Crypto scheme to flip Hawke’s Bay olive grove leads to $440k court fines after foreign buyer rule breach

But the method he devised would ultimately land him in court where he and an associate have now been fined $440,000 for breaching the Overseas Investment Act.

A just-released High Court decision by Justice Layne Harvey details how Klaus decided to purchase a 91ha olive grove at Raupunga in Northern Hawke’s Bay in 2021.

Investigators at the Overseas Investment Office would later allege that Klaus had no intention of keeping the property - or even making a profit - and planned to flip it soon after taking ownership to access his crypto funds.

The problem was that due to its size and nature, the land was deemed sensitive under foreign buyer rules and Klaus needed Overseas Investment Office (OIO) consent.

The decision says Klaus took legal advice about how to structure a company to avoid needing the regulator’s approval.

The OIO said his plan involved using an “associate” to illegally skirt New Zealand’s foreign buyer regime.

Klaus contacted business associate Mike Newcomb. They formed a New Zealand company called Let’s Go Property Investments in May 2021. Klaus held 24% of the shares while Newcomb held the remaining shares and was also appointed company director.

But investigators said it was Klaus who was pulling the strings.

He found a non-cash platform and used his crypto to buy the Hawke’s Bay property for $4.5 million on May 18, the decision says. Newcomb signed the sale and purchase agreement, which stated that the company did not need OIO consent.

Klaus indicated to Newcomb that the company would purchase the property so the pair could run a beverage business together, with Klaus acting as an Australian distributor.

“However ... Mr Klaus’ intention was to on-sell the land to convert his cryptocurrency into cash,” the decision says.

“It is unclear whether Mr Newcomb was aware of this plan.”

Klaus registered a mortgage over the propertyand asked Newcomb to guarantee a development loan.

However, Newcomb got cold feet and the relationship soured. Newcomb pulled out of the company and all the shares were transferred into Klaus’ name. Klaus also became the sole director.

The decision says that immediately after purchasing the property, Klaus began to discuss on-selling it, then discharged his mortgage the following month.

The OIA was tipped off to the case days later. Investigators contacted Klaus and asked him to explain the purchase and the reasons for the company’s structure.

He said he intended to sell the property “urgently” but refused to give the regulator an undertaking to put any sale proceeds in trust, should a prosecution take place, the decision says.

The property was sold in November that year for $3.1m - $1.4m below what Klaus paid just six months earlier.

Both Klaus and Newcomb left New Zealand after the OIA investigation commenced and neither took part in the proceedings, the decision says.

The regulator argued that Klaus always intended to buy and immediately on-sell the property to cash out his cryptocurrency. A real estate agent told investigators Klaus was “happy to accept a lower value than that which he had paid”.

Unable to buy the property himself, he’d incorporated Let’s Go, with Newcomb “playing the necessary role for compliance”.

“Although Mr Klaus did not expect to make a financial gain, and was even willing to make a loss, his conduct was financially motivated in that he aimed to use the transaction to cash out a reasonable amount of his cryptocurrency,” the regulator contended.

“To achieve this, he was prepared to circumvent New Zealand law.

“In short, the regulator argued that the evidence suggested Mr Klaus intentionally, or at the very least recklessly, breached the Act.”

The judge found Klaus was either negligent or reckless as to whether his actions were unlawful. He had sought ways to circumvent the obligations he faced.

After being advised of the legal situation relating to ownership rules, he responded: “I wanna buy under company to save all the drama. How can I construct a company so I can own it through company?”

The decision says aggravating factors were that Klaus had previous misconduct findings with regulatory or compliance authorities.

According to Australian media reports, he and another of his companies were ordered by a Queensland court last year to pay more than $300,000 in penalties after admitting breaches of the Fair Trading Act for taking customer payments for caravans and then making repeated excuses about why they hadn’t been built.

It was the second such prosecution involving Klaus for similar offending.

Klaus had also stopped communicating with OIO investigators and solicitors “and appeared to evade service of the proceeding”, the decision says.

In terms of Newcomb, it was contended that his failure to take advice or confirm the lawfulness of the transaction indicated “at least negligence, if not recklessness”.

“However, he had a much lesser role in the offending than Mr Klaus and he gained nothing from his participation. Mr Newcomb’s role extended to helping facilitate Mr Klaus’ offending.”

The judge ordered Klaus to pay $350,000 in penalties. Newcomb was ordered to pay $90,000. Both men were ordered to pay $15,000 costs.

Neither man could be reached for comment.

Land Information New Zealand’s compliance leader Susan Smith said the Overseas Investment Act was designed to protect sensitive Kiwi land and ensure any overseas investment was in New Zealand’s interests.

The act had strict “associate” provisions that made it illegal for an overseas investor to conceal their identity and evade consent requirements by having a New Zealand citizen make investments on their behalf.

“Mr Newcomb illegally acted as a front-person for Mr Klaus and by doing this breached the Overseas Investment Act.”

Smith said both men remained outside New Zealand and were yet to acknowledge the penalty decision or make any repayment.

Land Information New Zealand (LINZ) was working to identify any assets belonging to the pair that could be claimed to help recover the court-imposed penalties.

“No assets have been found at this point; however, LINZ will continue to pursue recovery of the penalties and any assets that are discovered in the future through appropriate legal channels.”

Lane Nichols is Auckland desk editor for the New Zealand Herald with more than 20 years’ experience in the industry.

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