Hundreds of affluent New Zealanders could have chunks of their life savings wiped out in what is feared to be a massive Ponzi scheme.
Yesterday, the High Court at Wellington made public the first receivers' report on Ross Asset Management, whose office on The Terrace was raided by the Financial Markets Authority on November 2.
The report revealed that, of the $449 million that the firm's 900 customers believed was being held on their behalf, little over $10m has so far been confirmed as existing. That could mean a return for investors of only 2.3 cents in the dollar.
Mr Ross has clients nationwide, though most are in the lower North Island. Many are understood to be retired farmers.
John Fisk, a partner at PricewaterhouseCoopers charged with untangling Mr Ross' financial records, said more money might yet be found, although he did not believe it would be substantially more.
Mr Fisk's report, which recommends that the Ross companies be liquidated, concludes that statements about financial returns were inflated and "possibly fictitious".
More work was needed to establish whether fraud had taken place, but the situation bore the "characteristics of a Ponzi scheme", in which returns being paid are actually the money invested by depositors.
"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," Mr Fisk said.
Clients of Mr Ross have spoken about how they were introduced to the firm by friends or advisers, because of its exceptional financial returns, often of more than 30 per cent a year.
David Ross, 62, the company's founder and sole director, is now in hospital.
The FMA investigated after investors began contacting it in late October, complaining they were unable to withdraw their money.
Mr Ross was initially co-operative, but was unable to satisfy the FMA, which executed search warrants and won a court order freezing his assets, and those of his company, a week later.
Sue Brown, head of investigations at the FMA, said: "There are things which I think could have been discovered by investors and their other advisers. What's the old saying? If it sounds too good to be true, it probably is."
Bruce Tichbon, who heads a group representing investors, said questions were asked, but Mr Ross seemed convincing, modest and on top of his game.
"He took people into his office, they saw his computer, their portfolio was brought up on screen. People were impressed by that, but in actual fact, it was just a computer they were looking at."
Mr Ross' brother, Greg, his son, Will, and lawyer Pip England, of Chapman Tripp, could not be reached for comment.
INVESTMENT COMES AT VERY HIGH COST
Some of Ross Asset Management's clients believed they had millions invested with a trusted manager, but could instead be left with very little.
Tom, whose grandparents are retired Manawatu dairy farmers, said the elderly couple had expected to leave generous sums to their children and grandchildren when they died.
Now their children were being asked to come up with a few thousand dollars each, so their parents could afford to live while they waited for their waterfront home to be sold.
"They own a house, and a nice car. Everything else apart from a few thousand bucks in the bank was with David Ross."
Despite the loss, the couple remained upbeat, Tom said.
"They've taken the attitude that they came from hardship, so they're just going back to how it was before. But it is still sad."
FRIENDS DAZED BY REPORTS
News that David Ross may have been misleading investors has come as a shock to those who knew him.
A career investment adviser, Mr Ross, 62, was an executive of Wellington-based Leadenhall in the 1970s and 80s.
He set up on his own in 1989, and bankers have spoken of his reputation for being a tough negotiator and rigorous analyst, with strong industry knowledge, especially of companies in the mining sector.
Bruce Tichbon, spokesman for Ross Asset Management Investors Group, said clients were impressed by an adviser who had extensive knowledge, but was always willing to meet them for coffee or a meal.
"He was a modest, soft-spoken, knowledgeable guy, who seemed to know everything that was happening in the [investment] market."
Based in Morrison Kent House on The Terrace, Mr Ross ran Ross Asset Management for years, virtually on his own, though two assistants worked there until days before the FMA raided its offices.
As well as his Lower Hutt home, he owns or part-owns several other properties, including a luxury apartment in Oriental Pde. His neighbours include former cabinet minister Max Bradford and Weta Workshop director Jamie Selkirk.
An investment scheme that claims to deliver high returns from a real business but instead uses money from new investors to pay supposed profits to people who invested earlier.
Named after Charles Ponzi, an Italian who was imprisoned for fraud in the United States in the 1920s.
Ponzi schemes typically collapse when the money coming in from new investors cannot keep pace with payouts to earlier ones.
The most famous and costly Ponzi scheme to date was run by American stockbroker Bernie Madoff. Losses from its 2008 collapse have been estimated at US$13 billion (NZ$16b).