Wolves at the door: The woman fighting NZ’s fraudsters and conmen

New Zealand’s market watchdog issued more than 100 scam warnings over the past 12 months.

The ongoing battle by the Financial Markets Authority (FMA) has provided Kiwis with a virtual encyclopaedia of the scams and rorts doing the rounds online.

Most of these schemes won’t hit the front pages, but the collective harm they do is being felt around the world.

An annual report from online fraud researcher Chainalysis showed that global cryptocurrency-related crimes alone accounted for an accumulated US$10 billion ($13.8b) in 2020.

More than 54 per cent of that loss to illicit activities was attributable directly to online scams, often promoted across many national borders.

It’s hard to know how much New Zealanders are putting into such scams, but you rarely have to look far to find the next bright opportunity. Investing has never been easier, and that means it’s never been easier to lose money to something that seems like a great idea on Whatsapp or Facebook.

Standing at the forefront of this battle, with its shifting rules and even shiftier characters, is Karen Chang, the head of enforcement at the FMA.

Chang doesn’t fit the Hollywood stereotype of a prosecutor – a weathered man carrying the weight of the bureaucracy on his shoulders. But don’t let the affable personality, broad smile and enthusiasm fool you. She’s as tough as lawyers come and isn’t afraid of the role she’s been appointed to do.

“If you think about the carrot and the stick equation, we’re the stick,” Chang tells the Herald.

“The enforcement function is really important for deterrence … If there aren’t any consequences for those who don’t follow the rules, then people wouldn’t do it.”

Formerly a New York-based commercial litigator working for major Wall Street clients, Chang returned to New Zealand several years ago to become a Crown prosecutor.

Her growing reputation and strong track record saw her appointed to the role of head of enforcement at the FMA in 2017.

The challenge facing the FMA these days is that the reach of its stick doesn’t always extend to the perpetrators who orchestrate audacious online scams. Once money leaves our shores for a scam artist abroad, victims rarely have any recourse locally.

“This is why we’re very vocal about New Zealand investors investing in New Zealand businesses and dealing with New Zealand residents because that’s where our jurisdiction lies and that’s where we can take action,” Chang says.

That action can mean the difference between investors losing everything and getting at least some of their money back.

To make this point, Chang refers to the FMA’s actions in its case against notorious fraudster Steven Robertson.

Robertson ran an elaborate scheme, telling investors he was “as good as John Key” at trading and convincing them to hand over funds, which he would then use to trade on their behalf.

But rather than invest, Robertson used the money to fund a lavish lifestyle that included cars, frequent travel and a private helicopter.

In that case, the FMA used its powers to freeze Robertson’s assets and subsequently seized his house, jewellery and a variety of other items of value – which in turn ensured the victims were able to get something back at the end of it all.

Had Robertson been a foreign resident, New Zealand investors may have had to rely on an international regulator to recover their funds.

To counter this problem, Chang says there’s growing collaboration between the FMA and international securities regulators who will refer matters to each other based on their jurisdiction.

This helps to ensure crimes don’t go unpunished, but it’s rarely as effective as a local regulator taking action at home.

Given its structural position straddling the regulatory and enforcement worlds, the FMA has the power to pursue either criminal or civil proceedings against an offender.

Chang says the decision is often determined by the nature of the offence, the need to deter that type of offending and the strength of the evidence.

“There’s a higher standard of proof in criminal prosecution, which requires us to prove knowledge or intent,” she says, adding that the FMA is also bound by strict guidelines set out by the Solicitor General.

Criminal prosecutions are generally reserved for the worst offenders, and the last two decades have illustrated that large-scale financial crimes can carry some hefty penalties.

NZ's infamous eight

This year, the world’s most famous white-collar criminal, Bernie Madoff, died in prison while serving a 150-year sentence for an elaborate scheme that cost investors an estimated US$18 billion ($24.9 billion). New Zealand’s legal system doesn’t allow for such long sentences, but that doesn’t mean our hucksters, conmen and charming villains get off easy. Here’s a rundown of some of the heaviest sentences ever given.

David Ross, the Kiwi Madoff
Prison sentence: 10 years, 10 months
Money invested: $115m

Ross used his reputation in the fund management business to orchestrate an elaborate scheme that pulled in more than 700 investors between 2003 and 2012.

Michael Swann, The unhealthy dealer
Prison sentence: 9 years, 6 months
Money invested: $16.9m

Swann was given his heavy sentence in 2009, for his role in defrauding the Otago District Health Board of $16.9m.

