A man we will call Mr. Johnson will never escape the moment his life was hit by financial catastrophe. When he was overcome with a sense of shame, guilt and loss. When a lifetime of planning and saving and being responsible evaporated into a web of lies and deceit created by people he had known and trusted for decades.
“I had absolutely no suspicion a Ponzi scheme was going on,” he says. “I went and met with them with a couple of other investors to find out where our money was gone.”
Mr. Johnson believed his money had been invested in mortgages and following the bankruptcy of the mortgage brokerage, the properties could simply be sold to recoup some money for investors. He was wrong. Instead, the investors later learned their money may have been invested in oil and gas assets in the United States, according to a March 2018 panel held by the Alberta Securities Commission.
“Initially I was in absolute shock but as time progressed, we recognized we had lost the money and were never going to get it back. It is something that never goes away ... It lives with you every day,” he said.
Mr. Johnson says some investors lost everything. They had to sell their homes and move into apartments. They now lack the money to buy Christmas presents for their families or their medications.
“There are people who were in really dire straights and still are today,” he says. “We are lucky because my wife and I are fairly strong people, but with some people it has cost marriages, it has cost their health.”
Mr. Johnson is one of 398 investors involved in what the ASC asserts is a $137 million Ponzi scheme, perhaps one of the largest Ponzi schemes ever perpetrated in Alberta. He says they include people from all walks of life including office workers, farmers, trades people, accountants, lawyers and dentists. Many are retired and in their 70s and 80s, likely with little time to financially recover. Most have lost the resources to hire lawyers to fight for whatever pennies on the dollar they might get back.
“If you go to extended families that works out to about 4,000 Albertans who where impacted,” he says.
Mr. Johnson agreed to speak with Alberta Venture only on the condition of anonymity. Nobody in his life beyond his closest circle of family and friends is even aware of what happened to him.
“The reason people don’t come forward is because of the shame, the embarrassment, the devastation that it brings,” he says. “They have given up their lives for this country and this province and there is no help, nothing.”
In February,the Alberta Securities Commission sanctioned Arnold Breitkreutz, Base Finance Ltd. and Susan Elizabeth Way for fraud. In its decision, the ASC’s panel said it considered Breitkreutz’s misconduct to be “among the most egregious known to the capital market.” In May 2018, police charged Breitkruetz and Way with fraud over $5,000 and the case remains before the courts.
“When we first got involved, we knew the people that were running the mortgage company,” Mr. Johnson says. “(The promised return) wasn’t ridiculous amounts. It was 10 per cent return on investment and they were first mortgages. Sometimes it was eight per cent. And they guaranteed there was 65 per cent equity, so you felt pretty safe.”
He says anybody who did any checking found that the investment compared to other mortgage companies.
“You'd get suspicious if somebody was promising 20 or 25 per cent, but this was a reasonable return on investment and a lot of people who were investing were people who were working and building retirement.
“With all of this stuff going on about money laundering and fraud, how did this get under the watchful eye of our financial institutions?” he asks.
Ponzi scams are not a new thing. In the 10 years before 2015, Ponzi schemes took more that $1 billion out of the province’s capital market and impacted more than 7,000 individual investors. When people find out somebody they know has fallen victim, the first thing many ask is “How could you have been so stupid?” Unfortunately, not only is that response insulting, it is often ignorant of the insidious nature of the crime.
In the 10 years before 2015, Ponzi schemes took more that $1 billion out of the province’s capital market and impacted more than 7,000 individual investors.
Both the Alberta Securities Commission, whose 195 employees oversee capital investment in the province, and police forces have beefed up enforcement against fraud, which they consider to be theft with a smile and a handshake. The commission has started a whistleblowers program and increased its efforts though an education campaign to make people aware that if something seems too good to be true it almost always is. But how does that explain how otherwise sophisticated and careful investors fall prey? How they can be convinced for decades that everything is legitimate?
Unfortunately, fraudulent business dealings are a situation that both the industry-funded securities commission and police forces must continually battle in order to protect both investors and Alberta’s capital market.
In the five years prior to March 2019, the Calgary-based commission dealt with 68 cases that resulted in either administrative or court action, says Cynthia Campbell, director of enforcement with the ASC. Of those cases that resulted in a criminal prosecution, about 45 per cent involved fraud. The other 55 per cent involved activities such as money laundering or breaches of earlier court orders.
