FMA report on Kloogh pleases victims

Barry Kloogh. Photo: ODT files
Barry Kloogh. Photo: ODT files
Victims of multimillion-dollar fraudster Barry Kloogh are pleased the financial markets regulator has recommended tighter regulations to cover transactions by financial advisers.

However, they remain deeply concerned Kloogh had been able to steal at least $16 million from them and have not ruled out taking further action.

The Financial Markets Authority (FMA) yesterday released a long-awaited report on lessons learned from the Kloogh case, a Ponzi scheme through which the former accredited financial adviser stole money from unwitting clients.

Kloogh was sentenced to eight years and 10 months imprisonment in 2020 on several theft and fraud charges, but questions remained about how his scheme had gone undetected by banks and financial institutions for the about 20 years it had operated.

The FMA report gave some clues to that.

All the organisations it investigated met their regulatory obligations, or legally did not have any regulatory obligations, factors which had promoted a number of recommendations to improve market conduct, oversight, and understanding of "relevant obligations" it said.

FMA general counsel Liam Mason said Kloogh had preyed on the trust clients placed in their financial adviser, and such fraud was difficult to detect.

"We encourage, and expect to see, increased vigilance in the systems and processes financial service providers, and their support services, deploy to detect and monitor fraud."

The FMA had investigated Kloogh’s business transactions with FNZ Ltd and FNZ Custodians, Consilium NZ Ltd, and Bank of New Zealand, and did not find contraventions of the law by any of these service providers.

However, it did raise some issues about FNZ and BNZ’s policies and procedures.

The FMA said FNZ should have sent reports directly to clients and not simply sent them to Kloogh.

In response, the firm said it had improved its procedures and was working towards having reports sent directly to investors.

The FMA report revealed that the BNZ’s monitoring system had an alert triggered by transactions in Kloogh’s accounts.

It reviewed the alert and considered the transactions were not suspicious.

"We consider further enquiries or information could have been sought to better understand the nature of Mr Kloogh’s business and the transactions made ... We found no evidence in this to suggest that BNZ knew or should have known that Kloogh was operating a Ponzi scheme."

Geoff Mirkin, a Dunedin lawyer who is part of a group of professionals acting pro bono on behalf of Kloogh’s victims, said the group was still studying the FMA report and considering what steps it would take.

One of the investors’ key aims had been to prevent a similar fraud occurring again and they were glad that the FMA was taking steps on that front, he said.

"They don’t want to see anyone out there caught by a Barry Kloogh again ... It is clear that there is no regulatory framework which governs what a trustee does."

Karyn Churcher, whose late husband Chris’ life assurance money was among the millions stolen by Kloogh, said she was pleased to see the FMA had some positive recommendations to safeguard investors in the future.

"This was part of the reason I made a very personal story public," she said.

"It is my hope that these are followed through and actioned for all investors in the future, regardless of which party is in power, so no-one ever has to go through this in the future. This was my promise to do for Chris, when I made our story public."

A Official Assignee’s report released last month said investors could expect about 2c back for every dollar that had been stolen by Kloogh, who declared bankruptcy in 2019.


Financial Markets Authority recommendations in Barry Kloogh report. —

 - Provide clear expectations of reporting requirements.

 - Increase resources for monitoring of financial advisers.

 - Ensure all advisers are registered and provide annual returns.

 - Change law to allow FMA to intervene in similar situations.

 - Greater requirement on financial custodians to check for potential fraud.