Small victory for ponzi investors

See also: FMA defends disclosure on ponzi action

Investors who paid $249,000 into a $7 million ponzi scheme in the week after regulators moved to shut it down will get their money back, the High Court has ruled.

In a judgment issued on February 17, Justice Cameron Mander said the money paid to purported forex trader Arena Capital on or after May 15 last year when the Financial Markets Authority got asset preservation orders over its assets should be returned to investors.

Arena’s liquidators and former receivers Grant Graham and Neal Jackson of KordaMentha had sought orders that the money be considered part of Arena’s overall assets and mixed in with its remaining funds.

Arena, trading as BlackfortFX, “was operating, in essence, a simple ponzi scheme,” said the judge. Although the company told clients it was operating a currency trading investment scheme, no trading took place and money paid out to clients was funded by other clients’ deposits.

According to the receivers, Arena owes about $7 million to about 1100 clients.

The court ruling said $728,690 is in Arena’s bank account.

However, the judge ruled that because the money had been paid in after the asset preservation orders were obtained but before they were made public on May 21, a statutory trust existed separating it from Arena’s other assets.

“The fact the account was still able to receive the deposits after the regulator had secured the APOs may point to a deficiency in the drafting of the orders,” said the judge. “However, the objective and effect of those orders cannot be doubted, namely to prevent any further fraud from being committed and any further loss to innocent investors.”

Seventeen customers made deposits with Arena after the APOs were obtained, 11 of whom had previously paid money to Arena.

However, although initial APOs were obtained on May 15, the FMA did not alert the public to its action until May 21.

Arena’s sole director was Christchurch man Jimmie McNicholl.

The Serious Fraud Office is also investigating Arena.

Want to listen to the day's hottest stories, plus interviews and panel discussions? Stream NBR Radio's latest free 40-minute podcast from iHeartRadio, Tunein, or iTunes.