The full story on sleazy money

BY TONY WALL AND JONATHAN MARSHALL

Those who knew ASB investment adviser Stephen Versalko say he was so personable, friendly and inoffensive they still find it difficult to believe he was running a multimillion-dollar ponzi scheme and cheating on his wife with prostitutes. For the first time, Tony Wall and Jonathan Marshall piece together the full, remarkable story of an unremarkable man. 

Although she now thinks of Stephen Gerard Versalko as a "bastard" and "beneath contempt", Norma* has to admit it's a pity he was caught. After all, the elderly widow had it pretty good with Stephen, as she calls him, her investment adviser at ASB bank for more than four years.

He told her he had invested her money, about half a million, in some kind of bonds. Every month she would receive an 8 percent dividend payment of more than $3000, which was more than anyone else was offering at the time.

The only problem was, Versalko was paying Norma with her own money, along with that of the other unwitting investors in his ponzi scheme, named after 1920s US fraudster Charles Ponzi and perfected by the likes of New York investment adviser Bernie Madoff. Versalko was using Norma's money as his own, to fund his lifestyle of million-dollar properties, fine wine, luxury cars and hookers.

The difference between those who invested with Madoff and Versalko is simple: many of Madoff's people lost everything; none of Versalko's clients have lost a cent – in fact, they benefited financially from his $17.8m fraud. Not only did ASB reimburse their stolen capital, but it honoured the dodgy interest payments Versalko had promised.

This meant Norma got another three months' worth of inflated dividends after Versalko was caught in August last year.

"They [investors] were never going to get a better deal, that was their one commonality," says a member of the Serious Fraud Office team who investigated Versalko. "Some investors found it inconvenient that Stephen got caught. For some of them he made banking very, very easy, we all know it isn't that easy."

The investigator, who wants to remain anonymous, says Versalko's service was "excellent, he was brilliant at it".

Like many of the victims, Norma knew little about investments. When she made a tidy sum from the sale of the family home after her husband's death, she didn't look much further than the bank.

She "inherited" Versalko at the end of 2004, from the woman who did his job before him. What Versalko lacked in looks – observers at his sentencing cruelly noted he was chinless, with a face like a sucked lemon – he made up for in charm.

He'd turn up at Norma's spacious apartment with views of Rangitoto Island, plant a kiss on her cheek, and maybe hand over a bottle of good wine, which they'd share over lunch. Once Versalko took her to Mikano restaurant in Mechanics Bay; another time to Sails at Westhaven Marina. When he whipped out his credit card to pay for lunch, Norma would joke that it was really her money he was using – she didn't know how right she was.

"Do you like tennis, Norma?" Versalko once asked, presenting her with two tickets to the ASB Classic tournament, including morning tea and "drinky-poos". They became so friendly, she even offered Versalko and his family the use of her holiday home.

He was "very nice" and "pleasant", she says, although he never seemed to be able to relax. He would fidget, talk quickly, and always seemed to be "on the go"."We talked about everything, and nothing," she says. "I heard about his cat dying, he was getting a new dog, his daughter was getting a driver's licence. He was my mate, my pal. I suppose he was ticking me off the list and saying `she's all right for a while'."

Talk of investments never took up much of their time.

"We may have talked for a few minutes – `OK, we'll just roll it over for another year'. I said `but the rates have gone down'. He said, `we'll roll it over to 2009 and see what happens'.

"I just took it for granted. I'd do whatever he told me to do... it all seemed fine to me. It's a shame he was found out from my point of view, he gave me a false sense of wellbeing – 8% when I shouldn't have been getting it."

If Norma ever needed cash from her lump sum investment, there was never a problem. "I'd ring up and say, `Stephen, I'm a bit short, I need $3000'. He'd say, `the money's there to spend, Norma'."

When his clients needed money, if he didn't have it immediately available, Versalko would search around for another investor to fleece. He'd target people like Norma, who paid little attention to their finances and never looked at their accounts online. "Oh, shit no, I never look at the internet,"

Norma says. About half of the 26 investors he stole from were based overseas; many were elderly and shared Norma's lack of financial nous.

Versalko would transfer funds that he had supposedly invested on his clients' behalf to personal accounts for his own use, or to a single "ghost account" created by him in Norma's name.

"I was quite a slush fund, he would take from me and pay out dividends to other people," she says.

Versalko would manipulate ASB's computer system so that his transfers were never recorded on the bank statements of his victims. He would keep basic manual records of who was owed what on which date, using the calendar on his Microsoft Outlook program to trigger his memory. On his work computer he created fake statements and certificates which he would send out as necessary.

Norma says she received certificates complete with ASB logos, but is embarrassed to admit she didn't get one for the 2008-09 financial year.

"I had my money there, I got my interest every month, life just went on. I had nothing to gauge he was doing anything naughty."

