Con or conspiracy - Don Rea's last stand

Donald Rea, pictured here with junk railway bonds bought with investor funds, maintained his innocence up to the day he died, and some of his victims still believed him.

Don Rea stood accused of a $29 million con, and of being tangled up with Nigerian scamsters. He claimed he was being hounded by the state. Geoff Cumming investigates:

For those dreaming of a pot of gold, Don Rea was a powerful magnet. Through his International Investment Unit Trust, Rea promised yields of up to 72 per cent on investments in "private placement programmes" run by the top 25 European banks.

He had little need of hype - word of mouth was his PR machine. Many investors were encouraged by the big monthly yields relatives and friends, and friends of friends, were getting from IUT. Some met Rea through another of his businesses, Asset Protection, a tax consultancy which promised a way to beat the Inland Revenue Department.

At meetings of prospective investors, Rea would vow to invest in humanitarian, health and education projects. No money would be used to fund the American military.

More than 250 investors from throughout the country, but mostly in Taranaki and the Bay of Plenty, were lured. They ranged from wealthy farmers, through to individuals nearing retirement looking to invest their life savings, to charities. For more than three years until mid-2003, IUT attracted $29 million from these mum and dad investors.

Some were at the Tauranga District Court on Wednesday for the third day of Rea's trial, when they learnt of his death the previous evening from what police believe was natural causes.

Those preparing to give Crown evidence were torn between sympathy for Rea's wife and family and their own sense of loss. Said one: "He cheated me in life, now he's cheated me in death. All I'd wanted was to look him in the eye."

But as Judge Ian Thomas said, "no one wishes what occurred, no matter what he or she might have done."

The Serious Fraud Office alleged Rea duped investors by running a classic Ponzi scheme - a scam which relies on an ongoing supply of money from new investors to pay promised returns to early investors. It is named after its founder, Charles Ponzi, an Italian-born conman operating in the United States in the 1920s.

Even today, people fall for these schemes and, if you believe the SFO, Rea was one of a handful of recent scamsters peddling such cons.

Representing himself on the last afternoon of his life, Rea continued to maintain his innocence. There was a pot of gold, he indicated, and the IUT fund was still solvent. And some investors continued to have faith in him.

Barbara and Brent Jury of Waitara were among those who no longer believed. Six years ago, when they heard Rea speak at a New Plymouth hotel meeting, they found him plausible. "What he said was very sound," says Barbara Jury. "He used the premise that after the war there were schemes where financial institutions gave money to people who did humanitarian works.

"He suggested that we think of a wonderful project for Waitara which would benefit the community, then get people to support it financially. He basically came across as a very caring, honest person."

What Waitara locals came up with was the Hooterville Heritage Charitable Trust - a venture giving unemployed locals training in the restoration of old railway engines and carriages and aircraft. For community-minded people in a town with its share of problems, the idea had strong appeal - teaching youngsters skills in trades like welding and gas cutting, while the restored vintage equipment had potential tourism spin-offs. The trust attracted financial support from as far away as Rotorua, handed Rea $360,000 and started receiving the handsome monthly returns.

The group found a skilled project manager in Tony Batchelor, an Auckland builder with a 30-year involvement in the recovery and restoration of old railway equipment.

"I saw the opportunity to practise my life's passion and at the same time benefit the community. It was a dream come true."

He moved his family from Auckland's North Shore to Waitara and bought a house. Under Batchelor's tutelage, the group employed a half-dozen recruits on subsidised employment programmes, built a huge workshop and began restoring locomotives and wagons salvaged from as far away as Oamaru. Two were used as props in movie The Last Samurai; the trainees gaining track-laying experience.

The Hooterville project was hailed by the Government's Community Employment Group as a prime example of a local jobs initiative and the charitable trust seemed to be steaming along.

"We had no reason to believe otherwise - the returns only stopped coming when he was raided [by the SFO in June 2003]."

By this time even Batchelor had invested his life savings. "Everything I learned was from other people who had been involved for some time who had been getting these yields. To see this thing working over a number of years convinced me it was legitimate - and it fooled a lot of people far wiser than me."

Most Ponzi schemes are short-lived - they rely on more money coming in from new investors than is being paid out to long-term investors. But Rea's scheme had been going for three or four years, says Batchelor.

"That convinced everyone this wasn't a pyramid scheme or a Ponzi scheme. Word of mouth spread the whole thing like wildfire."

Hooterville stalled within months of the SFO stepping in. Batchelor, now 52, and his wife Brenda were forced to sell-up and move to Ashhurst to rebuild their lives.

"It's very very hard to start again with nothing. We were basically unaware that anything was wrong until it hit the fan and everything ground to a stop. It left a horrible ugly mess in the end." Barbara Jury says the trust did not rush into things, doing exhaustive checks with other investors. "He [later] admitted to us he was robbing Peter to pay Paul but when you are getting your returns there's no evidence."

The charity may rue the day it came across Rea, but its investors will at least be repaid through the sale of its assets. Other investors have taken a more direct hit. Barbara Jury says they include people with seriously ill children and a Tauranga woman who lost her home.

The SFO says one investor gave Rea $800,000.

