advisers. And if they are concerned they need to come to us because when they do come to us, we'll take action."

"We're going to look at this and say 'are those provisions in the Financial Markets Conduct Bill adequate' and we will give advice to the government if there are improvements that can be made to address this sort of situation. But at the end of the day all the best regulation in the world, all the right resources for the regulator, that's only part of the equation. Everyone else has got to play their part as well."

Hughes, a former Australian Securities and Investment Commission executive, took the reins at the FMA from its launch on May 1 last year. The FMA was established by the government to replace the Securities Commission, but given stronger powers, in an attempt to restore investors' - especially retail "ma and pa" investors' - confidence in the capital markets after the meltdown of the finance company sector. See a Double Shot interview with Hughes here dating from just before the FMA's launch.

'No information suggesting the NZ$450 million figure is accurate'

In terms of what FMA staff found when they conducted their searches, Hughes says the RAM records they turned up weren't perfect.

"Clearly it has taken the receivers and us, and now the SFO, some time to piece it all together and those inquiries are still underway. We did not find the sort of comprehensive, professionally maintained discrete records for each client across their investment portfolios separated out across different asset allocations that you would hope to find," Hughes says.

"I think one thing that comes through very strongly from the first of the receiver's reports is that although it's purported that he had nearly NZ$450 million under management, in fact it's only NZ$11 million so far that has been found. And we hold no optimism that any significant additional amounts of money will be recovered. So record keeping from our point of view was inadequate."

Hughes says he has no information to suggest the NZ$450 million figure is correct.

"I'd love to be wrong and I'd love to be able to find all the money that's promised to be out there but gut instinct tells us it's just highly unlikely," Hughes adds. "In my view it's highly unlikely that we will ever find justification to support that figure."

Based on RAM records seen Hughes estimates about 90% of investors were wholesale ones, whereby an affinity scenario developed with colleagues speaking to other colleagues and bringing them on board that way.

"So there's a lot of word of mouth. There was certainly no advertising and certainly that's another issue for us in terms of our ability to detect this sort of thing because from a desk based point of view, it's very difficult to find somebody who doesn't advertise."

Accountants and financial advisers who recommended Ross to their clients are also coming under scrutiny.

"We're starting to talk to those people and say 'well, let's talk about the quality of the due diligence you did before you put your clients with Mr Ross.' And it may well be that we'll be taking action against some of those people as well. That's an ongoing issue at the moment," adds Hughes.

It sounded too good to be true and it was

Hughes says it appears that only a very small minority of investors came in after 2011, with a small percentage of money invested since then. The RAM business model had been running "well and truly" before the new financial adviser regime came into force. Money found thus far had mostly been invested in mining stocks, what Hughes calls "junior mining stocks" in the likes of Canada and Australia.

"These tend to be very volatile in terms of their performance. They can promise extraordinarily high returns, and maybe that's what it was that Mr Ross was promising to his clients. But on the other hand they can also crash very quickly as well. So it is high risk."

"Gareth, you and I both know that if somebody comes to us and says '25% to 30% (return) guaranteed,' you're going to raise an eyebrow and you're certainly going to ask around and you're going to say to people 'this sounds too good to be true.' Our response sadly has to be it was too good to be true. Some people did get sucked in and what we would say going forward is you'd really have to have your wits about you when people are offering those sorts of quite extraordinary returns," says Hughes.

"I'm not sure we'll ever find the full story or that we'll ever get the last dollar back but it still has a few months to go."

New focus on AFAs offering DIMS

In an interim AFA monitoring report the FMA says it had visited 34 of the 2,000 odd AFAs by June, with David Ross not among them. Of 146 files examined, only 35 fully met FMA expectations. Of the AFAs about 1,200 are authorised to provide discretionary investment management services (DIMS) like RAM was.

"Clearly in light of what has happened in this situation we are now giving additional priority to those advisers who are operating a DIMS service," says Hughes. "About 1,200 of them, which is over half of all the authorised financial advisers, have that authorisation. Clearly not all of them are operating them and we're going to have to go through and work out which ones are those of greatest risk."

Even with all the resources available to the FMA, Hughes says the regulator wouldn't be able to cover all of them at once.

