Investment Fraud

Named after the Italian con artist Charles Ponzi, Ponzi Schemes are constructed to appear like finance companies, foreign exchange brokerages or any other successful business. They depend on a steady cashflow from new investors to pay out existing investors who want to withdraw their initial investment or any profits.

Ponzi schemes exploit trusting clients. In some cases, the victims are long-term clients of the Ponzi operator. Operator confidence is often gained over many years, sometimes starting with a legitimate business that later turns into a fraudulent enterprise. Others invest their money on the recommendation of family, friends and neighbours. Ponzi schemes can flourish in New Zealand where people are trusting and make decisions based on word of mouth recommendations.

Prosecuting Ponzi scheme operators and other professionals who run similar investment fraud schemes is an important part of holding to account those who fail to conduct business in accordance with the expectations of a reputable market.

BARRY KLOOGH

For more than 20 years, Barry Edward Kloogh of Dunedin operated a Ponzi scheme - which is one of the most common types of investment fraud in New Zealand. The fraud impacted thousands of people and resulted in a financial loss of at least $15.7 million. Mr Kloogh’s selfish and criminal actions destroyed people’s retirement plans and jeopardised their financial wellbeing. The defendant was sentenced to eight years and ten months’ imprisonment, with a minimum non-parole period of five years and four months.

Mr Kloogh provided financial advisory services through several companies of which he was the sole director and shareholder. The Financial Markets Authority referred the matter to the SFO and assisted the agency in its investigation.

KELVIN WOOD

Kelvin Clive Wood operated a foreign exchange brokerage that degenerated into a Ponzi scheme. Mr Wood earned investors’ confidence over many years through his personal and professional associations. However, when his brokerage began to suffer net trading losses, he devised a scheme to keep his clients in the dark about the true nature of their investments.

Mr Wood created more than 200 false investment reports that he sent to investors. He also reported false foreign currency trades to them. Either the trades did not occur or, if they did, the actual result did not reflect the profits he reported to them.

Mr Wood’s offending was a significant breach of trust that resulted in 18 investors losing a total of $7 million of their principal investment, with three of them each losing more than $1 million. The defendant was sentenced to six years and three months’ imprisonment after pleading guilty to all charges and ordered to spend a minimum period of two years and 11 months in prison before being eligible for parole.

RUSSELL MAHER

Russell Angus Maher of Auckland was a foreign exchange broker who abused his position of trust to create the illusion that his business was successful when it was not. The defendant sought to maintain client confidence in his business by forging documents, which misrepresented the timing of foreign currency transactions he conducted on behalf of his clients. In doing so he concealed the deteriorating financial position of his business and defrauded his clients of approximately $1.55 million.

Mr Maher’s business, Forex Brokers Limited (FBL), was initially successful and over the years attracted a variety of clients from different backgrounds. When the business failed, the defendant resorted to using false documents to maintain his clients’ confidence. Mr Maher used a total of 80 false documents to deliberately misrepresent the status of the transactions he was meant to carry out. By disguising FBL’s insolvency, the business continued to operate and receive client money. Financial losses to the defendant’s clients could have been avoided if Mr Maher had behaved honestly and accepted that his business had failed.

Mr Maher was sentenced to three years and four months’ imprisonment.