Says Batchelor: "There were a lot of people who put their life savings into this. So many people's hopes were dashed and lives ruined."

It continues to amaze the SFO that people successful enough to have amassed considerable fortunes put their savings into such schemes. Investigators say investors tend to be looking towards retirement and may have a healthy distrust of the IRD. Assistant director Gib Beattie says vast amounts of paperwork lend the schemes an air of legitimacy but they are often light on how returns will be gained. "You've got to keep it secret - if it becomes known to the authorities it will threaten the investment programme overseas."

Investors may lack knowledge of how financial systems work and are inclined to believe stories of Government/financial institution conspiracies.

"The average punter is embarrassed to say that they don't know so they don't ask questions."

Prosecutor Anita Killeen says Rea's line that he was being persecuted by the IRD and SFO was one reason investors continued to support him. He would tell them their overseas investments had been frozen (which the SFO could not do); to sit tight and the returns would come.

There were, according to the investigators, few such investments. About half the money was returned to investors as monthly interest payments which they often spent - they didn't realise it was their capital being eroded.

Only $2.9 million was ever invested - and that money was lost in scams including a Nigerian "money washing" scheme and junk historic railway bonds. The rest, $11.8 million, went to bank and trust accounts in New Zealand, London, Copenhagen and Zurich linked to Rea or family members.

To operate this complex web took some skill, though Killeen says they found no evidence that Rea had formal financial qualifications. A former school teacher and used car salesman, Rea told the court he was bankrupted by the IRD over a 1989 tax bill.

Barbara Jury suspects his bitterness towards the IRD became a powerful motivator. She says administration was not Rea's strength - investors were becoming uneasy until his common law wife Catherine Trezona and daughter Lisa Talbot came on board, tidied up the paperwork and improved communication.

Crown Prosecutor Philip Morgan, QC, found Rea "quite unusual".

"Sometimes he could be quite defiant and difficult, the next time he would be quite rational and pleasant."

In early court appearances, he challenged the court's jurisdiction. Early last year he spent six nights in jail after failing to turn up for hearings.

"I live under the law of the gods," he told the depositions hearing last August.

Statutory managers PriceWaterhouseCoopers worked for two years to recover the money, following a paper trail of bank statements, deposits, vouchers and cheques. They found properties purchased in Tauranga, Mt Maunganui and Taranaki; a 12m catamaran bought for $800,000; expenditure on travel, cars and jet-skis.

PWC's John Waller and Vivian Fatupaito took legal action in Switzerland and England to compel Jyske Bank and Lloyds Bank to return funds. About $1 million held in New Zealand banks was frozen.

They took legal action against Rea's mother Violet and brother John, and seized and sold the catamaran and most of the properties.

Their work was hampered by many investors' continued faith in Rea, who was holding meetings assuring them the statutory management was a Government conspiracy and, if they sat tight, the returns would come.

The statutory managers recovered enough to return 31c in the dollar to investors. It is feared much of the remainder, including $2.2 million placed with a Danish investment firm, AS Howan, is lost.

It seems that even Rea was vulnerable to a con. Forensic accountant David Hassall told the court Rea put $470,000 into a Nigerian money washing scheme, which purported to recover near-new US banknotes from notes stained with a black dye.

Another $270,000 went to Caribou Capital Corp, which touted huge returns from historic gold-backed railway bonds issued in the 1800s by American railway companies. The bonds could be bought on the internet for $20 or $30 but were worthless, said Hassall.

Rea spent the last afternoon of his life cross-examining Hassall, the forensic accountant whose evidence had all but convicted him.

He was agitated and very red in the face, said one observer. "It was as if he felt everyone was against him."

He dwelt on Hassall's background with the IRD, asking whether he was with them when Peter John Bell, a trustee of the IUT Trust deed, "committed suicide as a result of IRD harassment".

Rea asked if Hassall knew about his own bankruptcy by the IRD, over a $330,000 tax bill amassed in 1989 while working as a lecturer at a technical institute and paying PAYE.

Hassall: "I know nothing about that."

Rea talked about the fear tactics used by IRD, the SFO and Hassall's current employer, an insurance company.

He said payments to trusts linked to his wife and daughter were for administration.

"I accept I was scammed in the Nigerian money washing and I accept that some railway bonds have been used as scams. I even went to Buffalo to meet this gentleman from Nigeria and he demonstrated to me a bundle of these US$100 notes covered in the black dye."

He said he had not co-operated with the investigation because of the tactics of the statutory managers, the IRD and the SFO.

"The Government have sold everything that I had anything to do with in New Zealand without a conviction ... I'm not guilty and if [the jury] find that, then what position are the Crown going to be in in regards to my boat or my houses or my farm or my winery?

"This jury has got to find me guilty otherwise there's a few problems for the Crown isn't there?"

He said until the SFO stepped in, investors were being paid and that much of the money had been invested in gold.

"I will demonstrate that everyone got paid and in fact the fund is still solvent today ... and always has been."

Fate denied him the chance to show there was a pot of gold. At 4.30pm on Tuesday, the court adjourned and, in gathering darkness, Rea and Trezona drove over the Kaimais and across the Hauraki Plains to their Hamilton home.

By 7pm, he was dead.