She is pleased with the early results of the whistleblower program, which started last November.
“Whistleblowers do not have to be certain about a complaint in order to bring a tip to our attention,” she says. “They just have to believe in the veracity of the information they are providing us. It is up to us to investigate to determine if there is securities misconduct happening.”
The identities of all whistleblowers are kept confidential, even if they may eventually be required to testify in a legal proceeding.
“Whistleblowers can be witnesses, but nobody needs to know they are a whistleblower,”
While the program accepts anonymous tips, people can also protect their identities by making the tip through a lawyer. That allows investigators to ask follow-up questions through the lawyer without ever learning the whistleblower's name.
Whistleblowers are also significantly protected by the Alberta Securities Act - from both the risk of libel or slander litigation and from employer or co-worker reprisals, such as terminations or shunning - if they make their complaints in good faith.
James Moore is an investigator with the commission’s Joint Serious Offences Team (JSOT), which also includes two RCMP members. The JSOT has also established informal partnerships with municipal police forces province-wide as well as international agencies, such as the FBI, in order to share information and collaborate on investigations.
The Internet has greatly increased the number of potential victims and electronic money transfers have made business easier for the crooks.
“Whatever is trendy in business could potentially be a hook for victims or investors,” Moore says. “If I am a bad guy and I say I am going to put your money to work and I am lying about that and I put your money at risk at all even if you have not lost it, that starts to form some of the elements of a criminal fraud charge.”
He says it is worth calling the commission even when investors are not completely certain something may be wrong. Investigators strive to make a quick response. “If we can stop victimization, that is our primary goal,” he says.
“People are thinking they are getting a great deal. They are giving their money to somebody who is going to grow it and quite often people on the victimizing side are very good at this. They have natural charisma and not only does their story sound good but the way they tell it is very convincing.”
Like Mr. Johnson, many victims do not learn their money is gone until after many years of investing.
“The message we really try to get out to the community is that at the very early front end of these things if you feel some discomfort or you are not sure at all to please contact the ASC, the RCMP, or your city police.”
Before anyone invests their money, Moore recommends they first ask some basic questions about the company behind the opportunity.
“Are you registered to raise money in Alberta?” Moore says. “What financial institutions are you affiliated with? Who are some of the other clients I can talk to about this? Do you have actual literature? If somebody is promoting something, do you have something I can take home to look at? Do you have a website I can look at?”
|Questions to Ask Before Handing Over Your Money|
If some of these questions raise red flags, potential investors should call the ASC or police ,who often recognize names behind past scams.
“We keep a database going back 30 years we can dip into,” Moore says.
The ASC has developed an online guide for potential investors to help them avoid becoming victims in the first place, says Alison Trollope, ASC director of communications and investor education.
“That’s why we call our website Check First,” she says. “It is so important that they do their research first before handing over their hard-earned money, because if it is a scam, once the money is handed over, generally the money has been spent. It is gone and impossible to get back.”
Potential investors should also beware when they are asked by scammers if they want to leave something for their kids or send a grandchild through university.
“Scam artists play on emotions. They play on insecurities. They play on grief.”
Scam artists play on emotions. They play on insecurities. They play on grief.
They often also depend on making their pitches too difficult for most potential investors to easily understand. Often the true risks and requirements of the deal are only mentioned in the small print many people don’t take the time to read.
“If people don’t read the fine print, that can be a problem,” Trollope says. “Nobody cares about your money more than you do, so it is so important to ensure you know what you are getting into.”
She says one of the most common red flags is a promise of high rates of return with low or no risk.
“In an interest environment where a bank will give you one per cent for that same guarantee, you have to wonder why. We do see some scams that promise 25 or 40 per cent.”
One recent case promised a 100 per cent return in one month.
“In that case it was the friend of a friend and (the victim) was a smart business person from downtown Calgary,” she says. “He acknowledges that it seemed to good to be true, but he ignored his gut feelings.
“If people listen to their gut and review the Red Flags of Fraud on our website, they can possibly avoid getting scammed.”
To submit a whistleblower tip, call 1-833-295-4387 or email: owb@ASC.ca