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SFO investigates Ross Asset Management

As the Serious Fraud Office confirms an investigation into David Ross's asset management companies an investor's daughter says she was one of the last people to speak to him.

SFO acting chief executive Simon McArley (below) says they have spent the last fortnight working with the Financial Markets Authority and as a result an investigation has been launched into Mr Ross, Ross Asset Management and its associated entities.

“An evaluation of the information now available has concluded that there are reasonable grounds to believe that an offence of serious fraud may have been committed and accordingly have commenced a Part II investigation under the SFO Act.”

Mr McArley says the SFO is taking the matter extremely seriously, given the scale of the potential loss.

"We will continue to work closely with the FMA to ensure both agencies' resources are applied effectively in a co-ordinated and timely manner. We are meeting with the FMA and PwC receiver John Fisk early this week to progress that.”

Mr Fisk says the application to liquidate RAM is likely to take place “sooner rather than later”.

He is meeting lawyers later today to work out a timeline for the liquidation.

He told NBR ONLINE further applications will be made to the court.

Mr Fisk still has not had any contact with Mr Ross, who is believed to be in Kenepuru Community Hospital in Porirua.

However, patient inquiries still say they have no record of Mr Ross and attempts to contact his wife Jillian or brother Greg are still unsuccessful.

One investor’s daughter, who wishes to remain anonymous, believes she would have been one of the last to speak with Mr Ross.

She rang and left a message with him on Tuesday, October 30 – four days before the FMA raided RAM’s offices and the High Court froze the company’s assets.

She told NBR ONLINE she wanted to speak to Mr Ross after her mother had tried unsuccessfully for more than a week to get in touch with him about releasing some funds.

Mr Ross had previously agreed to release the funds on a specific date, but when that date came they were not released.

“My brothers and I all rang him. We didn’t actually know we were all doing it but we all rang him at the same time. He might’ve thought ‘ok, these people I better fob off’.  So I think that’s why he rang me. And also my parents invested with him from 1992 so they were one of the originals.

“He said during the phones call, ‘I apologise. I didn’t put that date in my diary. I will get onto it this afternoon'. And, of course, that never happened.’”

She says when ringing RAM’s office, she sometimes got to speak with someone but on other occasions there was no answer.

The woman was also keen to dispel the myth all RAM investors are affluent.

“I think there’s an impression all the investors were affluent, but that’s not the case at all. I think some of the portfolios looked like they were, but some investors didn’t invest huge amounts of money, but then their portfolios grew.”

She says the money invested in RAM was part of her parent’s nest egg, but luckily it had not all been invested there.

More by Blair Cunningham

Comments and questions

Buckle-up, investors; this is gonna be a rough ride.

DId the Maddof collapse not make anyone think about the viability of RAM?

Although the net loss to the investors will undoubtedly be less than the $449million quoted, it'll still be a big chunk of change representing the life's work of many hard-working, honest people. My heart goes out to these folks.

If we use the Madoff case as a starting point, it is likely that those early investors who have been paid out or received payments of any sort, may be taken to task by the liquidators as being voidable transactions. That is we the liquidators want the money back to give to a few late comers who can prove they were lied to and only invested on the basis of those lies.

Come on FMA and all investment vehicles we need to have certainty that our funds are in your care for "our best" interest not yours. A real crisis of trust is heading your way.

This investor being the last to speak to Mr Ross in a professional capacity is not entirely true.

I spoke with Mr Ross on Thursday 1 November at 1.30pm asking where my September 2012 statement was. He outlined that he was finalising the last of the portfolios and my and the last of them would be finalised in the next 24 hours.

Obvioulsy this didn't happen. I spoke at length over the next 5 minutes with him over the performance of the quarter. He outlined the stocks which he'd monitored closely and the stocks that he's closed his positions on.

All just a myth & a hugely disappointing one at that. Never trust anyone.