"We've identified a handful (and) we're going to be visiting those in the course of the next week or so. But at the end of the day we still have got finite resources and that's reflected in our budget."

FMA staff were also working closely with staff at the Ministry of Business, Innovation and Employment on the Financial Markets Conduct Bill, which is before Parliament.

 "The provisions in relation to DIMS will require some additional safeguards and licencing, although it is noteworthy that for financial advisers who are already authorised by us they will not require licencing to operate a DIMS. That's something that we want to go back to the Ministry on and talk to the officials who advised the Minister (Commerce Minister Craig Foss) and just say 'have we got the right safeguards in place?"

"One of the things that we want to focus on in particular is what happens to the holding of the assets? Should there be separate custodians, should there be an annual audit report? What are the additional custodian or warden roles that can be played to give investors some confidence that their money's being looked after?"

'New Zealanders need to ask the hard questions'

Meanwhile, Hughes says anyone who has invested all their savings with a single adviser ought to pick up the phone or go and see them and say "show me my money."

"Show me the records, show me where it's invested. I want to know that what you've told me it's invested in it is actually invested in," says Hughes.

"I think here in New Zealand we have a bit of a problem asking those hard questions of people because it's seen to be a bit disrespectful or distrustful. But I don't think it's very fair that people lost money in this situation and we genuinely say that New Zealanders need to get a bit harder about asking questions of their professionals and in this case of their financial advisers."

"If you're not in that position and you're thinking of investing, can I just say that it's probably not a good idea to put all your eggs in one basket. Go and talk to a couple of people, get some advice, have a think about a couple of options and once you feel comfortable, then perhaps distribute some of your investment funds across a couple of different opportunities. But don't go down one path only."

In terms of approving someone as an AFA, Hughes says the FMA is constrained by what the law says. It must look at four things. Firstly, is the person on the financial services providers register, and Ross was. Secondly, did he have any criminal convictions FMA staff could get information on, and he didn't. Thirdly, did he meet the minimum qualifications in terms of competencies, and he did. And was he of good character, and he was according to the INFINZ and client references.

'When people bring things to our attention we will act'

Hughes notes that the FMA's financial advisers regime is still a fledgling one being just over a year old.

"In terms of our monitoring work, the approach has been based on three factors, - the first thematic (where) we've identified some issues that we want to focus on and we've done that and that's reflected in the interim monitoring report."

"The second is geographical, so we've obviously wanted to have a national spread in terms of our activities, not just being focused in Auckland and Wellington but looking at advisers operating around the country. And the third, and this is critical in terms of the Ross case, is responding to complaints, or tip offs or whistle blowing notifications that we receive."

"When we got those within a matter of days we took action. We'd frozen assets and we were in court. So the message that people need to get from this example is that when they do bring things to our attention we will act. In terms of Mr Ross, he wasn't part of the surveillance visits that we conducted over the first year or so of our existence. Should he have been? Clearly in the light of experience what we now know, yes. But hindsight's a wonderful thing," Hughes says.

This article was first published in our email for paid subscribers. See here for more details and to subscribe.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


You have got to love these jokers!
Kiwis don't ask the hard questions...
Mr. Ross... This guy is a thief! A spade called by any other name...
The FMA should be ran by a strong advocate who's not afraid of asking the hard questions, not a soft spoken, politicaly correct, well dressed (pans...) individual.
Come on people, wake up! You are being ripped off under your own nose!! The list of events is long. Feltex, finance companies, RAM (Oh Boy, he named it properly, didn't he?), etc...
What comes next? 
Property investment. At least one knows where ones' money is!
Hevi Censoring... Editors?

In his book " How to spot a rat " , Ken Fisher's number one instruction to investors is to never give custody of your funds to someone or some firm ....
.... he says you need to keep control of your money immediately at your finger tips : Shares / bonds / property ....
There are lots of investment " rats " around , always have been , and steep recessions tend to flush them out into the open ..

The former chair of Bankia, one Rodrigo Rato, in english Roddy the Rat, made it easy for them to spot and yet they still poured the money in on promise of good returns.
He was the first target of angry Spaniards to crowdfund a bunch of money in order to bring him to Justice.....
 Bankia had to be bailed out by the Ratlovers Association the ECB.

