RAM investor McIntosh allowed to keep principal, not fictitious profits: Appeal Court

Wednesday 16th March 2016

The Court of Appeal will let Ross Asset Management investor Hamish McIntosh keep the $500,000 he managed to extract from the Ponzi scheme before its failure, but not the fictitious profits he earned.

Justices Rhys Harrison, Christine French and Forrest Miller dismissed McIntosh's bid to hold on to the $454,000 return he received when he withdrew almost $1 million from RAM before it collapsed, which he claimed he was entitled to keep because without it, he wouldn't have pursued a speculative property investment. The judges rejected McIntosh's position, calling it "factually untenable for a number of reasons", including that he was already interested in purchasing the leaky home before he started withdrawing funds from RAM.

"The artificiality of Mr McIntosh's defence is exposed when viewed through the lens of detriment," Justices Harrison and French said. "We repeat throughout he saw the project as viable regardless of his receipt of RAM's payment and one which offered him both intrinsic and extrinsic gains."

RAM liquidators John Fisk and David Bridgman of PwC sued McIntosh as a test case and have said they would pursue other investors who managed to pull funds out. Remaining investors are expected to get back just 3 cents in the dollar.

The liquidators also cross-appealed the High Court ruling letting McIntosh keep the principal, but were turned down by Justices Harrison and French who said RAM failed in its duty to use his investor funds as agreed. While they acknowledged the "problematic nature of the relationship between RAM and its depositors" they weren't swayed that it was preferable to treat all investors in the Ponzi scheme to achieve a "pro rata justice between all" result.

Justice Miller dissented on the cross-appeal, saying he would have allowed the liquidators to clawback the principal as well, saying the value of McIntosh's initial capital was worthless upon payment because RAM was "hopelessly insolvent" and that the only difference between him and other investors was that "he was paid and they were not."

Because it was an insolvent transaction, Justice Miller said he should repay it and share in the proceeds of the liquidation.

"I acknowledge that Mr McIntosh conducted himself in good faith and should not be blamed for his predicament," Justice Miller said. "But it may be assumed that RAM's other unsecured creditors were equally deserving."

Wellington-based David Ross built up a private investment service by word of mouth, producing regular reports for shareholders indicating healthy but fictitious returns. Between June 2000 and September 2012, Ross reported false profits of $351 million from fictitious securities trading as part of a fraud that was the largest single such crime committed by an individual in New Zealand.

Ross is serving 10 years and 10 months in jail for the fraud.

BusinessDesk.co.nz

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