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Ross collected $30m in fees, giant ponzi scheme suspected

Wellington firm Ross Asset Management may have taken management fees of $30 million since 2000, receivers say after pinpointing just $10 million of assets out of a purported $450 million.

Receiver John Fisk says the situation "looks pretty grim at the moment".

Mr Fisk and David Bridgman of PwC were appointed receivers of Ross Asset Management and nine other entities last Tuesday after a raid by the Financial Markets Authority.

Early indications suggest RAM owner David Robert Gilmour Ross may have been operating a giant ponzi scheme, Mr Fisk says. (A ponzi is a scam whereby investors are enticed with the promise of very high returns in a very short time, but is based on paying off early "investors" from the cash from new investors.) 

“If you look at the returns that were being reported and the lack of assets that we are unable to identify, it just doesn’t add up,” he told NBR ONLINE.

“So far, we haven’t been able to reach a conclusion on whether it was a ponzi scheme, but we can certainly say it has characteristics of a ponzi scheme.

Click diagram to enlarge. Source: PwC

“We’ve only been in there for just over a week and we’ve investigated all of the obvious avenues.

"We’ve investigated brokers and registers that Mr Ross has advised the FMA of and we haven’t been able to find anything like the level of assets that are supposed to be held in the group’s names.

“But in terms of whether the missing millions will turn up, I can't say definitely not at this stage because there’s still obviously other avenues we are trying to pursue. But it looks pretty grim at the moment.”

Mr Ross is in hospital, said by investors to be suffering from head injuries, and unable to give instructions to his lawyers.

Last week Chapman Tripp lawyer Victoria Heine, who represents some of the Ross entities, told media she had been unable to take instructions from Mr Ross.

Asked about his condition today, Ms Heine said she was “not able to comment.”

In the first receivership report released today, Mr Fisk said there was a significant gap in the indentified market value of the group’s investments as against the amounts reported in investors’ portfolios.

‘‘The analysis of the receivers and managers to date indicates it is likely the historical returns advised to investors are exaggerated and may possibly be fictitious.

"Therefore, the actual cash loss that may eventually be suffered by the remaining investors will differ from the amounts currently showing as the “value” in individual investors’ portfolios.’’

NBR understands Mr Ross initially adopted a high-risk global equities strategy.

The funds are also understood to have essentially underwritten start up junior mining explorers.

The receivership report tables the apparent flow of funds since 2000, taken for RAM’s database.

It shows investor contributions of just over $303 million during that period, management fees of $29.78 million and withdrawals of $290 million.

Funds withdrawn over the last five years have exceeded funds contributed by more than $60 million.

Mr Fisk says the numbers were taken out of the company’s database.

“What we tried to look at is what was the actual cash that was coming in and what was going out. This is a summary of what we can find, but as you can see there are some pretty significant outflows from 2008 onwards.

“That’s just an indication though – we still have work to do on that.”

More by Duncan Bridgeman

Comments and questions

The Table on pg 18 of the PWC report shows that basically all the capital contributions, $303m, were then paid out to investors, $289m, that is no returns from market given assets left over

Thank you for explaining what a Ponzi Scheme is.

If it is a ponzi scheme he needs locked up and the keys thrown away.

What happened before 2000? Without this info the report is not accurate.

Its clear from the fees charged he had stuff all under mgmt before that.

Whats "clear" about it? Please explain more. Thanks

The PWC report made mention that they hadn't found that info yet.

His biggest mistake was not driving a VW bettle! If he did the punters would be loyal to the end.

LOL! I'm luving that comment!

Bring back the death penalty......this countries people are sick and tired of being raped and pilloried by white collar criminals who always come out better off than their victims!!!! STOP THE ROT - fire a spineless judge today....

As with the initial lot of investors who posted here, I'm keeping the faith. I'm certain, that as soon as David is able to, he will front the investors and offer us all a perfectly reasonable explanation. And that our money is secure.

I think you have just printed the next Tui Billboard ad. Condensed version:

David Ross - I'm keeping the faith

Etc.

Spot on - talk to Nick Rogers at DB/Tui

Well if you were bright enough to invest with him in the first place why change your cognitive abilities now?

Sounds like the firm will already have been dissolved before he makes a recovery from his "illness".

