Accounting Thought and Ethics. Case Study. Chartwell Enterprises: Australia’s Largest Ponzi Scheme

Accounting Thought and Ethics
Case Study
Chartwell Enterprises: Australia’s Largest Ponzi Scheme
This case reports on the events that led to the collapse of Chartwell Enterprisesdescribed
in the press as ‘Australia’s largest Ponzi scheme’- and the role played by
its directors, Graeme Hoy and Ian Rau.
The charges
Former director of Chartwell Enterprises, Graeme Hoy, was sentenced to jail in 2011
on 44 charges of obtaining a financial advantage 9and property) be deception (fraud)
between 2007 and 2008. The amount of the deception totalled $22 million but it also
led to the collapse of Chartwell Enterprises owing investors in excess of $80 million.
In addition to the fraud-related charges, Hoy was also found guilty of dishonestly
using his position as a director, carrying on a financial services business without a
license and engaging in dishonest conduct by giving investors false information
about their investments. Hoy was sentenced to 13 years and nine months jail (with a
non-parole period of nine years), in what was claimed at the time to be the longest
ever term of imprisonment for a white-collar crime in Australia- a direct response to
Australia’s largest Ponzi scheme. Hoy was not alone in this deception; his coaccused,
ex-secretary of Chartwell Enterprises, Ian Rau, was jailed for two and a
half years when he pleaded guilty to eight counts of ‘deception’.
The scam
Chartwell Enterprises was an investment company that pooled investors’ funds then
purportedly traded on local and global financial markets, entitling investors to a set
rate of return with Chartwell entitled to retain excess profits. However, rather than
invest the funds received from its investors, Chartwell stole the money then spent it
on luxury items. Hoy in particular used Chartwell to fund a lifestyle of yachts,
restaurants, mansions and luxury cars that included a Rolls Royce Phantom. It had
been reported in the press that 98 per cent of the funds received by Chartwell were
stolen, while Hoy led his investors to believe that their money was being invested.
Chartwell Enterprises was established in 2002 by Rau and Hoy, but it was in 2007
and 2008 that the scheme was in full swing. Rau was notionally in charge of trading,
while Hoy was in charge of raising money. Interestingly, neither Hoy, nor Rau had
any training in managing the financial affairs of others. Only a small proportion
(approximately$400,000) of the money received from investors was ever used for
trading. This was in spite of Chartwell employing a team of 40 market traders who
spent their time undertaking market analysis and making predictions.
The company was allegedly insolvent in 2005, but this was kept secret from
investors who continued to invest in Chartwell until its collapse in 2008. Hoy’s
deception continued until days before the collapse of Chartwell, as he continued to
assure investors that their investments were safe. In April 2008, Hoy sent an email to
23 investors that stated: ‘Chartwell has gone into receivership and voluntary
administration. I am sorry’.
Greed: a core ingredient of successful scam
In order to continue the deception for as long as it did, Chartwell operated a Ponzi
scheme. Such schemes were named after the conman Charles Ponzi, who paid
existing investors from the capital contributed by new investors, rather than from the
profit from investments. Ponzi schemes also rewarded the promoter with high
premiums. Ponzi schemes require the promoter-in this case, Hoy- to continue to
recruit investors and their savings to continue the fraud. The scheme collapsed when
contributions from new investors were sufficient to pay the returns promised to
existing investors.
Hoy targeted vulnerable and gullible investors with the promise of high returns that
fed on their greed. The promise of high returns to investors, between 20 per cent and
50 per cent (sometimes up to 70percent), is one reason why Hoy was able to recruit
so many investors even when warning signs may have been present. The scheme
was kept afloat in part by targeting small investors who would go on to recommend
Chartwell to family and friends.
The company went into voluntary administration in April 2088, eliminating the
savings of thousands of investors, many of them living in the local area (Geelong,
Victoria). Many investors who lost their savings felt betrayed. They were left
humiliated and devastated by their loss, in some cases possibly never to recover.
The investors were so outraged by the company’s deception that they vandalised the
offices in the aftermath.
You are a financial analyst at a reputed financial organisation in Melbourne. Your
finance manager has asked you to prepare a report that clearly addresses the
following requirements (based on Chartwell Enterprises), which he has to present to
the graduate trainees who have just joined the organisation.
(1) Hoy and Rau were unlicensed traders. Would licensing have made a
difference, and is so, how?
(2) Explain the role of the professional association in preventing this kind of
(3) Explain how this case relates to the notions of the public services,
professional competence and trust.
(12.5 marks)

Submission requirements
Word Limit: 1,000 words (not including executive summary, table of contents,
references and appendices).
Every 100 words above the word limit attract 0.5 marks deduction of available marks.
Your submission should include:
a. Cover sheet includes the course name, assignment name, your name, student
number, class day and time, lecturer’s name, and word count
b. Executive Summary
c. Table of contents
d. Introduction
e. Discussion
f. Conclusion
g. List of References – at least 5 references (your in-text references and the
reference list at the end of the report need to be in accordance with Harvard
referencing style. You are strictly advised to follow the link for guidance.)

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