"They can't understand why it has happened to them."
In one sentence, lawyer Geoff Mirkin has summed up the despair of the hundreds of people who have been affected by the liquidation of now former financial adviser Barry Kloogh's companies.
They do not understand how this happened when they trusted Mr Kloogh, a man whom many investors regarded as a personal friend.
They do not understand how this happened when they did what people say you should do, and went to an authorised professional for help.
They do not understand how this happened when they thought their money was safe.
Mr Kloogh was the sole director of Financial Planning Ltd and Impact Enterprises Ltd, which were placed into liquidation in August.
The latest estimate by liquidators is that at least 170 creditors are owed an estimated $12million-$14million; it would come as no surprise if both those numbers increased.
Well-known around Dunedin, for decades he had helped hundreds of people and further afield manage their money, most recently through his company Breathe Financial Planning.
What should have happened
- Client and Barry Kloogh agree on an investment plan.
- Mr Kloogh places an order via "platform" to buy investment asset; platform records the purchase.
- Client pays funds to custodial trustee company which buys asset; asset and its performance recorded online by platform.
- No client funds should have passed through Mr Kloogh or any associated entity.
- What the liquidators’ report suggests might have happened.
- Client and Barry Kloogh agree on an investment plan.
- Client funds paid to Mr Kloogh on understanding that they would be paid to custodial trustee company.
- Clients sent statements by Mr Kloogh; some make withdrawals, which liquidators believe were paid out from other investors’ money.
- Liquidation court judgement says: "it appears that substantial funds have been used for personal expenditure by Mr Kloogh".
People knew and trusted Mr Kloogh; they had encouraged their children, family members and friends to use his services.
However, their lives were turned upside down on May 23, when the Serious Fraud Office executed search warrants at several Dunedin addresses, including the High St offices which once housed Breathe.
The SFO continues to investigate Mr Kloogh; no charges have been laid against him.
While that investigation continues, FPL and IEL have been placed in liquidation; the liquidator's first report, released last month, said evidence showed the companies operated as a Ponzi scheme controlled by Mr Kloogh.
"The investors fear there is a perception out there that a lot of them were well-to-do people, and they are not," Mr Mirkin said.
"The majority of them are not sophisticated investors. They trusted a financial adviser who has either been a friend, or someone who came across as being very trustworthy."
Several Dunedin legal professionals, including Mr Mirkin, an unnamed QC, Goldsmith law principal Fraser Goldsmith, insolvency lawyer Trevor Laing and property lawyer Susie Staley, have given hours of their time so far, free of charge, to try to help members of a group representing many of the affected people.
The investors in the group come from all walks of life, and they are all differently, and severely, affected.
Many are retired, and some are known to have cashed in KiwiSaver or private superannuation accounts and placed their life savings with Mr Kloogh.
Some retirees have been forced to return to work; for the remainder the light of their golden years has dimmed.
Those investors who were working have had retirement plans derailed, funds for their children or grandchildren's education lost, provision for future health needs thrown into disarray.
There may well still be some creditors who do not know that they have been caught up in the collapse of Mr Kloogh's companies.
Other investors may have opted to write off their losses and walk away, meaning the full extent of losses might never be known.
Mr Mirkin said most of the investors his group is helping were not chasing a dream or beguiled by claims of extravagant returns.
Many investors were, in fact, receiving close to market rates, with the occasional bump upwards in their returns for being part of a large group order.
"The more people we talk to, the more we find this was the difference between them living off New Zealand Super and them having extra money," Mr Mirkin said.
"It's the difference between them being able to visit their kids and grandkids in Australia or the UK, the difference between replacing their car or not replacing their car, and they don't have the opportunity to go out and earn money again."
For those people, the reality is slowly sinking that, unwittingly and unwillingly, they have become embroiled in a mess which will take years to sort out.
The liquidator's first report said it appeared Mr Kloogh's companies had operated as a Ponzi scheme controlled by him, with funds provided by one investor possibly being used for other purposes.
"The scale of co-mingling and funds misapplied is not known at this stage and will be the subject of investigation," the report said.
"This will involve the liquidator having to assess hundreds, potentially thousands of transactions, to verify claims by investors."
That will take time, and leave hundreds of people in a state of uncertainty.
In the meantime, Mr Mirkin and his colleagues will do the best they can to help people whose trust has been misplaced.
"It's a lot of money for a small community," he said.
"It is unlike some cases where there were lots of really large investors. This case only has a very small group of large investors.
"This is a large number of small investors who have lost everything they have got: how could the system fail them?"
