Fraudster's investment yields double

DISGRACED: Former financial adviser David Ross has pleaded guilty to $115 million fraud.
DISGRACED: Former financial adviser David Ross has pleaded guilty to $115 million fraud.

One of Ponzi fraudster David Ross' last investments before being shut down is showing a profit of more than 100 per cent, but its ownership is in dispute.

Ross acquired 200,000 US$1 preference shares in British software company Arria NLG when it raised money from New Zealand investors in August 2012.

Arria listed on the Alternative Investment Market in London on December 5 and its ordinary shares last traded at 132.5p, having hit 282p the day after listing.

With preference shares converting one for one into ordinary shares, the Ross stake is worth about $522,000 at current exchange rates, a gain of about 115 per cent.

However, who owns the stake is unclear.

After the Arria holding came to light as a result of a report by Fairfax Media, the Financial Markets Authority got a court order to place the DRG Ross trust in the hands of receivers from accountancy firm PwC.

Receiver John Fisk of PwC said the trust was established for Ross's son and daughter and they had made a claim on the shares saying it was funded from their own portfolios.

"We've got information that at least some of the proceeds might have come from other sources, so we've now got an issue to establish who has rights to those shares," he said.

Ultimately a court order would probably be needed to decide the matter, he said. The Arria shares are the only asset in the DRG Ross trust.

"We've been keen to sell them now, and then have an argument about the cash, but the other parties aren't so keen on that," Fisk said.

"From our point of view we want to get them sold and have those funds go back into the pot available for [Ross'] investors."

Ross' investment firm Ross Asset Management collapsed in November 2012 and it emerged that he had duped investors for years with a huge Ponzi scheme.

A Serious Fraud Office investigation found large portions of client portfolios were fictitious, leading to investor losses of more than $115m.

In August Ross pleaded guilty to fraud charges and he was sentenced last month to 10 years and 10 months in jail.

He filed an appeal against that sentence last Friday on the grounds that it was manifestly excessive or inappropriate.

Ross acquired the Arria shares alongside a Who's Who of Wellington business figures in a capital-raising organised by investment banker Andrew McDouall.

Other investors included Gareth Morgan, Theresa Gattung, Rob Morrison, ACC fund manager Blair Tallott, Telecom chairman Mark Verbiest, Contact Energy general counsel Paul Ridley-Smith and Strategic Finance director Marc Lindale.

The company, based on a spin-out from Aberdeen University in Scotland, has developed software to convert large quantities of complex data into plain English.

Those involved in its commercialisation included Diligent Boardbooks co-founder Brian Henry and his brother Gerald.

In the six months to March 2013 Arria reported revenue of £210,013 (NZ$413,500) and a net loss of £7.2m. Revenue for the six months to September 30 was about £590,000.

Brian Henry left the Arria board in October 2012. Gerald Henry is retained as a marketing consultant at a fee of US$18,333 (NZ$22,175) a month.