News that circa 200 “investors” in the Ross Asset Management (RAM) fiasco, financed by a litigation funder which will trouser a good part of any proceeds if successful, but otherwise will bear all legal expenses, are to sue the ANZ Bank, left me with mixed feelings.
It will be recalled “investors” were lured by word of mouth about David Ross’s alleged financial genius and unasked, voluntarily threw their money at him. Ross’s ultimate inability to deliver his promised returns, as with other similar situations abroad, saw his company descend into a Ponzi scheme, albeit I have no doubt that was never his original intention. I say that as a Ponzi scheme to even the meanest intelligence is obviously destined to ultimately fail.
Ross was like many lawyers who temporarily find themselves in a fix, and borrow from their trust account with the intention of repaying, only to be exposed by a Law Society audit, or by an inability to repay when their clients sought their funds. So they end up in prison, which is why, so common is this, prison library management is now a compulsory unit in law degrees. We witnessed a similar situation arise in a number of cases with the Finance company debacle a few years ago.
Here’s what I find distasteful.
The Statement of Claim against the ANZ alleges that the Bank knew Ross was running a Ponzi scheme, or alternatively, that it should have known. I find that absurd.
It is absolutely not, nor ever has been, the role of a Bank to investigate the integrity of its clients’ operations. Rather, the Bank’s service function is to act as a depository for its clients’ funds. Banks earn their money by lending. Did the ANZ lend to RAM? I gather it didn’t but had it done so only then would it sensibly want to probe a client’s activities, to protect its own interests. Furthermore, had it done so and discovered what was going on, logically it wouldn’t lend.
This extrapolation of Banks having some sort of wider public duty to probe their hundreds of thousands of clients’ activities, so as to ensure the viability of their operation on behalf of potential creditors, is an outrageous fiction. Why stop at Banks when seeking blame?
Almost daily companies go belly up leaving creditors’ in their wake. We only hear of the larger cases. Enterprises fail for a variety of reasons but to blame their bankers is rich. Why not blame their grocers? In fact the ANZ had no responsibility to Ross’s mug clients, having no relationship with them. To claim that the ANZ knew or should have known that Ross’s investment company had descended into a Ponzi scheme strikes me as ludicrous. Why would they have known?
The plaintiffs are relying on a Financial Markets Authority (FMA) investigation. Make no mistake; the FMA aint God. For example, their Australian equivalent is ridiculed across the Tasman for its embarrassing record of investigating financial collapses and bringing prosecutions, only to always lose.
All investing bears a risk. Just as with any expenditure it befalls investors to make their own enquiries regarding them yet typical of Ponzi schemes abroad, invariably far from any enquiries, the RAM “investors” relied solely on word of mouth from other “investors” who were receiving the promised returns, that is until finally the music stopped. So let’s blame someone is the cowardly response when the real liability lies with these dummies having a religious-like faith in a miracle man.
This affair reminds me of being asked to join a group of Wellington commercial building owners back in the late 1990s, to sue the City Council. The action pertained to 999 year Council CBD leasehold sites which the Council in a rare moment of rationality had decided to sell and invited offers from lease-holders. That was sensible as they’re a bad deal for ratepayers, but that’s another matter.
I owned a few and banged in offers, then a few months later was advised by the Council it had changed its mind. So be it. But not in the eyes of the other lease-holders who then initiated a legal action to force the Council to sell, solely on the grounds that they said they would.
I duly received a letter from a prominent QC they’d consulted, soliciting my share of his costs to sue the Council for specific performance on behalf of the lease-holders. I replied roasting him and pointed out that just like anyone else, the Council was perfectly free to change its mind and withdraw its offer before any sale contract was entered in to. The result; the action was dropped but apparently hearing of this the Council then sold me one of my sites, plus, another benefit, the QC and I become close friends thereafter.
This RAM case is faulty for if it had validity it would be a criminal and not civil case, for essentially it’s arguing that the ANZ knowingly aided and abetted a criminal enterprise. That will be a tough line to persuade a Judge but will probably brighten his day.
That aside, what really upsets me about this is that a bunch of people who bought into a magical faith in miracle returns, now seek compensation for their own negligence. If there’s any justice, hopefully the litigation funder will take a beating.
Much was made of the ANZ’s efforts to supress the FMA report, the inuendo being an attempted cover-up. A far more likely explanation is the ANZ not agreeing with the FMA’s findings, in which event they’d naturally want them supressed.