 Ethical standards are the key for a successful economy.
The South pacific financial hub will become reality for our PM – the Auckland Casino with billions of illegal money from Asia “traded” and Mafia type of investors dealing on the Auckland property market an ideal mix for corruption, etc.
Yes - under Key ethical standards are diminishing fast in this country.

Here's a hard question.
Can you get me double what the banks are paying plus?
If the answer is yes signup straight away and walk away with the assurance of having received a wink and a nod in the back room.

Centrally based Gov't Financial Regulation in NZ has been hopeless.  The main question to be asked is why do we bother with it.  I have not used a financial adviser for over 10 years and probably will never use one again, why take the risk?

@Andy Rodgers....I have never used one.....why would you trust anyone with your one chance in life at a retirement plan.
People are irrational believing in the fiction of "investing" for a retirement plan.

They make their money from your earnings. With interest rates suppressed worldwide everything is a risk....
Difficult times.

Mr Sean Hughes
First suggestion - You have 1200 DIMS who must / should have trust accounts
Once upon a time all Solicitors and Lawyers and Real Estate Agents had their Trust Accounts audited every 3 months. The periodicities have been eased, but the requirements are still there.
There are a heck of a lot more than 1200 Solicitors and Lawyers and Real Estate Agents in New Zealand. How hard is it for you to jump on this and ask for certificates of compliance from the trustees of each of these DIMS pronto.

Real Estate Agents Trust Accounts must be Audited at least 3 times per year
Legislation 2009

Lawyers Trust Accounts must be audited "periodically"
Legislation 2008
Angland Lawyers
We operate a Trust Account for our clients. This Trust Account is audited by the NZ Law Society periodically. Each month we are required to provide a certificate to the NZ Law Society which certifies that all funds received and paid out are able to be accounted for.

Why go to the expense of setting up a trust account and being audited each year when you can take the simple approach and get clients to make their cheques out to the investment provider (fund manager/broker) or custodian - these institutions are audited regularly.
The money therefore never goes near the adviser's bank account.

In which case there is no need for DIMS .. but funnily enough there are 1200 of them .. further .. it is more than likely less than 300 of those DIMS are operating a discretionary active trading frequent investment high turnover strategy that would both suit and require a trust account setup.

I am personally authorised to offer DIM's service (so I am one of the 1200) but do not offer the facility - I did the old tick the box in case I wanted to offer a more comprehensive service later on.

OK so here's a hypothetical for you .. we learn that you have some expertise in the derivatives and forex markets .. we have no expertise in these areas .. so we put up $100k and ask you to trade on our behalf .. now if I'm your only client we can set up my own account with the derivatives broker and you have authority to trade my account on my behalf .. but what if there are 5 of us and we put up $20k each .. and it is inconvenient to have 5 accounts with the broker .. executing 5 simultaneous instructions .. and for economies of scale and keeping transaction costs down you operate a single account .. how would I know? .. how would you do it?

You can have an intermediary account which 1 person has permission to operate but then there must have to be sub-accounts for each client for reporting purposes.
If clients are pooled under a bare trust arrangement via a custodian they still have beneficial ownership of the securities regardless of who the intermediary is and the custodian is required to set up sub account for each client to ensure reporting is accurate.
When I was a Portfolio Manager at BNZ Private Bank we had one account and 1500 sub accounts with the custodian who was FNZ (1 for each client) all the reporting was on-line so clients could access their account (without being able to trade) so they could see their money so to speak.

Craig:  That's very appropriate. That's what should be done. And probably 290 out of 300 active DIMS would do it that way. It's the bad apples that spoil the whole barrel, because transaction costs would be the killer of that arrangement. To quote your words "If clients are pooled under a bare trust arrangement via a custodian they still have beneficial ownership of the securities regardless of who the intermediary is and the custodian is required to" .. the purpose of an audit .. would be to ensure those requirements are being met.
When you ticked the box on your application form re DIMS were the next check boxes down these questions "do you have a trust account" yes/no? Who is your Trustee? Who is your Custodian?

