Grand facade built on lies
Evan Paul Cherry, a slight, bespectacled 53-year-old Aucklander, clutched a small overnight bag in the dock of North Shore District Court last Friday as he quietly admitted to lies spanning more than a decade.
Cherry, an unregistered financial adviser, pleaded guilty to stealing $4.7 million from more than 175 investors, who once trusted him. Instead of investing in shares, notes, bonds or listed companies as promised, he had played an elaborate game of financial musical chairs since 2001, with $2.7m being recycled back to his investors in what is popularly known as a Ponzi scheme.
But Cherry had also taken his cut for running the unsustainable scheme, with $582,000 being used to directly pay for personal expenses, including the mortgage on a $1.3m, 344-square-metre home in a gated community in the Auckland suburb of Coatesville, a boat, and lease payments on a range of luxury cars including Porsches and Audis.
His new girlfriend - he split with his wife, Karen, when he came under the spotlight of the Serious Fraud Office in June last year - held his hand and gave him a kiss before he went to the dock.
Cherry's fraud had also paid for his daughter to attend Pinehurst School, an exclusive private Albany establishment where annual fees run to $15,000.
Now, Cherry's red overnight bag was evidence the music had well and truly stopped. His lawyer conceded that jail was an inevitability and did not bother to entertain the possibility of electronic monitoring. Cherry was remanded in custody until sentencing on December 11.
One of his fraud victims, Leon Hartman, did not see Cherry being escorted out of the courtroom by guards to spend his first night behind bars at Auckland Central Remand Prison, but he did allow himself a moment of satisfaction.
"We were duped by a wolf in sheep's clothing. It was a classic affinity fraud by an expert conman," he said.
Still owed nearly $200,000 by Cherry, Hartman was the Investment Solutions investor who blew the whistle after a phone call in 2010, when the financial adviser first admitted he was a fraud.
For months Hartman had been trying to extract his funds and, after another failed promise of repayment, he told Cherry in a phone call (which he later recalled as evidence for regulators): "Evan, you can't lie to me like this! It's illegal."
"I know. I'm sorry," Hartman recalls Cherry saying.
"It's basically fraud."
"Yes, I know."
Hartman complained to the authorities, who opened a formal investigation in June 2011. His pursuit of Cherry came after he felt a trusted relationship had been exploited. A handful of other Investment Solutions victims told BusinessDay of a professional relationship going back decades.
Cherry got into financial management with a network of investors - soon to be victims - already primed as trusting him. He had worked as a sales representative for Sovereign Insurance until he left in 1996 to found Investment Solutions.
The Serious Fraud Office said most of Investment Solutions' clients transferred their investments from Sovereign to maintain their relationship with Cherry and were encouraged to borrow money to invest with him, including mortgaging their homes. Sovereign had no relationship with Cherry's new enterprise.
One investor said he had known Cherry for more than 17 years. Many relied on the quarterly, and later six-monthly, investment statements that showed modest, believable, returns - statements that Cherry later admitted were false.
Hartman said his relationship with Cherry had become so close he did not think twice about handing the proceeds of a house sale to Cherry for safekeeping in 2008.
"I remember it quite distinctly. He picked me up from my parents' home, we drove to a local mall, we sat at a cafe there. I wrote him out a cheque for $240,000, shook his hand and said said ‘See you later'," Hartman said.
Despite Cherry's guilty plea, investors outside courtroom one in North Shore District Court were sombre and said it was only a pyrrhic victory. Investors have been told by liquidators and the SFO to expect losses totalling $5m. Cherry's lawyer told the court there was no prospect of reparation.
As Cherry's life and business collapsed around him, his Trade Me account showed the signs of a man trying to reinvent himself. In the past year, he has bought a surfboard and books on Indian cooking. It is understood he has recently been working as a lawnmowing contractor.
More recently, as the prospect of jail approached, he began listing his small collection of personalised vehicle number plates for sale including "NSVT4U" and "CHERIO". The sales pitch for the latter, which failed to sell before Cherry was remanded in custody, reads: "Bye, see ya later."
FRAUD HITS AT HEART OF FIRM'S SLUDGE DISPOSAL
The ripples from Evan Cherry's fraud have spread beyond Investment Solutions and threaten clean-tech startup Enviro Energy, an Albany-based firm hoping to turn the sludge from human waste treatment plants into fuel.
Cherry worked at Enviro as chief operating officer, and also director, and in June last year controlled 60 per cent of the company's shares.
The company has been struggling for 16 years to commercialise technology it touts as being "a true paradigm shift in the field of sludge disposal".
Several investors, however, have told BusinessDay of $1.35 million advanced by them to Cherry - who said he was capital-raising for Enviro - to purchase a stake in the company. According to the Companies Office, however, these investors were never issued shares.
Businessman Rod Arblaster is now the sole director of Enviro after Cherry and his wife resigned once the Serious Fraud Office began probing Investment Solutions. Arblaster, who held a 20 per cent stake in the company last year, was unwilling to comment on the $1.35m purported share purchase by Cherry.
Of his former executive's fraud convictions, Arblaster only said: "There's no evidence of that in any of his work in Enviro Energy."
The apparent investors in Enviro said they were in discussions with Cherry - and hoped to continue these during prison visits - over transferring part of his shareholding.
But in June Enviro had a new shares issue bringing in new investors, increasing the total number of shares eightfold and shrinking Cherry's stake to 20 per cent.
Arblaster did not answer questions about the share issue, which also diluted his own holdings, or the warning posted on the Companies Office that the company risked deregistration after failing to file annual returns.