As I’d written in an earlier piece, one way to speculate what’s coming down the pipe from the AB and BC Securities Commissions is to look at what’s happened in other cases.
I recently came across some more cases that are similar in appearance to CEF, which I’m including below following a copy and paste of what the ASC can and cannot do.
First of all – here’s what the ASC can and cannot do (web page):
What the ASC can and cannot do
In enforcing Alberta securities laws, the ASC is empowered to take certain actions to protect investors and the integrity of Alberta’s capital market.
The ASC can:
- impose fines known as “administrative penalties” of up to $1 million per contravention of the Alberta Securities Act, freeze assets and ban from the market those who breach the Act;
- stop businesses or individuals from trading securities during an investigation;
- stop the trading in securities of a business if it fails to file information required under the Act; and
- pursue offenders in Provincial Court as an agent of the Crown, with the power to seek jail terms of up to five years less a day and fines of up to $5 million.
The ASC cannot:
- get money back for investors;
- offer investment or legal advice; or
- comment on any aspect of an investigation.
And here’s some similar-looking cases that’ve appeared in the news –
Decade of greed puts Ponzi schemers behind bars for 12 years
Prosecutors estimate up to $200 million, and maybe as much as $400 million, disappeared from the hands of 2,400 investors into the Ponzi scheme from 1999 to 2008, with new investors paying off initial investors.
But it was a scam, and it inevitably collapsed, crushing the hopes of their victims.
For that decade of greed, the two men may well spend the rest of their lives incarcerated. On Tuesday, after being convicted earlier this year in one of the longest trials in Canadian history, Brost and Sorenson were sentenced to 12 years in prison.
ANO: In this case the Ponzi scheme was a deliberate, intentional act. In the CEF’s case the Task Force reported that 2008 was the last year that CEF’s incoming revenue exceeded it’s outgoing expenses – after that it used some of the incoming deposits to pay the outgoing interest payments. As I understand things intent has been removed from the law governing prosecution of Ponzi schemes . This could mean that if an organization is running something that acts like a Ponzi scheme – regardless of their awareness of that fact – they will be prosecuted the same as someone who intentionally sets up a Ponzi scheme.
Conviction in investment fraud case leads to jail time for father and daughter
On May 30, 2014, Mr. Justice Richard Danyliuk of the Saskatchewan Queen’s Bench sentenced Ronald Fast to seven years in prison for fraud and ordered him to pay restitution of $16.7 million. Fast’s daughter, Danielle Fast-Carlson, was sentenced to 30 months in prison and ordered to pay $1 million in restitution arising out of the same circumstances.
Ronald Fast, the founder of Marathon Leasing Corporation (“Marathon”), and his daughter, Marathon’s in-house accountant, were charged with:
- fraud over $5,000.00 by defrauding investors through dishonest acts or omissions;
- making statements about Marathon’s financial status to prospective investors knowing the statements were false; and
- possessing property obtained from the commission of an indictable offence.
In finding Ms. Fast-Carlson guilty, Justice Danyliuk ruled that she:
- was familiar with the business given her role as the accountant;
- admitted being aware that the cash flow of the business was insufficient to keep it afloat while making interest payments to investors;
- continued making payments out to investors;
- misled investors by embellishing the track record of the business to lead them to believe Marathon was in sound financial health and was growing;
- failed to advise any of the investors of Marathon’s financial troubles, even though she did voice concerns to her father on various occasions; and
- continued to accept money from investors, despite being aware of the restrictions placed on Marathon by the Saskatchewan Financial Services Commission (the “SFSC”) that prohibited Marathon from doing so.
In light of these facts, Justice Danyliuk rejected Fast-Carlson’s defence that Marathon appeared to her to be financial stable, stating:
“For the accused to testify that with all her background and knowledge of this company, she could not see a bankruptcy coming is simply unbelievable, and the court unreservedly rejects her evidence in this regard. In this regard, her testimony was at best disillusioned; at worst, it displayed a penchant for mendacity.”
ANO: Before it entered CCAA protection CEF advertised that it was safe even though management knew it was in serious trouble and had considered bankruptcy multiple times starting in 2004.
Given CEF’s situation over the years it’s hard to see how the people accountable for following the law as it pertains to investment funds can escape a similar fate.
The article has a more detailed explanation behind the Justice’s ruling.