I dont know what you hve been smoking but its clear the money has gone

Fantastic sentiment. The more people with your blind faith the better. Ross closing up shop has left a hole in the market and with all the faith based investors I can definitely see an opportunity here. Better yet maybe I'll set up a church..

The FMA approved David Ross as an Accredited Financial Adviser. What checks did the FMA make before approving him? What checks has the FMA done of Ross since he was approved? Even a blind monkey could have seen a $400m hole!

Completely agree - 1 man band, $450m under management, no audit etc... this should have raised a number of red flags and warranted close inspection during the AFA approval process.

What is it with us Kiwi's We work long and hard or a previous generation has, make some excess to invest so give it to somebody else who can talk big etc. KIWI's wake up if they are so dam good they won't need your money because they have made their own !!!!
For heavens sake if you have a formular for making excess to invest just keep doing more of it, at times like this I wonder about our finacial literacy??

I don't think $30M of fees since 2000 is the problem - it sounds a huge amount when aggregated by PWC. If all the principal has been repaid then its just a % return issue - isn't it. Obviously if there has been a ponzi scheme in respect to the principal invested there is a major issue - but that hasn't been validated yet.

It will interesting to see how much PWC gouge out in fees on this.
It may make the $30m look miniscule.

Exposes further the greed and naivete of New Zealand investors.

"Funds withdrawn over the last five years have exceeded funds contributed by more than $60 million."

How do you pull more money out than was put in if it was a ponzi? My understanding of a ponzi there is never more money taken out then put in.

Because the scheme dates back further than 5 years.

Sigh ...surely it depends on how much funds was in RAM before the excess withdrawals. That is, if there was $75m before, then there's $15m now.

I would say that the $60 million withdrawals over recent years would have been from those early investors who a few years ago when the Bernie Madoff scheme was widely publicised, looked at the telltale results they had got from Ross Asset over the last 10 years, thought this is a Ponzi scheme for sure, lets keep our concerns quite, even promote this guy so he keeps getting new investors, while we get all out initial contributions out plus some of the imaginery trading gains. There was a comment in the report that most new contributors came from references from friends. Some Friends!!

NZ identified today as being one of the best places to do business.

Especially if its a Ponzi scheme !

Its ridiculous that we may have another example of investor loss of this level in NZ. Time will tell the exact amount involved but the initial sentiments, even if wildly exaggerated are still eye watering in magnitude. He should do the honorable thing and tell the regulators what's happened to help drive this matter to it's next logical point.

If the issuers need to be audited, why are conduits such as this not similarly required to register audited accounts? While our audit legislation is currently in the spotlight, why not provide some assurance for investors?

Where is Gregory J Ross now.? David always said that his son was trading at a large brokerage house in the U.S. or Uk somewhere. He was gathering skills and was going to come back to NZ and take over the business when David wanted to retire.
Why is it that no one can confirm what the illness is that has put David in the hospital? What hospital is he in? No one has mentioned anything about his indictment. His accountant will certainly have a lot to answer for. Why is he not making any statement? They all seem to be conveniently sick or out of the country.

Interesting! When we contemplated investing with RAM a couple of years ago and interviewed David, we asked about his succession plan etc.
His body-language became uncomfortable and he mentioned his son, saying that he lived in Sydney but would return to NZ when the time came!
As for the accountant: he will presumably be suffering from a similar affliction to David (unlike RAM's office staff, he couldn't simply "resign"!).

As expected, we are now seeing the comments shift from the FMA victimizing David Ross (and his investors) to the FMA not doing enough!

Says that the FMA is on the right track so please keep up the good work!

My relatives have hundreds of thousands of dollars 'invested' with RMA. I got suspicious when they told me of the returns they were seeing so spent a day going through the statements he had sent them. They were very dubious. He described his investment strategy as 'low-medium' risk but the statements showed all their money were in 4-6 shares, mostly high risk speculative companies in mining and healthcare. The share price provements checked out, but of course the statements were always historical, so could have been easily made up. They never saw any share certificates or any independent confirmation the securities had been bought. I tried to convince them to get their money out, but they felt it was worth the risk because of the 'returns' they were seeing. I feel gutted now - I wish I had pushed it harder.

Well even if you had got money out it might not have helped too much - PwC will be looking to go after withdrawals to reallocate fairly to all investors.