To be honest I can't remember but I would have answered no to both if they existed. Agree it is the bad apples that spoil everything.
Wonder how many picked up story at weekend about a dodgy broker being fined by NZX

Agree with you Hevi......FMA  a toothless fairy!
2008/2009  was  a watershed time  for finance companies, yet still they fall.
Why! as Iconoclast  states..........are these goons not audited.
i once owned a Real Estate  company and we were audited  3 times per year.
i dont think this is about ehical standards.........more about  regulations that are effective and punishing if not adhered to...
Looks like more money off to the banks again..

Hughes says:
anyone who has invested all their savings with a single adviser ought to pick up the phone or go and see them and say "show me my money." and "Show me the records, show me where it's invested. I want to know that what you've told me it's invested in it is actually invested in," says Hughes.
Dear Mr Hughes .. tut tut .. you obviously have your head in the clouds .. you haven't been keeping your ears to the ground .. or even following the commentary here at .. a couple of weeks ago I put up a post where I explained how, using modern desktop publishing methods and a colour printer .. any amount of bogus documentation can be fabricated .. easy .. very very easily .. how many records would you like to see .. I'll make your head spin .. I originally produced that particular anecdote 4 years ago. It was published in the public domain .. it was removed last year due to lack of interest.

I've been very critical of the FMA's absence over the Ross collapse but hats off to Sean Hughes for fronting up. The law does need to be adjusted, people who manage other people's money need to be held to account over their systems, processes and governance. I would have thought the FMA would start in the most obvious places, which in my view are:
1 - small fund managers managing large amounts of customer money
2 - insurance advisers, many of whom continue to switch their customers insurance business from one provider to another so they can get paid more commission for the same business. It is blatantly obvious that the industry in NZ is out of step with the rest of the world. Commissions are twice as high as most places in the world and the commission structure encourages advisors to switch to other companies once the 'commission clawback period' has passed (roughly two years). A semi-smart adviser can always find a reason why they switched the business but the FMA needs to look through that and ask what's really going on, if it smells off it probably is off!
3 - Kiwisaver providers to ensure money is being managed as per investment statements and investment mandates
4 - share brokers who seem to always sell on a no- advice basis but who get heavily incentivised to distribute debt and equity products. They survive by selling.
There is no shortage of hot spots the FMA should be spending their time looking at, they also need to hire a few industry participants who know how the merky world of advice and commissions really works so that they know what and who to tackle first.

Precisely, taking the blame for government officials, is akin to confesing for catholic teenagers!
All is forgiven with few words/prayers!
They should put their money where their mouth is! Put some skin in the game, so to speak.
Heads need to roll over this one; 900 Kiwis are owed 500k a piece, and all they get is lip service and lots of hot air! Heads need to roll; we need to roil them!! Government that is...
The receivers will keep a large fraction of the 11 million. Even if they recover less than the nominal sum, a very likely scenario, they'll still get to keep the same amount of fees and charges, whilst investors get their head handed to them in a platter. Lovely, eh?
By the way,  who is David Ross, and can we see his face, please?
Maddoff's face was plastered all over the media in the USA, causing enough grief a family member took his own life! I am not asking for that, but his business about him being in hospital for prostate treatment under the Mental Health Act is rubbish. Of course, his mind must be very close to his prostate!!
He should be in jail, just like Maddoff was, awaiting sentencing. And other members of the Ross Group Trust should be held accountable. That much money does not vanish in thin air, someone has it out there and these people should be held accountable for New Zealands' sake. It is easy to talk about atracting foreign investors to our shores, but it is not easy to offer equitable and fair opportunities to atrack them.

Thank you, Iconoclast. Very kind of you. He looks happy and confident in that photo.
I suppose he's still in hospital...? Will he be arrested? Can the SFO do that?
All things considered, there will be a number of people willing to help him ail no more! I don't suppose we'll see him out and about, window shopping, any time soon!
Although I imagine money should be no object for him.

Another useless government bureau we can close without anyone noticing.
We don't need to ask hard questions, just slam the door. Buyer beware is really the only thing that will stop scammers. As with Maddoff', investors rely on this government labeling. Remove government labeling, and you'll see the market miracle of correcting its own errors in real time.

Indeed, B.
Who needs 'papa government'; especially when they are that usefull!
Buyer beware is the natural state of affairs. Prey can't complain after being caught, but their peers watch and learn from it, thus making it safer for the rest of the herd. Anarchy reigns! Nobody leads!
The problem is we are suposed to be civilized, domesticated if you will. Domesticated herds can't do without a 'cocky.' Anarchy would help this; it should reign!