This sort of thing will continue from time to time until there is an effective deterrant. At this point in time these "gentleman" know that even if they are found out, ,located and sucessfully prosecuted, they will recive only a modest term of imprisonment.

How sensible is it that perhaps hundreds of peoples lives are ruined by this and we're looking at perhaps 5 years imprisonment, (less time served with good behaviour). Where's the effective deterrant ????

The punishment for these crimes should be that the perps stay in prison for the number of man hours it would take to repay the money lost or stolen at the average hourly wage.

There is no deterrent. Reward out weighs risk by many multiples therefore making it a sensible trade, ethics aside, and lets be honest ethics in NZ business is a memory.

It seems the authorities have been asleep at the wheel over this one...

I just hope the same authorities aren't alseep at the wheel with all the highly confusing, obfuscating and missing financial reporting deadlines by numerous and various unions - who fund / are the main funders to the Labour Party.

Top 10 unions have a combined income nearing $100M annually - and the authorities are ok with annual financial reporting being years late in some cases?

There's possibly a much, much bigger issues involving one of our main political parties and how they're funded by non-compliant, illegally operating unions.

The Registrar is insisting the Meat Worker Unions re-file a number of years worth of financials... and numerous other unions all have highly erratic financials and appear to be non-compliant / operating illegally also... but we can't check because they are years late with their annual filing compliance.

Why? What are they trying to hide?

This exact issue has been smouldering for years... here's the smoke that would set off the fire alarm... in any commercial / auditor context - so why not with unions/Labour? Surely the standard should be even higher not considerably lower?

Will the Auditor General insist on a Royal enquiry to protect the integrity of our Parlimentary process and members with how they are funded?

Will the authorities now act - especially now also with the unions Aussie cousins' under intensive ICAC investigations for rampant corruption to the tune of many millions.

Do the authorities need something in flashing neon?
Or is $100m in annual income that is obfuscated and "hidden" for years enough of a warning/alarm already?

When will NZers stop blaming the SFO / FMA and start taking responsibility for their own poor investing. If it sounds too good to be true it usually is. These investors in RMA, like the investors in the numerous finance companies were blindly chasing the higher returns without doing the proper research and thinking about the consequenses. Higher returns come from higher risk. NZers need to get over spilt milk and until they take some personal responsibilty this type of situation is going to contiune to occur.

Investors only complain when things go wrong, none of them were even questioning the 20-30% returns. Come on, get real. Put your money in the bank or find a stable NZX company if you dont want to be lead up the creek by idiots claiming unbelievable returns!

It always seems to be someone else's fault in NZ when people chase the high returns and something goes wrong. Then they all think they are owed something.

H have some sympathy for your views however if we use the Government as the governing body above all else, then the Government needs to have in place rules that....

Ensure people / trusts / companies taking money and investing on other peoples behalf have strong regulatory oversight.
For instance, audits, mandatory use of non related parties to hold custody of assets in trust for investors, and the holding entity must also be subject to audit.
When rules are broken, the directors, auditors, or whomever are liable are quickly and judiciously dealt with (no limp slaps with a bus ticket).

When there are slack governance rules, slack auditing, slack due diligence, slack legal penalties, then businessmen let their own profit seeking get ahead of their moral compass, and some turn into downright thieves. Due diligence can't save you from a thief, but some serious rules of engagement will limit the wood be thieves in number.

You can be fairly sure that this was a managed investment scheme or unit trust that did not comply with the requirements of the Securities Act, i.e. registered prospectus, independent unit trustee or statutory supervisor, annual audit etc.

If there is any government / regulatory failure it is in the perimeter surveillance of entities operating around the edges of the financial markets. To get to $400m is quite a significant one to miss. That said, I'm not sure how they are supposed to find out about such an operation without anyone complaining.

Really the investors should have known that the Securities Act applied and seen for themselves on the companies office website that nothing was registered. Or at least noted that they did not have their own accounts with a financial institution independent from the manager reporting to them on their holdings and the trades effected each month.

