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Guilty verdict in NZ$15 mln 'classic Ponzi scheme with no genuine investments on behalf of investors' as SFO warns on growing affinity fraud

Guilty verdict in NZ$15 mln 'classic Ponzi scheme with no genuine investments on behalf of investors' as SFO warns on growing affinity fraud

Outgoing Serious Fraud Office (SFO) boss Adam Feeley is cautioning investors against making investments purely on the basis of a personal relationship with the promoter of an investment scheme as B’On Financial Services director Jacqueline Bradley is found guilty of running a NZ$15 million Ponzi scheme.

A jury found Bradley guilty on all 75 Crimes Act charges she faced yesterday. She will be sentenced in the Auckland District Court on October 19.

The charges related to Bradley’s role as a director of B’On, which she ran with her late husband. B’On sought funds from clients on the pretext of investing in various funds they had established both in New Zealand and offshore, the SFO says.

An SFO investigation showed that between April 2003 and November 2009, 24 investors stumped up NZ$14.4 million and Australian investors A$840,000 to B'On for investment that wasn't used in accordance with the clients' desires.

"Instead it was used to make repayments to other investors, and to fund the personal lifestyle of the Bradleys through their Family Trust," Feeley, due to leave shortly to become chief executive of the Queenstown Lakes District Council, says.

"This is a classic Ponzi scheme where no genuine investments were made on behalf of investors. And like all Ponzi schemes, although they are doomed to ultimate failure, it operated to provide the Bradleys a luxury lifestyle while their victims suffered devastating consequences through, in many cases, the loss of their life savings. In one case, an investor lost their life insurance paid out in advance due to a terminal illness," says Feeley.

He said the case was the second affinity fraud conviction in the last two weeks, highlighting the risk to investors of investing solely based on a personal relationship with the promoter of an investment scheme.

The second case was that of Christopher John Collecutt who pleaded guilty in the Auckland District Court. A foreign exchange, or forex, trader operating under the name CFX Trading, he faced three charges under the Crimes Act, including theft by person in special relationship, obtaining by deception or causing loss by deception, and false statement by promoter.

'The sad, simple fact is many people cannot be trusted'

 The SFO said 59 investors, mostly family and friends, lost about NZ$1.5 million through investing with Collecutt. Feeley said Collecutt "cynically, and effectively," exploited his personal relationships with investors. His family and friends had learnt a difficult lesson that "great care is needed" before investing large sums with others, no matter what their connection is with the promoter.

"We cannot over-emphasise the dangers of basing investment decisions on the recommendation of a relative, friend or acquaintance rather than careful investment analysis. The sad, simple fact is many people cannot be trusted and a decision based on a moment of trust can lead to a lifetime of financial heartache," said Feeley today.

The SFO says an affinity fraud can take many forms but most commonly involves an investment scam where the fraudster is, or purports to be, a member of a particular identifiable group. This can include ethnic minorities, religious groups or individuals within a professional discipline.

"Key to the crime is that the fraudster will exploit the trust and common bond that exists within such a group to deceive members into an investment scheme or other business proposition that they might not otherwise have accepted but for their knowledge and trust of the individual promoting the investment,' the SFO says.

"Often the victims of such fraud are slow to report any anomalies to law enforcement authorities because of their reluctance to undermine social cohesion with the group. Commonly they will seek to come to some arrangement within the group, and the fraudster amongst them will continue to assure investors that their investments are secure but the subject of some technical or administrative problem in being repaid."

How to minimise risk

The SFO's advice on minimising the risk of being the subject of such a fraud includes:

Thoroughly checking every fact and figure, and don't believe anything simply because the person making the statements is known to you;

Be greatly suspicious of out-of-the-ordinary returns. Quick or very consistent returns on investment are classic signs of fraud;

Get things in writing. Fraudsters don’t like putting things in writing for fear of subsequent liability;

Be wary of people who claim to know you by way of a third party or via social media. A social connection, real or claimed, is no substitute for a relevant professional qualification to provide financial advice.

Today's comments come after the SFO issued a public warning of the growing risk of affinity fraud in a post-global financial crisis era last Friday. Feeley warned then that although the finance company collapse had eroded public trust in some investment opportunities, it had also created a niche market in affinity fraud for those wanting to criminally exploit the trust of their family; friends; work colleagues; or other associates.

The SFO had seen a growing trend in affinity frauds consistent with experiences overseas.

“The FBI highlighted affinity fraud as a growing problem in its last Annual Report, and there appears to be a widespread sentiment in the US that because the financiers of Wall Street, and elsewhere, have proven they can’t be trusted, the public are better off investing with those they know. Nothing could be further from the truth,” said Feeley.

He said over the past year the SFO had investigated a variety of cases where there was a common link between the parties involved, including family, iwi and religious affiliations.

“Social media exacerbates the risk in this area as relationships established through Facebook, LinkedIn and other sites give victims a level of trust and confidence in people proposing investments that is completely disproportionate to their knowledge of that individual.”

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Ivan - damn good advice! Its actually amazing how many people get ripped off by other family members.  It's probably an issue that should be out in the public domain more as usually those family members getting ripped-off never take any action against the perpetrators.

My take on it is you never really loan money to family and friends, it's actually a gift. And if you're not willing to gift it to them no strings attached then they can't have it.
Dressing things up as 'affinity fraud' is a bit redundant it's just straight out fraud, most victims have some connection to the person who ripped them off.

