By Tony Johnson - 7 Jul 2017
A recent Court decision has raised further warnings to investors
in Ponzi schemes. The advice is clear: if you invest in a Ponzi
scheme, there is every likelihood you will lose your money.
The Supreme Court has provided a partial victory to liquidators
trying to recover money from investors who received payments from
Ponzi schemes. This is a new development in New Zealand which means
the law now more closely reflects similar decisions in the United
States.
The payments related to a scheme run by fraudster David Ross,
operating under Ross Asset Management Limited (RAM). One particular
creditor was fortunate enough to receive his entire investment back
together with what was purported to be dividends. When he received
the monies, he was not aware RAM was a fraudulent front and was
also not aware the company was close to financial collapse.
The Supreme Court considered the starting point was that all
monies the creditor received in the liquidation would prima facie
be payable back to the liquidator. This was because they were
payments made at a time when the company was insolvent and they
favoured one creditor over another. The Supreme Court however
agreed with the earlier Court of Appeal decision, that the creditor
had a defence to the liquidators' claim in relation to his actual
investments but that no defence existed in relation to the
fictitious profits.
In respect to the investment, the creditor had acted in good
faith, a reasonable person would not have been suspicious that the
company was insolvent when he received the money and the creditor
gave value for the money he received i.e. his investment was
genuine.
The defence was not available in relation to the fictitious
profits. The reason was that because the profits were fictitious it
could not be said that the creditor had provided value for the
money he received.
The decision serves as a further warning to investors: Even if
by chance you do receive your money back, you will be required to
pay back to a liquidator any fictitious profits. Be aware also that
if when you received even your capital repayment, you were aware
the company was in financial difficulty, you will be required to
pay that money back as well.
Contact us to discuss any of the issues raised in this blog.
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Tony
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