By Pattrick Smellie
Nov. 14 (BusinessDesk) - Court-appointed receivers have found records for just $10.2 million of the $449.6 million in investments purportedly managed by Ross Asset Management, a boutique Wellington investment firm run by David Ross, who has been hospitalised since a Financial Markets Authority raid on his premises earlier this month.
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.
John Fisk and David Bridgman of accounting firm PwC recommend that rather than spend more on the receivership, which has already cost $107,355, that the various Ross-related entities be placed in liquidation on the basis that the investment fund is "insolvent" with "a very significant shortfall identified to date as owing to investors."
"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."
Ross, formerly a share broker, 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 report by the receivers, who were appointed by the High Court last week to secure as best they could the Ross assets. "This is of concern given the group's inability to meet further withdrawal requests made by investors in the last six months."
Amongst records found were a number of investments with lower values than the original cost prices recorded by Ross.
"Furthermore, we have evidenced from recent contract notes of the group, trading losses on a number of 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.
However, assets worth just $10.2 million, and $200,000 in cash deposits, had been identified in the receivers' initial searches, which they described as a matter of "considerable concern.'