Snippy -  your statement "We are becoming a lawless society - from the children to the parents"  Maybe the problem starts with Govt and its Agencies who just write legislation to legally take things off people. Shouldn't the Govt and its Agencies be setting an example? When the Govt wants something it writes another piece of legislation to obtain the thing of desire.
When fraudsters want something they just write a contract to get what they desire - so aren't they just mimicking the Govt?
Fraud is intentional deception. No legislation or contract is drawn up without  "Intention'.  Can deception be applied to the documents intention and need of its existence - well if someone is obtaining/receiving a benefit that is not shared back to the provider of the benefit then it would look like deception is occuring. 
Theft is the taking of another persons property without their permission or consent with the intent to deprive the rightful owner of it.  Well no Govt or its Agencies has ever asked me for any of my property so does that make them thieves? According to the meaning of theft it does.
Legislation apparently makes this theft of my property by Govt and its agencies legal.  So we condone legal theft by allowing this BS to continue. When you enter into a contract with someone it is not enforced upon you - you can take the offer or leave it. You actually have a choice and I know some people are pretty damn convincing in their sales pitch but shouldn't we let sales pitch/pressure be a guideline - if we did, we wouldn't get all this rubbish.

This is exactly the problem that Maori have faced, but most people are too busy focussed on the race aspect to bother looking behind the scenes. The courts have refused to deal with them as citizens, which the treaty promised, and says the argument is between them and the crown. The crown of course writes the legislation to please themselves. Look at the Ngati Apa decision as a classic example. Forgive me for departing from the subject of the thread, but since it is the same principle underneath I thought I would throw that in.
Are you Familiar with the quote:
Justice is open to everyone in the same way as the Ritz Hotel.  ~Judge Sturgess

The situation was created by taking away their boat(land) in the first instance so they could not go fishing. 
All the settlements are just a proxy for getting the land back, but it hasn't worked because the land wasn't given back. Give the land back and they will fish. ie they will have to fish because then you can turn off the welfare tap.
Look into it mate, because until you fully understand what was done to them and the methods used, you sell yourself short. Do you actually understand what happened in the Ngati Apa case I linked to above? If you are not aware of the case did you bother to find out?

Mate I even worry about my son in this regard, unfortunately my authority was undermined. (long story). Smart enough, but damn hard to get him outside. Been lucky with my daughter though, 3rd year into an engineering degree and doing this concurrently with a chemistry degree. So I agree, the race issue is a red herring, the principles driving it all apply equally.

snippy - thats good Summary of Facts.And  then we have our Pollies supporting Adam and Steve social experiments by a big majority so far - what a shambles !

just recieved a booklet from anz regaurding changes to their systems that are coming in shortly.
you can bet your boots that the only ones to benifit here are themselves to add a few more dollars onto their already obscene profits.
looks like you cannot trust banks to do whats best for the customer.

Ngakonui Gold - the Govt wrote the banking legislation too. Depositors don't get to write their contract for supply with the bank so the banks pretty much have it made and it was Govt who had to put the depositors guarantee in place at the start of the GFC.  They both rely on other peoples money or neither would exist. 
I know if I was writing my own depositors contract I would make them profit share with me since they get all that leveraging capacity off any deposit I make.

but it is your money, you dont have to invest with them.

I was having a discussion last week with Mist over the nature of interest, in which I concluded that it is actually the borrower that adds the value. If the money is sitting their unused then its current value is zero, no one wants it except you and you don't want to spend it. Think of it as a surplus food rather than money, you already have enough to eat so you save it until next year. But if everyone else has surplus food as well then no one is interested in trading you for it. Not until someone is interested in trading it does it have value, the borrower adds the value not the lender, so why should the lender get any interest.

Scarfie - simply because the borrower can't undertake a transaction without the initial lender.
I could have a tractor sitting in my shed not being used for a short period of time it isn't earning an income for me. But then Joe farmer wants to dry hire it and all of a sudden it has earning potential and money is the same.
Money is never sitting around idle, like food in a cupboard, someone else is always using it.
The bank cannot exist without deposits.

Well I was hoping to get a discussion going on this point, to sort of extend my criticism of unearned income. You are quite right of course and what this points to is the lending and borrowing are mutually beneficial, so there is no need for interest to be attached. In your example it costs you nothing to lend the tractor, or more to the point you would lose nothing by lending it for free but create some good will. A small matter of wear and tear, but that is a separate discussion that can be solved by the item being a hammer:-) I think it is helpful to take the discussion away from money, since money is only a proxy(or is supposed to be). My theory is that money does not need interest attached to function as money, and in fact interest detracts from its key qualities.

Steven - It is better risk to borrow off them rather than have an unprotected deposit with them.
The reality is banks have become a necessity for most transactions whether we like it or not. Choice has been removed.

Just in the interests of balance..nakonui gold...I just read the brochure cover to cover...and deduced...A drive here by the ANZ to retain customers they may be in danger of losing, not to mention not retain staff they are looking to lose.
Overall..there are improvements to the benifit of the customer (can't really believe I just said that.)...but also note ,for the lazy buggers that don't read it (I mean those who recieved  them), 
If , say you have a Control to become the Classic Account...which you may have nominated as the no transaction fee account..that will no longer be the case, will need to change that to a Freedom acc, before the change  takes place to enjoy the benifit, add to this there is no charge (or annual fee) attached to the credit card visa while holding that account (freedom)
For term breaks the penalty has been reduced to 50%, although it looks non negotiable.
And so on , no it really reads more like they are acting in response to negative user feedback, (me for one) and down size in real people terms at the same time. 

Many People Can't Be Trusted....what a load of hogwash...! take me for instance...
.I was in Brisbane and I saw a bumper sticker on a parked car that read 'I miss Otara'


So I broke the window, cleared out the glovebox, stole the radio and left a note that read,


"I hope this helps."


Can't be trusted , nonsense.