Fraudster’s late-night confession

One of New Zealand’s biggest fraudsters penned his confession in a late-night session as he realised that a decade of deceit involving at least $80 million was over.

Kelly Tonkin, 51, who will be sentenced on December 21 on fraud charges relating to about 180 investors, realised the game was up in March, a Serious Fraud Office (SFO) summary of facts has revealed.

The summary outlines a midnight session during which Tonkin wrote a long overdue confession admitting that his apparently successful international investment fund – the Penrich Global Macro Fund based in the Cayman Islands – was in fact a massive fraud. It followed the group’s financial controller uncovering a hidden cell in the accounts, concealing a fictitious amount of Japanese yen.

At 12.15am on March 11, Tonkin emailed his chief executive.

‘‘I am glad that you and [the financial controller] have uncovered the discrepancy in the fund. There are no innocent explanations for this, and you are right to report this to the appropriate channels,’’ he wrote.

‘‘I have been trying to hide losses in the fund with the hope that these would reverse themselves. Recently, it has become increasingly obvious that this is not possible.’’

Tonkin also wrote a letter and left it on the chief executive’s desk.

‘‘I wish to confess to a large-scale fraud which I have perpetuated over a long period of time. This fraud was designed to hide losses in the Penrich Global Macro Fund,’’ it said.

‘‘Each month, for many years, I have been inflating the value of the fund for the purposes of reporting its value to investors. This has resulted in investors being consistently misled about the value of their investments in the fund.’’

Tonkin, a University of Canterbury-trained economist and representative footballer who had worked for the Treasury, set up the overseas fund in 2004 to seek investment in currency and other financial instruments.

By 2012, the fund and its associated companies were in trouble with big losses. Instead of admitting failure, Tonkin started cooking the books, the summary said.

It was difficult to sustain. By the end of 2019, revenue was down further and Tonkin could not afford to pay his staff their full salaries, so they all took pay cuts.

The group’s financial controller undertook the job of giving staff an update on the group’s situation and, while trying to understand the mechanics of a monthly spreadsheet showing the fund’s asset values, uncovered a cell hidden in a collapsed spreadsheet column. Data in the cell was written in a white font against a white background.

The cell contained a fictitious amount of 8 billion yen, which inflated the fund by 85 per cent. Instead of being worth an already dubious $20m, the yen increased the fund to more than $100m.

The group’s chief executive spoke to Tonkin on March 10, 2019, and Tonkin said he would investigate.

In a later police interview, Tonkin confessed to a brazen forgery. In 2017 a potential investor had asked for the audited accounts for the year ended December 2016. Accountancy firm BDO Cayman Islands had last done an audit of the fund in 2009. Tonkin generated the accounts and audit statement by copying from a template of previous financial statements and adding the BDO letterhead and signature. After receiving the statement, the investor put $2m into the Penrich account. The SFO summary released yesterday was not available when Tonkin pleaded guilty to fraud offences in June, owing to Tonkin disputing the amount he cost investors.

He said investors lost about $2m because of his frauds, not the $117m alleged by the SFO.

Judge Tony Couch, in Christchurch District Court, this week ruled that losses of ‘‘no less’’ than $80m would be attributed to Tonkin for sentencing purposes. ‘‘Had the truth been known, there would have been no investment and therefore no loss of investment,’’ he said.

In his decision on the disputed facts, the judge accepted about $17m of credit notes held by Matterhorn Securities in Luxembourg for the Penrich Fund could still be redeemed in 2023 when the notes matured.

At the disputed facts hearing, Cayman Islands liquidator Martin Trott said the notes were probably ‘‘unrealisable’’ but in crossexamination revealed his efforts to secure them extended to trying to contact Matterhorn without success.

The judge said he found it surprising the liquidator had not made more inquiries, given the notes were the large majority of the fund’s assets.

Tonkin told the court he could help with contacts.

‘‘Accordingly the face value of the notes should be regarded as an asset of the fund for the purposes of sentencing,’’ the judge said.

The summary of facts also reveals the Cayman Islands Monetary Authority (CIMA) issued a formal notice to Penrich in September 2015 saying it needed to rectify the fact it had failed to submit audited financial statements for the years 2010 to 2014.

Tonkin, in a letter to the CIMA, acknowledged the failure and stated he was unsure if the fund should be registered as a mutual fund.

Eventually the conversation stopped, and no further action was taken.

The identity of individual investors in the fund remains suppressed. Most were bundled under a large financial trustee company and introduced to the investment by a capital management adviser.