An Auckland-based gold-bullion firm, whose collapse is likely to cost investors $2.5 million, hired a cocaine-addicted chief trader who has been arrested more than a dozen times and, in 2000, was charged by the FBI after a probe of mafia-run financial firms in New York.
Grace Holdings NZ, trading as Bullion Buyer, was incorporated in October 2010 and advertised on television offering people the opportunity to make leveraged investments in precious metals.
The Florida-based Gus Geldman was the firm's chief trader. Although charged, Geldman was found not guilty of conspiracy, securities fraud and wire fraud in 2001, but today he languishes in jail on another fraud charge.
The failed company was set up by Titirangi financier Robert Kairua and directors included Geldman's wife, Valerie Geldman, and North Shore lawyer Simon Bratley.
While the gold boom persisted in mid-2011, investors were told they had made phenomenal returns. But in September of that year, Geldman abruptly resigned after revelations he faced further charges of wire fraud in the United States. Kairua and Bratley said at the time that investors' funds were safe.
Investors, however, soon discovered difficulties when trying to withdraw money. Their concerns came to a head in February when Bratley resigned and Kairua tipped Grace Holdings in to liquidation.
Kairua issued a statement, and informed liquidator Grant Reynolds, that Geldman was to blame for investors losing $2.5m.
A BusinessDay investigation has uncovered Geldman's use of aliases, an ingrained cocaine habit, a string of arrests in New York, Georgia and Florida, and his indictment following an FBI probe into the New York mafia's pump-and-dump scams.
Kairua and Bratley did not return BusinessDay calls this week to answer questions about the level of due diligence undertaken before hiring Geldman, or why the firm continued to accept new investments for four months after its chief trader had departed.
Kairua no longer has Bullion Buyer listed on his CV and instead refers only to his investment management company, Global Pacific Investments. He describes GPI as being able to "provide solutions for high-net-worth individuals and institutions".
He lives in a modest home in the West Auckland suburb of Titirangi which is owned in trust with a mortgage, and drives a 2004 BMW SUV.
English-born Bratley is a partner in law firm Davenports West.
New York-born Geldman, 46, , short and morbidly obese, faced charges in 2000 faced an FBI operation called "Upstick".
The investigation included 1000 hours of wiretapping and resulted in charges being laid against 120 people – including members of all five New York mafia families – for rorting investors in low-cap stocks of more than US$50m (NZ$$64m).
Geldman, or Gus "Tommy" Gelman as he was referred to in the indictment, was charged with conspiracy, securities fraud and wire fraud for his alleged role in recruiting brokers to claim commissions of 40 per cent pushing shares in a penny dreadful.
Following a four-week trial in 2001, Geldman and his three co-defendants facing charges were found not guilty, but the future gold trader soon found himself again in the sights of authorities.
Moving to Florida, Geldman became well-known to the local Broward County Sheriff's department.
"He's been quite a frequent visitor to our jails – 15 times in our jails over the past 11 years," a spokeswoman for the Broward Sheriff's office said.
A search of Florida criminal records shows Geldman has no fewer than seven aliases and he has been arrested 18 times in the state. He has multiple convictions for giving false information to police and possession of cocaine and heroin.
According to official records, in 2004 Geldman travelled to Georgia where he was arrested and convicted of possession of cocaine for supply and received a five-year suspended sentence. According to court filings, Geldman also has has criminal convictions in his native New York.
Revelations of Geldman's past stunned investors in Bullion Buyer, who were used to often talking to the gregarious Florida native by phone and email.
West Auckland investor Paul Baker, who placed $160,000 with the firm, said that, before its collapse, he rated Geldman above the company's New Zealand-based directors.
"He was absolutely on the ball, whatever it was he'd text or email back within 10 minutes. He was a great communicator, but the other guys were a dead loss."
After being told about Geldman's past by BusinessDay, Baker wants to know what investigations were conducted by Bullion Buyer's New Zealand directors before entrusting their clients' – and Baker's – money to him. "How much did they know about all this?"
Liquidator Reynolds also has similar questions. His February report into Bullion Buyer noted there were no assets to realise and, with $2.5m in claims from investors, he has warned them to expect the worst.
Informed of Geldman's past, Reynolds was also critical of the hiring.
"I was aware Mr Geldman had a chequered past, but not to that extent. You would have thought it would have been fairly easy to find this all out before they jumped into bed together. Alarms bells should have rung earlier."
Reynolds said Kairua was maintaining Geldman was solely responsible for all the losses. Even if this is established, he believes questions still need to be answered by the directors.
He said he was taking legal advice about a possible civil claim against Kairua and Bratley covering the four months the company continued trading after Geldman's departure and alleged fraud.
Reynolds said that, early on in Bullion Buyer's existence, investors would pay money directly to Geldman's United States accounts, but later payments were made through Grace Holdings NZ and into the trading platform Geldman used in the Bahamas.
Former TVNZ journalist Brent Fraser, whose son and estranged wife have hundreds of thousands of dollars tied up in the collapse of Bullion Buyer, said that, in the weeks before Reynolds was appointed, Kairua was insisting all funds were safe.
The Christchurch-based Fraser said his son was literally wined and dined by Kairua: "He flew him up twice near the end, taking him out to fancy dinners at SkyCity. They were promising him a job, he was going to be their South Island representative."
In the end, it was Fraser's calls to media at the start of this year that triggered the end of Bullion Buyer and the start of a Serious Fraud Office investigation into the firm. That SFO investigation is ongoing.
Since Geldman avoided conviction on the mafia-linked Operation Upstick more than 10 years ago, he has now been jailed on another wire fraud charge.
According to documents filed in the US District Court in the Southern District of Florida concerning the 2011 arrest, Geldman and his accomplice were accused of corporate identity theft after creating Business Capital Funding of South Florida to divert investment money meant for legitimate finance company Business Capital Funding (BCF).
Geldman was accused of forging the signatures of BCF directors and taking out advertisements in the newspaper USA Today promising investors returns of up to 20 per cent.
Partway through proceedings, Geldman pleaded guilty and his lawyer, Michael G. Smith, urged the judge to be lenient in sentencing as the crime was not elaborate.
"Although counsel concedes that lying to someone, promising them the moon in the form of high-yield returns in order to part them from their money, and then keeping their money is criminal, offensive and wrong, it should be not considered `sophisticated'.
"Rather, unfortunately and regrettably, it is an all too common occurrence," the lawyer argued.
Geldman's offending before 2006 was blamed on "severe drug addiction" that manifested from the "ripe old age of 10".
Despite these entreaties, Geldman was sentenced to five years in jail, the maximum penalty possible, and ordered to pay US$1m in restitution to his victims. A sentence requirement also included 500 hours of drug and alcohol counselling.
The SFO, until informed by BusinessDay, was unaware of Geldman's ensnarement in operation Upstick, but was hoping to travel to Florida to talk in person with Geldman and get access to financial documents relating to Bullion Buyer.
Simon McArley, the SFO's head of financial markets and corporate fraud, said plans were afoot to secure an agreement with the US Department of Justice to obtain access to Geldman's bank account information.
"Although what we can do to him is pretty moot. He's is prison, he's not going to be released to face trial here and he's not going to be released to come here and act as a witness," he said.
"We'll have a talk to Mr Geldman at some stage – but he's not going anywhere in a hurry."