The date that will be critical will be the date investors put money in.

That goes with many reputable fund manager though. You get your regular statement showing how many shares are supposedly allocated to you, but held in a custodial a/c along with all the other investors. Unless there is a regular (say monthly, which would probably be cost prohibitive) audit reconciling what is held in the custodial a/c with each individual investors balance, you would never know whether the actual shares had been been purchased. The only way you can get around this is by having a broker purchase shares in your name, and the share certificate issued in your name. But this is not the way most fund managers work...unfortunately.

No - you don't understand how fund managers work. Any decent fund manager has a trustee, registrar and custodian. The assets are held in custody by the Trustee on behalf of the investors. The custodian also prices all the assets in the fund and calculates the unit price. Investors buy units in the trust. At no stage does the fund manager ever actually have the investor's cash in its bank account.

The whole idea of a managed fund is to enable investors to invest in a diversified portfolio of assets with a professional manager selecting those assets. Since each asset in the fund is owned equally by all the investors, you can't issue share certificates to each individual investor.

If you are looking at investing in a managed fund, at a minimum here is what you (or your adviser) need to ask:
Who is: the trustee, the registrar, the custodian, the auditor, the legal adviser?
How is the fund priced and by whom?
Please provide the names of people I can speak to at these organisations.

Who calculates the fund performance and how?
Does the fund management company and the fund have audited accounts on the Companies Office website?
Who are the DIrectors of the fund management company?
Does the company have a website? Are the names and contact details of the key people listed on the website?

Greedy little people….

Horrible little person

I had my life savings with RAM and now have nothing at all. Pretty disappointing that people on here say investors are greedy, if we were greedy we would be buying cars and holidays and consumables, not trying to be smart and save for the future and not be a drain on the country by being on a benefit. I have gone without so much to try and save as much as possible and put everything into investments, and would have been better off sitting at home on a benefit playing Xbox.

Hi, Saving and investing is not being greedy. I think the point people were making is that the returns being promised by RAM were so outrageously high (30% pa!!) that only greediness could cause people to take such a huge risk to invest all their portfolio to try and get that return. That said, I feel very sorry for your predicament. I hope for your sake that the receivers can void some of the fictitious returns paid to other RAM customers so that you can minimize your loss

The FDR tax we paid on the portfolio fictitious value may be refundable ?

In this case FDR tax is salt in the wounds.

Anon #19 & reply - essentially agree with both of you but from what I understand Ross was pitching individual portfolios, not a unitised fund i.e. these were supposed to be individually managed with assets held through single nominee account (e.g. Dagger Nominees per diagram in the article). Even if legit you would not expect unit pricing (independent or otherwise) in this set up. This is of itself not unusual for private client fund managers but it is the requirement for a properly constituted custodian/trustee for the likes of Dagger that should be the lesson learnt / regulatory result here. The consequence would be that only funds/nominee portfolios of a minimum size would be viable. Guestimate would be around $40k a year extra cost (PWC care to comment?), adding 0.2% p.a. fees to a $20m book - if that's what it takes to prevent candy being taken from kids then so be it.

I'm 62, have worked all my life and as at 30 sept 2012 had $1.61M as a closing balance. I had emailed RAM in aug instructing him to deposit $1.1M into my bank acc at 31 Dec 2012. We know what has happened. That was all my savings gone. I have known David personally for about 50 years and I am devastated, absolutely distraught as if he is not trustworthy, who is? Prior to this I would have said he was 100% pure. I cannot believe he could lead such a double life or do such a thing.

Sympathies to you (I sincerely hope that you didn't have all your eggs in RAM's basket).
I doubt Mr Ross did it deliberately, hence his current "illness".
My guess is that his extraordinary early returns were genuine but he then made (a few?) bad investments as recently as four or five years ago, thought he could rectify or compensate, took a few risks, failed, and from then on things rapidly Ponzied! (Hence no tax returns past two years, his accountant's "illness" etc etc.)

24
Feel so sorry for you and others in the same predicament; but for crying out loud what possessed you to have all your eggs in such a shonky basket.
Will be interesting to see how the early withdrawers respond to heir referral friends who have now been caught short. The ultimate test of friendship I'd say.

Don't blame the referees - caveat emptor - there were sufficient warnings (in recent years anyway) to dissuade many of us.

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