Supreme Court of New Zealand · [2017] NZSC 78
An investor put $500,000 into Ross Asset Management and withdrew $954,047 before the Ponzi scheme collapsed.
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Mr McIntosh borrowed and transferred $500,000 to RAM in 2007. The management contract said the money would be kept separately and securities would be held through a nominee.
RAM did not do that. It misappropriated the money within days, mixed it with other funds and used the pool to meet withdrawals, operating expenses and personal drawings. New investor money helped pay earlier investors.
By September 2011, the fictitious statements valued Mr McIntosh's portfolio at $954,047. He asked to cash out and received six payments totalling that figure in November.
RAM entered liquidation in December 2012. The liquidators demanded the full $954,047, arguing that the payment should be unwound for the benefit of the failed company's creditors and other investors.
| Component | Supreme Court treatment |
|---|---|
| Original $500,000 | Protected as real and substantial value |
| Fictitious $454,047.62 profit | Repayable to the liquidators |
| Reported securities | Did not exist |
The Companies Act and Property Law Act claims required the Court to examine what value Mr McIntosh had supplied. His original payment was not imaginary. RAM received and misappropriated $500,000 and owed him a real obligation in return.
The stated investment gains were different. They represented no actual trading profit or purchased asset. Requiring repayment of that excess supported equal treatment of the scheme's victims without stripping Mr McIntosh of the capital value he had genuinely provided.
A sophisticated-looking statement is not proof that assets exist. Businesses placing funds with a manager should confirm the regulated entity, independent custodian, account ownership, valuation method and right to obtain third-party records.
When receiving a substantial payment from a distressed or opaque counterparty, preserve the agreement and evidence of value supplied. If insolvency follows, that evidence may determine whether the payment is protected or clawed back.
In practice
No. He was an investor who had been deceived by false reports. The case concerned the statutory treatment of the payment he received before other victims and the company learned of the scheme.
That amount reflected real value he had paid to RAM and a genuine debt RAM owed him after misappropriating it. The Court treated that value differently from the invented return.
It was not produced by securities bought for him. It came from the pooled scheme and represented fictitious gains for which he had not supplied equivalent value.