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Liquidators and Ponzi Schemes

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.


Tony Johnson


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