Barry Kloogh, the generous swindler
Prison sentence: 8 years, 10 months
Investor losses: $15.7m

Barry Kloogh had a reputation for giving his clients generous gifts and taking them out for delightful meals. His charm was infectious and by the time his offices were raided in 2019, he had about 2000 clients on the books.

Gavin Bennett, the party boy
Prison sentence: 8 years
Amount involved: $103m

The Christchurch businessman created false documents relating to the lease of IT equipment to obtain funds from South Canterbury Finance amounting to $65.5m. He also falsified financial statements by an estimated $38m. Over the course of his six-year scam, he lived a lavish lifestyle, partying with models and gulping Dom Perignon.

Jacqueline Bradley, the winning woman
Prison sentence: 7 years, 5 months
Money invested: $15.5m

Jacqueline Bradley authored a book called “The Winning Woman”, about what it takes for women to succeed in the business world. What that book didn’t tell you was that Bradley’s involvement in a classic Ponzi scheme saw her raise money from 28 investors to finance her luxurious lifestyle.

Rod Petricevic, the boatman
Prison sentence: 7 years
Money invested: $490m

Former Bridgecorp director Rod Petricevic’s story cannot be told without reference to his luxury boat, the Medici, and his porches. The money Petricevic raised from 14,500 Investors ultimately went to an ostentatious lifestyle, and investors were only able to recover 10c on the dollar. In his sentencing notes, Justice Venning noted that he was not satisfied Petricevic had shown genuine remorse for his offending.

Lance Ryan, the forex guru
Prison sentence: 7 years, 6 months (reduced to 6 years on appeal)
Amount invested: $8.3m

Ryan was yet another exponent of the classic Ponzi scheme, using his foreign exchange platform BlackfortFX to draw in more than 900 investors with the promise of huge returns. It turns out he never actually did any trading.

Steven Robertson, the salesman
Prison sentence: 6 years, 8 months
Amount invested: $10m

Between 2009 and 2015, Steven Robertson coaxed mostly elderly investors to hand over their funds with promises of his investment prowess. He was a masterful salesman and used the money he gained to fund his lifestyle.

The psychological link

It’s March and word is spreading quickly. The chatter is about a young businessman who can double your money in 45 days. He always pays on time and he hasn’t let anybody down … yet. His enamoured supporters build a narrative about how he’s helping get ahead in life and defend him fiercely against any critics.

This story could be about any of the people mentioned above, but it’s not.

It’s based on the 1920s tale of none other than Charles Ponzi.

It’s been a century since he was imprisoned, but the Ponzi name continues to reverberate in the world of financial crime, crossing borders and becoming a warning to those drawn to things that seem a little too good to be true.

The interesting thing is that the methods that made Charles Ponzi so good at coaxing people to part with their money remain as relevant today as they were back then.

Former police negotiator Lance Burdett, who previously attended criminal behaviour training at the FBI headquarters in Quantico, Virginia, says white-collar criminals aren’t that different from other criminals in the way they behave.

He says that in the same way most famous murderers and rapists have tended to look for victims close to their homes, so do white-collar criminals operate in spaces they’re familiar with.

“They’re sticking to what they know because they’ll know all the loopholes and escape routes in a certain industry,” Burdett says.

White-collar criminals, he says, are often incredibly intelligent and use their knowledge of a system or a sector to take advantage of those who might not be as canny.

They also have a tendency to target people in a similar demographic group to them, or those who have similar interests.

This phenomenon, known as affinity fraud, has been consistent from Ponzi’s targeting of Italian-Americans in the 1920s to the more recent case of David Ross ensnaring the wealthier New Zealanders he rubbed shoulders with during his finance career.

Burdett says the ability to charm is one of the most dangerous tools in the con artist’s arsenal.

The most successful fraudsters often build their reputations in legitimate business and then use that to convince investors that what they’re doing is above board. The best example is Bernie Madoff, who was the darling of Wall Street before he turned his enterprise into a sprawling fraud.

Burdett warns that once trust is formed between the investor and the con artist, it is incredibly difficult to break even when hard evidence is offered.

“I clearly remember once warning an investor that we were investigating a criminal and yet he went back and put more money into the scheme,” he recalls.

The interesting thing is that these exact strategies are now being used online. The only difference is that the fraudsters can now spread their webs further and faster than ever before, ensnaring people and prolonging the life of a scheme well beyond what was likely in the past.

Charles Ponzi’s legacy isn’t going anywhere anytime soon. It’s only likely to grow one social media post at a time.

Source: Read Full Article