The man charged with unwinding the affairs of Ross Asset Management says it appears the company may have become a Ponzi scheme.
John Fisk, a partner at PricewaterhouseCoopers, who is the appointed receiver of the Wellington-based fund manager, recommended that the entity be liquidated. So far assets worth only $10 million, of the $449m the 900-plus investors believed they were entitled to, have been established.
"I think it's got characteristics of a Ponzi scheme. I don't think it started out that way. If you look at what this business was established for, I can't believe that it was started to be a Ponzi scheme, but at some point there's been a tip from that and it's got characteristics now of [being] a Ponzi scheme.''
A Ponzi scheme is a particular type of fraud that pays returns to investors from the amount those investors, or subsequent ones, had originally put in, rather than from actual profits.
Fisk said today that PwC had not concluded its investigations into the Ross companies, so he could not say for sure that more money would not be located. However, the receivers had contacted every share register and broker that founder and sole director David Ross had indicated he dealt with, as well as every broker which had sent mail to it since it took over.
"We’ve tried to establish what the position is based on the information we’ve got to date and we haven’t been able to find the hundreds of millions that are missing. So in that respect I’m not confident that there will be a sudden revelation that there will be a whole lot of money there, but I can’t rule it out either."
When receivers were appointed there was around $3.25m in assets immediately able to be established, a figure which had grown daily as more information came to hand.
"But that growth has slowed in the last couple of days."
It appeared that about a net $60m had been withdrawn from Ross Asset Management over the last five years.
The $449m figure reflected the combined total shown on more than 1700 customer accounts, held by more than 900 clients of Ross, Fisk said, but it did not represent how much they had originally invested with Ross.
"In terms of what people put into the business, we haven’t really got to the bottom of that. It’ll be significantly less than that [$449m figure] because obviously there’s been some very high returns that were being reported," Fisk said.
Investors have told how they were often introduced to Ross by friends because of the extraordinary returns on offer, often in excess of 30 per cent a year.
Releasing his first report on the company earlier today, Fisk said there was "a significant gap in the identified market value of the group’s investments as against the amounts reported in investors’ portfolios".
"The analysis of the receivers and managers to date indicates it is likely the historical returns advised to investors are exaggerated and may possibly be fictitious. Therefore, the actual cash loss that may eventually be suffered by the remaining investors will differ from the amounts currently showing as the 'value' in individual investors’ portfolios."
He said: "In our opinion, the investment fund managed by the Ross Group is insolvent, as it cannot repay the value of the portfolios reported to investors as they become due in the ordinary course of business. We firmly believe a recovery strategy needs to be immediately addressed to maximise investor interests. Therefore, we have recommended the Ross Group entities be placed in liquidation because this will help with the realisation of assets for the benefit of investors.
"We are fully aware the situation is distressing for investors and it is our aim to provide as much certainty as quickly as possible. Should investors or other stakeholders have any queries, please contact us via our website, facsimile, or postal address, or dedicated telephone message," Fisk said.
Last week the FMA won a court order to place Ross Asset Management in receivership, to try to work out the affairs of a company suffering a "vacuum of management". The company's tax returns to the Inland Revenue appeared to be two years in arrears, the FMA’s lawyer Hugh Rennie QC said, adding that there was a "dysfunction which needs to be remedied".
Last week David Ross’ lawyer, Chapman Tripp partner Pip England, confirmed Ross was in hospital. While no detail was given in court, Victoria Heine, who was representing some of Ross’ entities, said she had not been able to take any instruction from him.
Since Friday, when the FMA raided Ross Asset Management, its offices on The Terrace in central Wellington have remained locked. All of the staff had resigned, Rennie said.
The FMA’s investigation began on October 25 after it received complaints from investors who had been unable to withdraw funds, several months after requesting them.
It moved to get information from Ross but when that was not forthcoming the regulator used its powers to search the company’s offices and Ross’ home, in an exclusive part of Lower Hutt.
FMA chief executive Sean Hughes said today that while he welcomed the greater clarity the PwC report brings on the affairs of Ross Asset Management, "it clearly makes for difficult reading for the 900 plus investors with funds under management".
He said in a statement: "The events of the past two weeks demonstrate that FMA will take swift action in response to investor complaints and we would encourage people to come forward if they have concerns about the security of their investment. They should be confident that we will listen and act where appropriate."
While the search for remaining assets would continue, Hughes said "it would appear that the remaining assets are limited".
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