How did Versalko go from white-collar respectability to a cell at Tongariro Prison?

Sources point to a low point in his life in the mid 1990s as a possible start of his path to crime. He had worked at BNZ in the early 80s, then Security Pacific as head of money markets until 1990, and at HSBC as their head of swaps and options until 1994. He earned good money – more than $200,000 plus bonuses. In 1995 he joined Trust Bank (now Westpac) and helped set up its treasury department, but was made redundant and spent some time unemployed. When he finally got another job with ASB in 1997, he had to take a pay cut.

"It wasn't a good time," a source says. "He said he never ever wanted to be made redundant again, and wanted to live that lifestyle he had enjoyed. He wanted to be top dog again."

Versalko comes from a successful, hard-working family, whose legacy goes back to the early 20th century, when Stephen's grandfather, George, arrived in Auckland from what was then Yugoslavia and set up as a fishmonger. He died in 1959 and left his eldest son, Ivan, as executor of his estate.

Ivan Versalko, Stephen's father, was a public servant all his life, working as district trustee for Public Trust for 41 years until his retirement in 1987. He and wife Margaret had four children, all born in Napier where Ivan was working at the time – Stephen, born in 1958, Greg in 1959, Catherine in 1961 and Andrew in 1964.

The family moved to Hawera, and then Invercargill, where Stephen did his final year of schooling at James Hargest High.

A former teacher, who asked not to be named, says when he saw Versalko's picture in the paper he was instantly taken back to 1975, when Versalko was in the sixth form. "That jawline is pretty distinctive. He was big into his athletics, loved his track and field, sprinting I think. He might also have been into... javelin, and would have been the only kid at the school doing that. He was very social, very outgoing and excellent at sports."

A former dean of the school, Ray Clarkson, says Versalko fitted in well and "moved along with the herd. I never thought of Stephen as obvious and that is why in life he probably did so well. He was under the radar. That allowed him to get away with what he did".

Jonathan Tucker, who still teaches at the school, remembers the Versalkos well.

"Stephen is ugly in comparison to his brother Greg... the girls always fell for Greg... he was a very good looking boy; he acted for me in one of my plays, Bruce Mason's Pohutukawa Tree. He was the Lothario who seduced the Maori girl. Stephen took up that role later on in life, it would seem."

Tucker says all the Versalko kids were bright, top in their classes. "Stephen's massive fraud and the way he went about it showed just how smart he still is."

Versalko chose not to go to university after finishing school, moving straight from the sixth form into the finance industry, teaching himself the skills he needed to operate in the convoluted world of treasury, money markets, swaps options and futures. A move into property development in 2000 sparked Versalko's first fraud. The project had exceeded its budget and he needed $70,000 to avoid having to sell the property and take a loss.

He looked around for a suitable client, identifying an overseas investor who had a term deposit and did not electronically monitor their bank statements. He suggested the client re-invest the money in another "opportunity" with a favourable interest rate, tax benefits and on-call funds. He then sent out periodic statements which he composed himself and ended up stealing $528,000 from the person's account. It was a pattern he would continue for the next nine years.

He worked as a one-man band out of ASB's east Auckland branches, taking on referrals from various staff at different ASB branches and keeping his own appointments book. Sometimes he would use a teller's computer for his transactions but he had his own code, and the SFO would later be able to trace all of his transactions to his log-in. There was nothing terribly sophisticated about his deceit – no one at ASB was watching him too closely. Colleagues who referred customers to Versalko were happy to see him do well, as their own bonuses depended on it.

The SFO source says some clients had called the bank when Versalko was away, asking questions about their investments. Staff would tell them to wait until Versalko got back. Versalko told a probation officer he would regularly gift cash to other employees as a "token of his gratitude".

A final indignity to the bank known for its "Goldstein" ads came when, two days before his sentencing, Versalko wrote to its chief executive, Charles Pink, saying he was concerned his frauds had been so easy anyone could have done them. "An opportunity arose and I crossed the line. It was easy for me to disguise my fraud and I would like to assist you and the fraud team at ASB to prevent this happening again," Versalko wrote.

ASB ignored his offer. Bank sources say Versalko's actions mean they are now watched like hawks on every transaction.

VERSALKO KNEW his house of cards would eventually come crashing down, and the end came in August last year when a New Zealand-based woman who had around $3m invested with the fraudster saw a documentary on Madoff. She grew concerned about parallels between Madoff's fobbing off of anxious investors and her experiences with Versalko. Careful not to be put through to Versalko, she rang the bank's securities division. There was no record of her investment, and the bank's internal investigators were called in.

Within days they had unravelled the frauds and handed the case to the SFO, which called Versalko in for an interview. He couldn't wait to get everything off his chest, and for the first 20 minutes the interviewing officer hardly spoke as Versalko described his offending.

