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Just $10 million of a "purported" $449 million of investor funds under management by Ross Asset Management Ltd has been identified by receivers, with the Financial Markets Authority (FMA) saying there may only be "limited" remaining assets.
Receivers have raised questions whether the original investment later became a Ponzi scheme, where some of any new investors' cash is diverted to pay interest or dividends due to earlier investors.
PricewaterhouseCoopers (PwC), receivers of Ross Asset Management, yesterday called for liquidation of the Ross Group, saying it was likely insolvent and unable to pay investors what their portfolios were supposedly valued at.
"It is likely the historical returns advised to investors are exaggerated and may possibly be fictitious," receiver John Fisk said in a summary of PwC's first report, released yesterday.
The Wellington investment firm, run by David Ross who has been in hospital since the company was raided in early November, has about 900 clients, but Otago financial sources, who asked not to be identified, understand numerous Queenstown people had been targeted with investment proposals.
So far the receivers had identified 1720 individual investor accounts holding "purported" investments of $449.6 million, but they, managers and expert advisers have only been able to identify $10.21 million of investments held.
"In our [receivers'] opinion, the Investment Fund managed by the Ross Group is insolvent, as it cannot repay the value of the portfolios reported to investors as they become due in the ordinary course of business," Mr Fisk said.
FMA chief executive Sean Hughes said yesterday that while he welcomed the greater clarity the report brings on the affairs of Ross Asset Management, it "clearly makes for difficult reading for the 900-plus investors with funds under management".
Preliminary investigations also suggests $60 million more was paid out by Ross to investors than was taken into his investment funds over the past five years to September, with a $24 million deficit of repayments to contributions in the past year alone, BusinessDesk reported yesterday"The returns to notified investors over the last 12-plus years would appear to be unrealistic and in all likelihood aggregated or falsified," their report says.
"The Ross Group is currently unable to return even a small fraction of the reported value to investors."
Mr Ross, formerly a sharebroker, managed funds on behalf of 900 privately wealthy individuals.
A table in the 27-page report shows management fees averaging $4.4 million a year were paid in each of the last three years, and that fees had run at well above $1 million a year since 2004.
The PwC investigation found inadequate record-keeping and has been unable to source much of the documentary evidence for trading and investment holdings that it needs to complete a full picture of what looks to have the characteristics of a Ponzi-style scheme, where investors were paid out at least in part using other investors' funds.
"Withdrawals by investors during these periods (the last five years), appear to have largely been funded by pooled funds which include the contributions made by other investors, coupled with the sale of investments," says the receivers' report.
"I think it's got characteristics of a Ponzi scheme. I don't think it started out that way," Mr Fisk told BusinessDesk.
Among records found were some investments with lower values than the original cost prices recorded by Ross, plus evidence of trading losses on some shares, many of which appear to be low-value and high-risk stocks.
The Ross group's database purports to show investments worth $449.6 million, of which $152.4 million is said to be held in Australian investments, another $136.1 million in Canada, some $156.4 million in the US, $3.8 million in New Zealand, and $943,332 elsewhere. Of this, some $437.6 million was held by a Ross group subsidiary, Bevis Marks.
- Additional reporting: BusinessDesk