This was not a managed investment scheme or unit trust.

RAM operated as Authorised Financial Adviser providing a Discretionary Investment Management Service (in simple terms he was an "investment adviser"). There are many people (advisers) and groups offering similar services.
Typically, if you are using an investment adviser who is recommending you some sort of mix of individual shares, fixed interest securities, and some investment funds as well, then, bingo, you are dealing with a similar type of entity.

RAM did not need to register anything with the likes of the Companies Office. Beyond the bleeding obvious (the missing money), RAM probably complied with its requirements under the rules.

What this highlights is a big fat hole in the rules. We have regulated the heck out of the big solid players (being fund managers and KiwiSaver providers), and then left these small "wanna-be" fund managers to operate pretty loosely.

The FMA has been running around checking that the real investment managers do comply with the securities act and offer proper funds have crossed their t's and dotted their i's, while forgetting these operators.

Rest assured that RAM could not have run a managed fund that complied with things like the securities act. The balloon would have gone up pretty much instantly. There would have been a range of external parties looking at what RAM was doing, ranging from the FMA, to the trustee, to the auditor. In addition, all their disclosure material would have been on the Companies Office, and other players in the market would have undoubtedly been having sneaky looks, to see what he was doing.

The upshot of this will be mums and dads suddenly realising that investing in managed funds offers them all sorts of protection. Further, alarm bells should ring when their adviser is telling them about the perils of managed funds, and the wisdom of the adviser creating and managing a portfolio of securities on their behalf.

All these "high returns means high risk" comments need to understand the definition of investment/financial risk. Risk relates to volatility. In this case it appears that Ross has simply acted illegally. Investors might be prepared for their portfolio to decrease in value by 10% in a period - they do not expect their fund manager to break the law. How did the FMA approve Ross as an AFA? What checks did they undertake? Why did the IRD not act on 2 years of unpaid tax returns?

Just like Warren Buffett and George Soros were too good to be true. Don't be an idiot. There are regulations and monitors of those regulations for a reason... to prevent cr*p like this from happening. There is blame on both sides in this case.

I think you are confused on that. Soros ran one of the most successful hedge funds ever.
Buffets has done really well for many investors with out breaking the law.

De ja vu.

And the government will still do nothing to protect mum & dad investors from clowns like this.

Government can't do everything. Buyers beware should the normal practice. You can debate who are the clowns in this case.

...and that's another prime reason why the MOM / partial asset sale will be an excellent investment vehicle for mum and dad's... safe, secure, managed legally etc...

Mum & Dad investors were around in the 87' crash and the property sector collapse then, and 25 years on it happened again, and it will happen again the next twenty years in another asset bubble.

The reality is that yes the government can toughen up on governance and regulation, but people's memories are overriden by greed when they are presented with high returns. Investor education might be part of the solution. Less time in the pub and more time reading the Economist!

Remember the RAM Xmas parties. Stopped about 5 years ago, when things I think started to go horribly wrong. David did not want investors to compare share holdings and returns. Thier is a long litany of lies, i think from that time. I suspect about 2007 the money was spent on a junior miner that went belly up. From that time it was all about keeping up appearances. Did he really only lose about 8% in 2008. Thats what my statement said.

Where's Jane Diplock when you need her?

Plane Jane - Asleep at the wheel again. About time she and the old guard from the Securities Commission (her top 3 side kicks) were held accountable for their slackness and under performance. This clearly happened in her watch as well. Is there criminal action similar to OSH that can be taken against her?

This is a sad example. It is not the fault of authorities; however more regulation is required, i.e. mandatory custodian accounts, and physical ownership scripts sent to investors.

I am not an investor, however have followed RAM for sometime and have been surprised with the consistently high returns through a GFC and also the choice to have an entire portfolio weighted towards mining stocks. That was enough to scare me off from investing with RAM.

sounds like a case of affluence to effluence

Can I ask all the investors in RAM one question: Did you invest with this man because you trusted him explicitly or because he offered exaggerated returns.

