The Cayman Islands Monetary Authority has cancelled the director’s licence of fund manager Kelly Tonkin, 52, who in June this year pleaded guilty to charges of false accounting, making false statements and forgery in a New Zealand court.
Tonkin’s Christchurch-based investment firm Penrich Capital collapsed in March 2020 and was placed into voluntary liquidation in New Zealand, the Cayman Islands and the United Kingdom.
A year later, New Zealand’s Serious Fraud Office brought charges that Tonkin overstated the net asset value of his Cayman Islands-registered Penrich Global Macro Fund by NZ$117 million (US$80 million).
The Cayman Islands Grand Court had previously, in June 2020, ordered Penrich Active Capital Management – the shareholding company of Penrich Capital – and the fund to be wound up, and appointed R & H Restructuring (Cayman) Ltd as liquidators.
The liquidator confirmed in New Zealand court hearings last month that the fund had incurred significant investment losses.
The fund was established by Tonkin in 2004 and invested in a range of financial instruments, including fixed income securities and currency instruments. On its now-inactive website, Penrich Capital at one point claimed the fund returned on average more than 10% each year.
Confession email
According to New Zealand media reports, Tonkin was reported to the Serious Fraud Office by co-workers, after the financial controller of the company found a hidden cell in the fund’s accounting spreadsheets, containing a fictitious amount of Japanese yen that artificially increased the fund’s value.
Confronted by his colleagues, Tonkin was unable to explain the discrepancies in the finances of the investment firm.
A statement of fact by the Serious Fraud Office included excerpts of a confession email and letter Tonkin wrote to the company’s chief executive. In those documents he admitted to having inflated for years the fund’s value in reports to investors to hide losses in the hope that they would eventually reverse themselves.
Forged audit report using BDO letterhead
When in 2017 a prospective investor asked for the fund’s audited accounts, Tonkin forged a BDO Cayman Islands auditors report by adding the BDO letterhead and signature to fabricated accounts and audit statements, according to the charges.
These misstated total assets, total liabilities and the net assets of the Penrich Global Macro Fund, the SFO alleged.
The last audit of the fund was carried out by BDO in Cayman in 2009.
The SFO’s summary of facts showed, according to media reports, that the Cayman Islands Monetary Authority issued a formal notice to Penrich in September 2015, because the company had failed to submit audited financial statements for the years 2010 to 2014.
In a letter to CIMA, Tonkin acknowledged the failure but said he was not certain that the fund should be registered as a mutual fund.
It is unclear what additional action, if any, was taken by the regulator.
A UK pension scheme withdrew its investment in the fund in 2016, because no audited financial statements were made available, the court filings noted.
On 26 Nov. 2021, CIMA cancelled Tonkin’s director licence. In a decision notice, the regulator said Tonkin had contravened the Directors Registration and Licensing Act, carried on business “in a manner that is not fit and proper”, and declared Tonkin not fit and proper to hold the position as a director.
A Christchurch District Court judge ruled last week that losses of at least NZ$80 million (US$55 million) would be attributed to Tonkin for sentencing purposes.
Tonkin had argued that the fund lost much less money, but the judge noted that many of the investments would not have been made and therefore not lost, had the fund’s value not been misrepresented. The fund had about 180 investors.
Tonkin is scheduled to appear in a New Zealand court for sentencing on 21 Dec.
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