"He's a very friendly guy," the SFO investigator says. "You spend five minutes with him and you think he's a good guy. He seemed to want to co-operate.

"We said effectively `tell us what you've done' and he rattled the whole thing off, he couldn't have been more helpful, some of that is testament to his character, and him wanting to start making things right."

Versalko asked that he be arrested there and then, but the SFO let him go. It still had a case to build and money to trace and wanted to make sure there were no co-offenders. He was not arrested until December.

Although Versalko was honest about most of his offending, he lied about one thing – his use of prostitutes. He had been a regular at well-known Newton brothel the Pelican Club, where he was known as the "big spender banker" and was popular with the ladies. He gave one woman he met at the club more than $2.5m, taking her on a business trip to Dubai, and gave another, whom he met through newspaper classifieds, $791,000.

He told the SFO these women were customers, but the SFO was suspicious of the huge sums sent their way, and went to see them, discovering their real identities.

In the last two years of his scheme, the amount Versalko stole increased dramatically, a lot of it going to the prostitutes, and in court his lawyer claimed one of them had been blackmailing him. The SFO says it found no evidence of this.

While he was happy to admit to his crimes, Versalko never gave much of a motive, other than he "got greedy". A probation officer's report says he had a "sense of entitlement". Others familiar with the case say he became addicted to his luxury lifestyle and once the ponzi scheme was started, he had to keep stealing more and more to satisfy investors.

Versalko has been publicly humiliated but he retains a sense of pride, telling a probation officer he took exception to being portrayed as preying on elderly women. His victims were aged 28 to 80, he complained, both men and women.

FOR SOMEONE who has brought notoriety to the Versalko name, Stephen retains a surprising amount of support from family members. His brother Greg, a manager with Child, Youth and Family in Hamilton, told the Star-Times: "He's done something pretty horrendous, but he's still your brother and he's still your blood. I want to look back in the future and say at least I was there to support him."

Catherine Versalko-West declined to comment, but has offered her wayward brother a job at her Auckland supermarket when he gets out of jail.

If anyone would hate Versalko it would be his mother-in-law, but even she has nothing but nice words to say about him. In a letter to the court, Raewyn Daisley spoke of his "strong family values and amazing parenting skills" and described him as kind and considerate – a "lovely man".

It is unclear if she knew he had blown $3.4m of stolen money on prostitutes when she wrote the letter. Daisley declined to speak to the Star-Times, as did Ivan and Margaret Versalko, who were charged interest on an $80,000 loan their son gave them to help them move into a retirement home on the North Shore, only to be asked by him to return the money when the fraud was discovered.

Andrew Versalko, a business support manager with AMP, is said to be upset that his brother's actions have tainted the family name, and his wife, Andrea, told a newspaper her brother-in-law was a "slug who should be squashed".

Megan Versalko, a respected school teacher and Stephen's wife of 25 years, is now renting in Takapuna, the ASB having seized their home in Remuera and waterfront bach in the Coromandel, bought with stolen cash.

Megan has told friends she is determined to preserve her dignity by maintaining her silence. Her only concern is for her children, they say, and she has found the media coverage cruel. It is unclear if she will be there for her husband when he is released.

A school teacher who knows Megan says she was overcome with embarrassment when her husband's double life was revealed to the world, and "just wanted to hide under a rock".

"She just thought she was living a normal family life with her husband and children. She knew they did all right for money but never questioned why they were doing that well."

Their three adult children, all at Auckland University, are said to be shocked by their father's actions but are standing by him.

Norma, the duped investor, says Versalko's demise "was like a death in the family".

"I can't believe the Stephen I knew and had dealings with could be such a two-faced character... a Jekyll and Hyde."

Her own circumstances are greatly reduced: she now gets by on a 5.25% term deposit. She is still with ASB.

In a 60-second hearing in the High Court at Auckland two weeks ago, Justice Forrest Miller ordered Versalko to pay back ASB around $14m. Versalko was not in court and did not send along a lawyer.

ASB is suing the prostitute who received more than $2.5m, on the grounds she must have known the money was stolen. She has hired a top QC to fight her case, claiming she received the money for services rendered and is entitled to retain it. The case is back in court on Tuesday – the squalid case of Stephen Versalko is not done with yet.

Norma was one of the few investors to turn up to court in March to watch Versalko sentenced to six years' jail. The last time she'd talked to him was the week before his fraud was exposed. He'd called her to say he was transferring to a new division, and they'd have lunch the following week. "I'm still waiting for lunch, Stephen," she laughs.

Seeing her former investment adviser and friend in the dock was a shock. "He had a nice head of hair and was always neat but he looked like the Wild Man of Borneo. He was just drained, he looked terrible. I felt sorry for him for a moment. I thought, `why, Stephen'?"

* Name changed because of court suppression orders.

- © Fairfax NZ News