Federal Court makes orders in windup of Ponzi scheme

The Court appointed Mr Robert Michael Kirman and Mr Robert Conry Brauer of McGrathNicol as joint and several receivers of all property of Chris Marco, AMS Holdings and AMS Holdings as Trustee for the AMS Holdings Trust.

In November 2021, the liquidators filed an interlocutory application seeking various orders and directions relating to the winding up of AMS and the scheme and distribution of the assets and property of Mr Marco, AMS and the scheme considered to be property of the Scheme.

In response to the application, the Federal Court has now made a range of orders regarding how the winding up of the scheme and how the assets and property of Mr Macro, AMS and the scheme will be treated and distributed.

Justice Michal Feutrill determined the liquidators would be justified in treating the managed investment scheme Mr Marco operated as a Ponzi scheme.

“The evidence upon which the Liquidators rely in the application demonstrates that the scheme was not a genuine managed investment scheme and it was operated as a Ponzi scheme,” stated Justice Feutrill.

“That is, the promised ‘returns’ to earlier ‘investors’ were paid out of the capital contributed by later ‘investors’ in the Scheme. The Scheme was insolvent from its inception and the remaining property of the Scheme is insufficient to meet ‘investors’ claims to capital and unpaid promised ‘returns’.”

Justice Feutrill stated that the liquidators were faced with a “classic insolvency conundrum” involving a contest between investors or groups of investors in relation to limited funds originally deposited into a number of bank accounts operated by Mr Marco and AMS as the operators of a Ponzi scheme. 

“The conundrum concerns how limited funds in [bank accounts] are to be distributed between investors whose funds were deposited into and co-mingled in [those accounts] over a number of years, and where there were innumerable deposits into and withdrawal from the account[s] over that time.”

Due the nature of a Ponzi scheme, he noted many investors, particularly earlier investors would have received returns of the whole or substantially the whole, or more than the original capital sum contributed.

“Other investors may have decided to roll-over or reinvest all or part of the returns and, thereby, received little or none of the original capital sum contributed. Other investors may have joined the scheme shortly before its operation came to an end through freezing orders made on 1 November 2018,” he stated.

“These investors are unlikely to have received any or very little of their capital contributions.”

Consequently, Justice Feutrill said there will be many investors involved in this scheme who will be “down on their luck” and stand to lose all or a substantial proportion of the original capital sum.

He concluded that the liquidators should treat any remaining property of the scheme as property held on trust as a single mixed fund for the benefit of scheme members.

“It is not reasonably practicable or economically feasible to trace individual scheme member’s property into an identifiable part or portion of that mixed fund. Having regard to that conclusion, as a matter of principle, it is more appropriate for the Liquidators to distribute the remaining property of the Scheme in a manner that reflects the equitable proprietary interests of Scheme members in that property,” he stated.

“Therefore, the scheme members’ asserted personal rights to accrued interest and rolled-over or reinvested interest should be ignored for the purposes of determining the distribution of property of the scheme. Accordingly, payments made out of property of the scheme during its operation, irrespective of the manner in which the payment was characterised, should be treated as transfers of property of the scheme to scheme members.

“Scheme members are entitled to retain the benefit of that property as bona fide recipients for value without notice. However, Scheme members who received transfers of property of the Scheme during the operation of the Scheme should be required to ‘bring in’ to hotchpot [sic] the benefit of that property before becoming entitled to a rateably equal share of the remaining property of the Scheme.”

Mr Marco was charged with 50 counts of fraud under Section 409 of the Criminal Code in July 2022.

Following its investigation, ASIC has alleged that between July 2013 and October 2018, Mr Marco defrauded $36.5 million from nine investors. It is also alleged, of the $36.5 million, one investor was defrauded $10 million by investing with Mr Marco.

Mr Marco operated as a private investor and traded in bank instruments. He invested in private placement programs (PPP) which required capital as proof of funds in order to trigger a line of credit enabling him to facilitate arbitrage transactions involving bank instruments in the US and Europe.

He began obtaining money from outside investors to increase his proof of funds to the required levels for trading.

Mr Marco was ordered to pay damages to the trustee of an SMSF in September 2020 after the SMSF investor initiated proceedings against him and AMS Holdings for unpaid returns and money held on trust.

Another SMSF, the Marks Auto Superannuation Fund, also took Mr Marco to court in early 2020 over his failure to repay trust money.