Options trader pleads guilty to fraud

Options trader pleads guilty to fraud

Gregory Alan Arnott has entered guilty pleas in the Auckland District Court to 10 Crimes Act charges brought by the Serious Fraud Office (SFO).

The 51 year-old stockbroker and options trader was the director of Derivatek New Zealand Limited (Derivatek) and traded in options on behalf of New Zealand clients on the Australian Stock Exchange (ASX).

Mr Arnott has admitted that, between April 2008 and May 2012, he used money received from investors for purposes other than options trading including; repaying other investors and funding a portion of an advance fee in an endeavour to obtain a US$20million loan. In order to conceal the fraud Mr Arnott issued false statements to his investors.

SFO Director, Julie Read said, "Mr Arnott earned the trust of a group of investors through his personal association with them. He misappropriated his clients' funds and misrepresented the true position of their investments. The SFO hopes that this outcome will go some way to assuring investors that there is an effective response to offending of this nature."

Mr Arnott will reappear in the Auckland District Court on 30 July.

ENDS

For further information

Andrea Linton
Serious Fraud Office
027 705 4550

Note to editors

Background to investigation

Gregory Alan Arnott has been a self-employed stockbroker and options trader who has traded on the New Zealand Stock Exchange (NZX) and Australian Stock Exchange (ASX) since 2006. Prior to working as a self-employed stockbroker, Mr Arnott had worked for various companies in investment advisory/broker roles.

Mr Arnott traded on an individual basis for certain New Zealand investors from 2006. He also set up and operated the following companies through which he traded: Australian Securities Limited (ASL); Derivatek New Zealand Limited (Derivatek); and Derivatives Management Limited (DML). He is the sole director and shareholder of these companies.

Crimes Act offences

Section 220 Theft by person in special relationship
(1) This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person-
(a) to account to any other person for the property, or for any proceeds arising from the property; or
(b) to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.

(2) Every one to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.

(3) This section applies whether or not the person was required to deliver over the identical property received or in the person's possession or control.

(4) For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements

Section 242 False statement by promoter, etc
(1) Every one is liable to imprisonment for a term not exceeding 10 years who, in respect of any body, whether incorporated or unincorporated and whether formed or intended to be formed, makes or concurs in making or publishes any false statement, whether in any prospectus, account, or otherwise, with intent-
(a) to induce any person, whether ascertained or not, to subscribe to any security within the meaning of the Securities Act 1978; or
(b) to deceive or cause loss to any person, whether ascertained or not; or
(c) to induce any person, whether ascertained or not, to entrust or advance any property to any other person.

(2) In this section, false statement means any statement in respect of which the person making or publishing the statement-
(a) knows the statement is false in a material particular; or
(b) is reckless as to the whether the statement is false in a material particular

About the SFO

The Serious Fraud Office (SFO) was established in 1990 under the Serious Fraud Office Act in response to the collapse of financial markets in New Zealand at that time.

The SFO's role is the detection, investigation and prosecution of serious or complex financial crime. The SFO's focus is on investigating and prosecuting criminal cases that will have a real effect on:

• business and investor confidence in our financial markets and economy
• public confidence in our justice system and public service
• New Zealand's international business reputation.

The SFO operates three investigative teams:

• Evaluation and Intelligence;
• Financial Markets and Corporate Fraud; and
• Fraud and Corruption.

The SFO operates under two sets of investigative powers.

Part I of the SFO Act provides that it may act where the Director "has reason to suspect that an investigation into the affairs of any person may disclose serious or complex fraud."

Part II of the SFO Act provides the SFO with more extensive powers where: "...the Director has reasonable grounds to believe that an offence involving serious or complex fraud may have been committed..."

The SFO's Annual Report 2013 sets out its achievements for the past year, while the Statement of Intent 2013-2016 sets out the SFO's three year strategic goals and performance standards. Both are available online at: www.sfo.govt.nz(external link)