Be truthful because if you were attracted by the returns then you all deserve to lose your money.

If you say it was because you trusted him, then why did you not just put your money into a bank.


Of course it was a mixture of both.

We were all aware of the risk of his investing methods and the somewhat risky shares he was trading.

If he was actually investing in mining shares and we took a loss due to these shares declining in value that would be no problem. Heck, if our portfolios dropped by 50% due to some bad trades we would be disappointed and angry, sure. That is the inherent risk.

BUT this ISN'T what happened. Very different.

It's one thing to invest in something risky for a higher return and lose money because the investment didn't work out. It's another thing entirely to invest in something and lose money because the investment was a fraud.

I would ask for mandatory independent audits for all investment or depository institutions ..... but that would open the eyes of to many to the fact that BANKS have a capital reserve ratio of 4%...

Anything above 16% should have created a wind storm, enough to have the red flags slapping you in the face.

All those who weren't with RAM, don't be misled by the reports we all got 30% per year, it was certainly not that, not even close, the odd one was before the GFC, but since then, 10% or less a year (if not negative) has been commonplace, which is what you could expect with a medium risk stock.

So what you're saying is that because Bridgecorp and Capital & Merchant 'only' offered 9.5%, investors should not have had any cause for concern?

And why 16%?

It's not the return itself that should be a red flag, it's the verifiability of the return and the way in which it's earned. I'd be VERY sceptical of anyone offering a 'guaranteed' return of 9% p.a., but happy to invest with a manager investing in small companies which had achieved 16% p.a. provided I knew it was independently verified and that I could understand how it was being achieved.

Question is, how many other schemes like this are in existence but are yet to be discovered?

No news as to why David Ross is in hospital? Health issues or injury from accident?

HIGH RETURN = HIGH RISK. Haven't we all learnt this over the last 5 years? Obviously not with some people.

Norman, this is overally simplistic. The reality is that the return is what should be demanded once the risk is established. The risk is not necessarily linked to the return.

I have heard he has had a nervous breakdown. But, then again, I have heard that he has had a serious head injury. Some people don't believe he is even in the country. I think the SFO need to go over there and make sure that he is indeed in the hospital.

Yes, talk of expectations of high returns is exagerated - in our initial discussions with Ross (3 years ago) the expectation was clearly set out at 10% max - and the risk managed/matched around that. This is no different to those in approved super schemes who opt for the high risk versus conservative options for their investments - what we didn't sign up to was fraudulant services!!

I was canvassed about Ross' s investment vehicle early 1990's, I was under the impression he was the immediate past CEO of Air NZ, moving his 'skills / credibility" into the investment arena, initial performance was spectacular, learned that Ross himself, ANNUALLY valued his portfolio, learned that he had a 'cult following' ....... sound familiar / Madoffesque?

No, you're thinking of Jim Scott/ Aquiline Holdings

I thought I knew David Ross well, and on meeting with him 2 to 3 times a Year, for almost18 years he never promised 30% p.a. returns to me and I never received those returns, I guess my Investment Portfolio averaged 12 to 15% p.a.
( which I was happy with ), however, this Investment Fund was for my Wife and I to be comfortable in retirement, which has now looks to have gone, with us perhaps being reduced to living only on the pension, and still having a home mortgage. I believe the SFO should go after him and if found guilty ( like Madoff ) take all his Personal assets away from him and his family, then throw him into Prison for life, as he has hurt so many average people, who have lost their lifestyles for ever.

First step would be to obtain an order for custodial care of his passport.

I notice there are plenty of comments that blame the government the FMA, the SFO - everyone except themselves.
An investor has to do their own research as to where they put their money. If they don't want to do that, leave it in the bank, as simple as that.
Greed has driven these investors and they were very smug telling everyone of the returns they were getting. Now they are bleating.
I'm sorry, but no sympathy here, as with any investment there may be losses.

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