Whitley found guilty of fraud

RELAXED: Phil Whitley at his Richmond home, waiting to be sentenced after being found guilty of fraud in relation to his company NearZero.
RELAXED: Phil Whitley at his Richmond home, waiting to be sentenced after being found guilty of fraud in relation to his company NearZero.

A Richmond businessman who cheated investors out of $5.3 million by claiming he had invented a revolutionary form of data compression has been found guilty of fraud.

Before his arrest three years ago, Philip James Whitley, who boasted his technology meant he would be "richer than Bill Gates", had his own bodyguards, owned two black 300C Chryslers, was bankrolling the Richmond Athletic Football Club and bought a $2m mansion in Redwood Valley.

Speaking from his modest Richmond home yesterday, Whitley, now a sickness beneficiary, said the judgment had not come as a surprise to him or his family.

"We all expected it."

Whitley, 49, was charged with two counts of making a false statement as a promoter in 2007. The charges, which carry a maximum punishment of 10 years' imprisonment, were laid by the Serious Fraud Office, which said that in the nine months from August 2006 to May 2007 490 investors sank $5.3m into Whitley's company NearZero.

The investments were based on Whitley's claims to investors that he had invented and patented a revolutionary "lossless" method of compressing data. If the technology was genuine it would have been worth billions of dollars.

Following Whitley's 20-day trial, which finished in May, Judge David McKegg said he was satisfied beyond reasonable doubt that Whitley's presentation to investors, and the documentation he supplied to investors, were created and carefully organised by Whitley, and that he knew they were false.

Judge McKegg said the technology could not have been patented because it didn't exist.

Despite Judge McKegg's ruling, a relaxed and friendly Whitley yesterday maintained he still had his invention and planned to recreate it when his mental state allowed it.

"I'm not willing to go there at the moment, I want to get well first."

Whitley, who is yet to be sentenced, told the Nelson Mail he had a bi-polar condition so he had exaggerated things, but medication had levelled him out and he was now a lot calmer.

"The whole thing snowballed into a big mess, didn't it?"

Whitley said he probably wouldn't appeal the decision and hoped he would get home detention as a sentence so he could work to pay back creditors.

He said finally receiving a decision was a relief as three years since the charges had been laid was a long time to wait for a judgment.

Despite the judge's ruling and a looming fraud conviction, Whitley said he was still keen to work with computers.

Companies Office records show that as recently as April Whitley became a director of Latitude 41 Degrees. Whitley told The Nelson Mail this company was a software development company, and it was not related to compression technology.

Whitley said he didn't have anything to say to people who had invested in his company, except he was "sad and disappointed".

One of Whitley's main supporters and investors, Nelson's State Cinema director Mark Christensen, said he did not want to comment on the decision.

Nelson businessman David Harvey, owner of driving simulation business VisionRacer, did not invest in Whitley's company NearZero but invested years of time, hard cash and his reputation in the project in its earlier days.

Mr Harvey said he was pleased that Whitley had been found guilty and while he wouldn't take pleasure in Whitley being jailed, other white-collar fraudsters who had shown remorse and actually paid back some funds had gone to jail.

Another investor, Jaco Grobler of Auckland, said he wished he could get his money back. He said a small part of him was still hopeful the technology did exist.

Mr Grobler would not say how much money he had invested in NearZero, but said it was a lot for him.

Whitley's brother, Rob Whitley, from Gisborne, told The Nelson Mail by email that the "close" Whitley family had not been following the trial in great detail.

"We will continue to support Phil whatever the outcome, not in a financial sense because as a family we do not have the ability to do so."

Serious Fraud Office director Adam Feeley said Whitley's scam was not sophisticated, but was made complex by the technology and patent claims Whitley made.

"The scam itself is no more complex than other investor fraud cases, however, the background knowledge required to explain the alleged technology and the alleged patenting was complex and technical."


1990s Whitley shifts from Gisborne to Nelson and works as a computer technician.

1999 Nelson businessmen Mark Christensen, Geiri Petursson and others invest. 2001 Nelson businessman David Harvey and others invest to market product.

2002-06 Whitley stops work on technology due to health problems. 2006 Whitley returns to work, sets up NearZero in United States. 2006-07 490 investors invest $5.3 million in NearZero.

2007 Investigation starts and liquidation proceedings begin against NearZero.

2008 Whitley charged under Securities Act, Serious Fraud Office also lay charges. 2009 Depositions hearing held.

2010 Trial, after which Whitley found guilty on two charges of misleading investors.

The Nelson Mail