Investors and regulatory bodies need to deal with these finance characters as if they are a pack of cheating, lying, scheming, sleazy, spivs and they won't go too far wrong.

Plenty of criticism of the regulator in this thread, but to what extent should the investors themselves take some responsibility? From what we've seen in the receiver's report there were several potential red flags in the Ross Asset Management style that should have been noticeable for reasonably knowledgeable investors, which it seems at least some of them were.

Precisely Ivan'
Don't put the fox in charge of the hen house. Common sense, nothing more! But totally absent in political circles. In fact, it is a prerequisite for admission to the political ranks.
The problem is, educated hens tend to leave the coop, as they should, to sell their own eggs to the highest bidder, generally overseas. Hard on the tax take, and the voting base.
Easier to hoodwink them with regulation, and make them feel safe, and if some get eaten, well comfort the rest with promises of more regulation for their own protection. Good racket!
It's akin to the "Cosa Nostra," who promises protection in exchange for fees. And those who do not accept their 'Protection' misteriously get a visit from the goons. Coincidence...?
In this case all they have to do is let it happen. 

Ivan, you've previously shared how you lost around $200k in finance company collapses. Now obviously fraud was committed at some of those companies like Bridgecorp and Capital + Merchant and people are now, finally, rightfully in jail.
The trustees, auditors, we in the media, and the regulators - notably the Securities Commission - all let the likes of you down. Incidentally, you might want to compare Jane Diplock's comments here to Sean Hughes' ones above -
I don't recall her ever saying "I'm accountable."
You're rightfully bitter about the finance company collapses.
But, all that said, can you honestly say there's nothing you wish you had done differently yourself?
Did you 1) Understand what the finance companies you were investing in were using your money for?
2) Did you know the track record of the likes of Rod Petricevic and his background at Euro National in the '80s?
3) And did you understand the concept of capitalising interest on property development loans at the likes of Hanover and Bridgecorp?
4) Or did you put 100% faith in an adviser who recommended these companies to you?
What I'm getting at here is the points Sean Hughes and "interest" make about financial literacy and investors asking questions and doing their homework are an important part of the pie. It's easy to blame everyone else, especially as in the case of the finance companies where they deserve a lot of flak, but let's try and learn from that an do our own homework in the future as well.

Gareth, respectfully, the more you understand this financial mess we are in (globally and locally) the less you would be inclined to trust your family savings to the financial system generally.
I have had bitter experience in shares, my father has had his retirement income more than halved in Canada with interest rate suppression along with moderate inflation.
The average man has one shot at a future savings program. What does "growth" vs "conservative" mean in pension plans, risk that's what. So you lose your money, and folks, that can and will happen
Personally I look for hedges against currency devaluation. As there is no anchor for currencies it's all a game of musical devaluation. For a young working man it is very difficult indeed to save, perhaps this is one of the major reasons for the intense interest in property.
Sharemarkets are not like they used to be. P/E's are way out of whack generally. 
Just my thoughts at the moment.

Wow what a story. Thanks for sharing it.
I wish you well for the future.

It should be noted that Hughes makes comment that he is constrained with a set of financial handcuffs. (Intentionally) restrained by government in what he can do.
Is he setting up his eventual escape route in advance?
His failure seems pre-ordained.
FMA gets NZ$24 mln funding this year, up from NZ$18 mln from the regulators it replaces. On a 1 for 5 comparison that is equivalent to an (ASIC) NZD $120 mln or AUD $100 mln
By way of comparison:- ASIC's annual budget of close to AUD $300 million (NZD $360 mln) and its 2000 staff would seem to make it fairly healthy for resources when compared with similar organisations in other countries. ASIC generates more than $500 million a year in fees and fines.

Frankly, when it was announced that Hughes was head-hunted from ASIC it seemed "too" logical that the FMA's activities would eventually be outsourced to ASIC. The case for that is even more compelling today. Can you imagine ASIC's response if Hughes approached ASIC with an invitation to take over his NZD $24 million operation?

Do you folks really think a bunch of Aussies sitting in Melbourne would give a toss about New Zealand when they're answerable to Canberra?

