From Matangi Tonga Magazine, Vol. 16, no. 2, September 2001.

The Tonga Trust Fund was created with the Tonga Trust Fund Act on 3 November 1988. At that time there was US$33 million in the account of the TTF with the Bank of America at 2.7% to 3% interest.

By 1994, the TTF deposit with the Bank of America was down to US$21.2 million, following government withdrawals.

In 1994 J. D. Bogdonoff, then an Investment Specialist at the Bank of America, found the fund in a low interest account at a branch that he was working with, and came to Tonga to see the TTF Trustees to discuss ways of improving the yield of the its fund. He told the trustees that by moving $21 million out of its cash deposit and purchasing US Government Treasury Notes, the TTF could triple the yield up to 7.75% interest. The TTF trustees recommended this proposal to the Privy Council who approved that the TTF to buy US$21 million worth of Treasury Notes.

In November 1994, the Trustees with the approval of the Privy Council appointed J. D. Bogdonoff as its Financial Advisor. (In Nuku’alofa in September JD said that his working contract with the TTF had three more years to go, and that he is paid a flat fee of $250,000 plus a monthly remuneration for extra services that he does for TTF).

By 1996 with government continuing to draw funds from the TTF, the balance of the TTF was $22.9 million. J. D. Bogdonoff  presented a report that showed that the TTF would be completely depleted by 2012 at the current rate of government spending given the current rate of growth. He laid out a plan that could conservatively grow the fund to $100 million in 20 years. His recommendation included an investment in a broad portfolio of US Blue Chip equities.

Changed strategy

In June 1996, through the advice of J. D. the TTF Trustees and the Privy Council approved for a change in their investment strategy, they wanted to proceed and purchase stocks and bonds in order to participate in the unprecedented growth in the US investment markets.

By July 1999 the TTF balance after government withdrawals stood at US$27.7 million.

Also in July 1999 J. D. Bogdonoff decided to leave the Bank of America after working for the bank for 11 years. He established his own company Wellness Technologies Inc., based in San Francisco, California, and acquired himself a licence as an investment broker. JD said that that an Investment Broker licence in the USA is given to individuals but not to the companies.

Investments

In July 1999 the Trustees of the Tonga Trust Fund authorized the investment of a $26.5 million portfolio allocation recommended by J. D. Bogdonoff, as follows:

- $20 million to be invested in the purchasing of a Promisory Note, Trustee Note made by Millennium Capital Management, a Nevada based corporation. The Note was backed by $55 million in life insurance contracts, which were held in trust for the TTF by the National City Bank in Minneapolis. The terms for this investment included a promised payment of US$26 million in 24 months.
• $4 million was invested in a 10% convertible Note issued by Trinity Flywheel Company of San Francisco, California. This company merged with America Flywheel Systems of Seattle in the spring of 2001 and is now called AFS Trinity. The Convertible Note from TFC was said to have been converted to equity in December 2000.
• $2 million was invested into two large Blue Chip Equity Funds through Fidelity Advisors Funds based in Boston, Massachusetts.
• $500,000 was invested in a US based cash money market fund offered by Federated Securities.

By June 2001 problems  emerged,

• The $2 million that was invested into two large Blue Chip Equity Funds acquired loss and it was down to $1.6 million in early 2001.
• The $500,000 that was invested by Federated Securities had to be written off as a loss.
• The $4 million that was converted to equity in December 2000 and invested with AFS Trinity is said to be doing well because the company is preparing for large manufacturing expansion.
• The $20 million Promisory Note failed to produce. The repayment of US$26 million that was promised by Millennium Capital Management, which is now called Millennium Assets Management Services, to be made on June 6 could not be made, and the company through J. D. Bogdonoff requested for a restructuring of the investment because of financial problems.
• Meanwhile , Tongans discovered that the Millennium Assets Management, which was incorporated on March 25 1999 was dissolved on 20 April 2000, and Millennium Asset Management Services had been the active corporation since 15  July  1999.

The problems which were reported by J. D. Bogdonoff were:

1. Some of the Insurance Policies which Millennium Assets Management bought from an attorney from Utah, a Mr Mansfield, were found to be invalid. The invalid policies were discovered after it went to the American Financial Service for evaluation in May so that reimbursement could be made. It is not known how many of these policies are invalid, but it is between three and six. Altogether MCM bought 16 insurance policies from Mr Mansfield.

2. The second reason why a repayment of the US $26 million could not be made was because of an overall extension in the life expectancy of these policies, which apparently affected the whole Viatical Industry. This means that a policy that was supposed to mature in two years will now mature in five or ten years.
- To recover the $20 million investment J. D. Bogdonoff ‘s proposal in a nutshell is to sell policies that Millennium bought from Mr Mansfield, and then buy new more expensive policies for which the Lloyds of London would guaranteed to reimburse $38.9 million in December 2006. These expensive policies will be held at the National Reserve Bank of Tonga but the TTF will have to pay the premium to Lloyds of London.
- The other alternative is for the TTF go back to Millennium and negotiate for two things –

1. To honour the US$20 million Promisory Note. (The immediate problem with this seems to be that the original document was supposed to be in Tonga but meanwhile cannot be found.)
2. Gently ask Millennium President, Conrad Noriega, to give them the 16 policies which were bought with Tonga’s US $20 million, so that the TTF can go and sell and hopefully recover their money.

In order to formulate any opinion on what the TTF could do next, it was decided by Cabinet to send Tonga’s Auditor General, Tui‘onetoa Pohiva and an assistant Leimoni Taufu’i to the USA to cater some information from Millennium. Theyw ere due to leave on September 28.

Meanwhile the “book value” of the TTF remained at US$33.9 million, which includes the US$20 M note plus interest of US$6 M. It could be some time before the actual extent of the loss is realised and written off, and Tonga starts again to rebuild its safety net.