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13-031MR Ponzi scheme ‘mastermind’ handed record penalty

Thursday 21 February 2013


The man described as the ‘mastermind’ behind more than a dozen unregistered offshore managed investment funds, including a $30 million Ponzi scheme, was today ordered to pay a record penalty of $500,000, and was permanently banned from managing companies and providing financial services.

The penalty order of $500,000 is the largest awarded in ASIC’s history.

David Hobbs of Nelson, New Zealand, was one of 13 people, including his wife, Jacqueline Hobbs, who operated the unlicensed funds, which targeted Australian investors and self-managed superannuation funds.

More than $55 million was invested in 14 individual investment funds in countries including New Zealand, the United States, Hong Kong, Vanuatu, the Bahamas, Anguilla, and the Turks and Caicos Islands.

In a decision in November 2012, the Supreme Court of NSW found that together the funds were one large scheme and that Mr Hobbs either ‘personally chose’ or ‘implicitly approved’ the other individuals who operated the scheme with him (refer: 12-266MR).

At the Supreme Court of NSW, Justice Julie Ward today imposed the following penalties:


NameDisqualification / Banning from financial servicesDisqualification / Banning from managing corporationsPecuniary penalty
David HobbsPermanentPermanent$500,000
David Collard (of Peakhurst)Permanent20 years$150,000
Jacqueline Hobbs (of Nelson, New Zealand)8 years6 years$20,000
Huimin (Nancy) Wu (of Strathfield)8 years4 yearsNot applicable

On 11 February 2013 Brian Wood, of Davistown, Jimmy Truong of St John’s Park, and Con Koutsoukos of Wiley Park, were sentenced to jail for the role they played in operating one of the funds called the Integrity Plus Fund (refer: 13-025MR). The Court found the three knew the fund they were operating was a scam with no prospect of legitimate return, and that the ‘salary’ they were drawing for themselves came from investors’ money.

In handing down her decision today, Justice Ward said the Hobbs scheme could be characterised as ‘one presented to unsophisticated investors as a ‘get rich quick’ scheme with no risk of loss of capital and a huge upside on the profits by reason of their investment’.

She found Mr Hobbs’ conduct, in directing the payment of moneys out of investment schemes for his own personal benefit, as well as the giving by him of directions as to the payment of returns at a fixed percentage irrespective of the existence of profits (as in a Ponzi scheme), was serious and reflected a disregard for the interests of investors. Justice Ward said this, along with other factors such as the fact superannuation money was targeted, justified the imposition of significant penalties.

Justice Ward also found Mr Hobbs ‘deliberately sought to put in place and have implemented a structure that was intended to avoid regulatory supervision (and hence would deprive investors of that safeguard)’.

ASIC Commissioner Greg Tanzer condemned Mr Hobbs’ illegal behaviour.

‘The whole scheme was designed to avoid compliance with Australian financial services laws,’ Mr Tanzer said.

‘Mr Hobbs’ conduct involved a gross breach of investors’ trust. His actions were very serious and have left his victims in difficult financial positions.

‘Today’s outcome should send a strong message that ASIC will act to ensure those who deliberately deceive investors or misuse investors’ money for their own personal benefit are brought to account.

‘The experience of the investors in this matter should serve as a timely reminder to investors to beware of returns that sound too good to be true. Before you invest in any scheme, you should do independent checks to see if it has an Australian financial services licence and how the returns are really going to be made. Don’t just trust the word of the person selling you the scheme,’ Mr Tanzer added.

More information about ponzi schemes and investment funds can be found on ASIC’s MoneySmart website.

The Court also ordered the winding up of the scheme and appointed Mr Barry Taylor and Mr Andrew Needham of HLB Mann Judd as liquidators. Mr Taylor and Mr Needham will determine the return of funds to investors and the Court has ordered they hold a meeting of investors on or before 13 June 2013. They can be contacted on (02) 9020 4000.


Background


ASIC first took court action against the operators of the funds in April 2010 (refer: 10-74MR).

This followed an ASIC investigation into the unregistered offshore fund operators which in 2007 and 2008 froze eight offshore trading accounts containing investors’ funds and ultimately secured the payment into Court of $20 million (refer: 07-326, 08-40 and 12-129MR).

The scheme involved more than 500 Australian investors subscribing to so-called investment education packages and setting up personal offshore companies in which they would then stream their investments through in an attempt to thwart the Australian laws regulating financial services and products and protecting the interests of Australian investors. The defendants encouraged Australian investors to participate in the schemes using false representations as to the characteristics of the scheme and performance of the investments including by creating the impression that, or telling the investors:

Other types of misrepresentations made on different occasions to different investors included:

Investors’ money was transferred through a series of offshore accounts resulting in a complicated international paper trail.

ASIC was assisted by a number of other regulators including the United States Commodity Future Trading Commission, New Zealand Financial Markets Authority and Hong Kong Securities & Futures Commission.


Editor's note 1:
Mr Hobbs is seeking to appeal Justice Ward's findings and the pecuniary penalty imposed to the Supreme Court of New South Wales, Court of Appeal. 

The matter was last before the court on 2 September 2013, and has been listed for further directions on 28 October 2013.

Editor's note 2:
On 17 December 2013, the appeal brought by Mr Hobbs was dismissed by the court for want of prosecution.

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