Gareth: It's simply hypothetical, but sets a benchmark. A better question is why Hughes took the job on knowing what the job was, what was required, and knowing he would have both hands tied behind his back, before he started.

Gareth: another point of comparison is that ASIC is self-funding, so, why is Hughes crying poor-mouth already? All he has to do is get on with the job and start fining wrong-doers.

Some FMA levies have been introduced including the big four banks each paying $350,000 a year as their share of fees paid by all registered financial service providers -
And in terms of getting on with the job here's some example of what they have been doing;  Action against PGC's Perpetual Trust over related party lending - and$25-million-in-related-party-loans/, the ongoing asset freezing battle with Mark Hotchin ahead of the FMA's Hanover case - and the new lowball share offer regulations -

Gareth, you have gone to the key point which I believe is a lack of financial literacy in NZ, you are right, investors need to do their own due dilligence and if they are hearing about 'consistent high returns' they should be particularly careful. I would imagine though that most people wouldn't even know what questions to ask and that's why your web-site and others are so important. 
I still think school should have more 'money management' education. As Kiwisaver balances grow and peoples wealth increases, they will need to be more educated so as to make the best possible decisions.

David Ross has been granted $1000 per week to live on, which has infuriated some of his clients.
NZ$52,000.00 per pa
before tax @ say 25% NZ$69,333.33
Capital required to generate this income at OCR (2.5%) NZ$2,773,333.33

IF the David Ross operation is "proven" to be a ponzi scheme then anything that has been salted away in a family trust is "ipso facto" the proceeds of crime and thus not safe. Might have difficulty protecting personal and family assets, including the "art collection" currently being sold for living expenses.

Six years jail in this case -
SFO sentence sees director facing six years in prison
Evan Paul Cherry (53) has been sentenced today to six years and two months’ imprisonment in the North Shore District Court following four charges laid under the Crimes Act by the Serious Fraud Office (SFO).
The charges relate to the misapplication of investor funds and false statements in investor reports by Mr Cherry while he was the director of Albany based investment and financial advisors – Investment Solutions Limited, ISL Nominees Limited, Trading Strategies Limited, ISL Strategic Investments Limited, and ISL Strategic Investments 100 Limited.
The ISL companies received approximately $9 million from an estimated 175 investors.
Between January 2001 and February 2007 when the majority of offending occurred, approximately $5 million of funds was invested contrary to investment instructions. The majority of the investors involved had transferred to investments offered by Mr Cherry’s personal advisory business from those of a large institutional investment company when he terminated his association with that institution.  
Some common characteristics of investors were that they tended to be people who were not necessarily experienced or sophisticated investors, varying in age, and looking to invest surplus capital in order to extract profit. The majority of the investors involved had transferred to investments offered by Mr Cherry’s from those of a large institutional investment company when he terminated his association with that institution. On some occasions, they were advised by Mr Cherry to extract equity from their homes, or otherwise borrow funds for use in his investment scheme.
Mr Cherry misapplied investor funds in breach of the custodial agreements by using funds to repay other investors’ investments, for personal use, to purchase shares in ISL, to pay off personal loans and to purchase a boat.
SFO Acting Chief Executive, Simon McArley, said the good faith that investors placed in Mr Cherry was betrayed.
“We feel for all those who lost their money through Mr Cherry’s dealings, he built up a false level of trust with them and many will never recover from their losses. This case is one of a series of similar cases we have dealt with over the past year or so where trusted investment advisors have manipulated or failed to invest investors’ funds as promised and provided false statements to conceal losses or misappropriations. We continue to warn those wishing to invest to remember every investment is business, not personal,” he said.
The SFO acknowledge the assistance of the Financial Markets Authority (FMA). The Securities Commission (the predecessor to the FMA) referred this matter to the SFO in May 2011 having completed the initial analysis, resulting in an SFO investigation being commenced in June 2011.

Discharged without conviction in this case:
A former Serious Fraud Office lawyer has pleaded guilty to forgery.


The former CEO of the Serious Fraud Office seems to think it was.
This is what he had to say about this farce.
Of the decision to discharge, Mr Feeley said: "We have a legal system but not a justice system. I've just had a description of how proceedings unfolded and her not having to sit in the dock. These are not pleasantries normally afforded to people who commit crime.