Fictitious Profits – Recovering Money from Ponzi Scheme Investors

17 Jul 15

On 22 June 2015, the High Court released a decision in respect of an investor in the Ross Asset Management Limited (“RAM”) Ponzi scheme.  Fisk v McIntosh [2015] NZHC 1403 has implications for all investors in RAM and similar Ponzi schemes.  The decision will be of particular interest to investors in BlackfortFX, as the Receivers of that scheme have reportedly issued letters to some of the 1100 investors, demanding that they return payments made to them by BlackfortFX.

Mr McIntosh invested $500,000 with David Ross, through his company, RAM.  If RAM had operated as a bona fide investment company, Mr McIntosh would have retained ownership of his funds, which would have been held on trust by RAM.  A separate management agreement would have provided RAM with a contractual authority to invest Mr McIntosh’s funds in order to generate profits, which would also be held on trust for Mr McIntosh.

Instead of operating a legitimate investment business, RAM took Mr McIntosh’s funds (as well as funds from other investors) and used them for its own purposes and the purposes of Mr Ross’ group of companies (the “Ross Group”).  Rather than generating profits through legitimate investments, investors’ funds were used to meet any Ross Group expenditure or withdrawals sought by other investors.

Mr McIntosh remained unaware that RAM was operating a Ponzi scheme.  Between July and September 2011, he sought to withdraw his funds from RAM.  RAM eventually paid Mr McIntosh $954,047.62 in several tranches in November 2011.  That sum was made up of his original $500,000 investment, plus a ‘profit’ of $454,047.62.  However, the ‘profit’ was entirely fictional and was in fact paid out of funds contributed by other investors.

RAM was subsequently placed into receivership and liquidation, at which point the existence of the Ponzi scheme was widely publicised.  The Liquidators sought to recover the $954,047.62 paid to Mr McIntosh under sections 345 to 348 of the Property Law Act 2007 (“the PLA”) and sections 292, 294 and 297 of the Companies Act 1993 (“the CA”).

Read the full article… Fictitious Profits – Recovering Money from Ponzi Scheme Investors.