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Sunday
Nov172013

New Zealand's "Madoff" Receives 10-Year Sentence For $300 Million Ponzi Scheme

(Editor's Note: While fraud never sleeps, the blog is now back after a 12-day hiatus necessitated by the editor's recent nuptials and honeymoon.  Many thanks for your continued support of the blog.)

A 63-year old man known as New Zealand's "Madoff" was handed down a 10-year sentence - the most severe sentence handed down to anyone involved in a Serious Fraud Office investigation - for perpetrating a massive Ponzi scheme that took in hundreds of millions of dollars from unsuspecting citizens.  David Ross was labeled a "liar" and a "thief" by Judge Denys Barry of Wellington District Court, who handed down the record sentence.  Under New Zealand laws, Ross must serve a minimum sentence of nearly six years before becoming eligible for parole.

Ross was the director of Ross Asset Management ("RAM"), which he used along with numerous associated entities to solicit investors with the promise of guaranteed and lucrative returns - including annual returns of up to nearly 40%.  Investors received regular returns, and Ross was generally perceived as an astute investor.  Indeed, between June 2000 and September 2012, investors believed that Ross had accumulated a collective $351 in "profits" by trading securities.  

However, in late 2012, many investors began complaining about delays in scheduled payments, and in November 2012, authorities from New Zealand's Financial Markets Authority raided RAM's offices.  After a Receiver was appointed and began sifting through RAM's finances, it was discovered that only $10 million remained in RAM's accounts despite previous claims of over $450 million under management.  The Receiver, John Fisk, estimated that RAM took in over $300 million since 2000, keeping nearly $30 million kept as management fees while $290 million was withdrawn or paid to investors.  Fisk also found that the fund was insolvent since 2007 - that is, fund outflows exceeded new investor inflows, sometimes by $60 million.  When authorities raised RAM's offices in November, the scheme was on the verge of collapse.  Fisk later estimated that the total losses to victims exceeded $115 million.  

Ross pleaded guilty to several fraud charges in August 2013, including four false accounting charges and one charge of theft by a person in a special relationship.  

Many victims decried the sentence, claiming that the term was much too lenient to discourage the scourge of financial fraud that has recently plagued New Zealand.  While the 10-year term is much smaller than similar sentences across the globe - and many times smaller than the scheme perpetrated by Bernard Madoff whose name has been used as a nickname for Ross - the sentence is said to be the longest ever handed down to a failed investment company official or to anyone involved in a Serious Fraud Office prosecution.  Indeed, one former SFO prosecutor speculated that the sentence was the longest he could recall for a fraud-related prosecution.

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