ASC sanctions Arnold Breitkreutz, Base Finance Ltd. and Susan Way for fraud

It is said that the best predictor of future action is past behavior.

In the CEF/DIL case the public evidence clearly supports the conclusion that depositors were intentionally misled or allowed to be misled about what their money was going to be used for vs what it was actually used for and the fiscal health of CEF and DIL.

The ABC Task Force also found documentation that CEF fund stopped making money on its investments around 2008 and used new depositor funds to make current investor interest payments – which fits the traditional definition of a Ponzi Scheme.

Tragic as this is, they weren’t the only ones to do this, nor were they the first.

On March 6, 2018 the ASC issued a news release that they had found Arnold Breitkreutz, Susan Way and Base Finance Ltd. guilty of breaching Alberta securities laws. Specifically, the ASC found that:

The respondents raised over $137 million from more than 250 investors between 2004 and September 2015. An ASC panel determined that the respondents perpetrated a fraud on investors by:

• deceiving investors into thinking that they were investing in mortgages held by Base Finance rather than in a loan to an undisclosed entrepreneur involved in oil and gas developments in the U.S.; and
• operating a Ponzi scheme that recirculated investors’ funds to pay purported returns to existing investors.

In issuing its decision, the panel considered “the pattern of communications with investors to have been carefully tailored to maintain a façade that they were investing in first mortgages in real estate and not in oil and gas plays in the [U.S.]” and that the respondents paid “promised returns to Base Finance investors under the guise of interest payments directed from an undisclosed borrower” when “[i]n reality, such payments were merely the re-circulation of funds received from other investors”.

Just under a year later, on Feb 25, 2019, the ASC issued a news release of the sanctions it was levying in this case, specifically:

• Breitkreutz must pay an administrative penalty of $1 million, a disgorgement order of $2,671,406 and investigation and hearing costs of $100,000;
• Way must pay an administrative penalty of $150,000, a disgorgement order of $362,049 and investigation and hearing costs of $50,000; and
• Breitkreutz, Base Finance and Way are subject to extensive market-access bans. Among an array of other bans outlined in the decision, Breitkreutz and Base Finance are permanently banned from trading in or purchasing securities and derivatives. Way is banned from trading in or purchasing securities and derivatives for 20 years or until the monetary orders against her are paid, whichever is later.

In its decision, a majority of the panel considered Breitkreutz’s misconduct to be “among the most egregious known to the capital market.” The majority of the panel also stated that the “amounts taken from investors by Breitkreutz and Way, the extended period of time over which they were taken, the number of investors affected by the Respondents’ misconduct, and the Respondents’ continued assertions that there was nothing wrong with their conduct apart from not being registered with the ASC put this case among the worst frauds perpetrated in Alberta.”

Paragraph 33 of the decision included some familiar sounding victim impact stories:

• A 68 year old retired businessman worked for 40 years to save up $3.2M and, along with family and friends, invested over $10M. After the Ponzi scheme collapsed, they had to sell two of their properties and are now considering going back into business to try, in the three to five years that they think they might still be able to work, to build something up for their retirement.  Testimony was given that Breitkreutz and Way “took away our retirement and a big piece of our lives”. The witness’s brother who had a workplace injury invested his award with Base Finance and it was also lost.
• A second witness, also retired, had been a writer, a dance teacher, a convenience store owner and a legal secretary. She invested not only the capital that she had saved during her lifetime but also compensation she received from a personal injury award. She intended to use some of the money invested with Base Finance to acquire a house suitable for her disability. She is no longer able to make such a purchase, and she now subsists on government pension payments.
• The third witness testified about his and his wife’s losses. They are both in their 80’s. They immigrated to Canada and developed a manufacturing business involving farm equipment. The business was sold in 1998 at which point the couple felt they were financially independent and able to look after themselves and their family in their retirement.  As a result of their involvement with the Respondents, he and his wife lost $1.4 million which they had acquired “from 56 years of hard work”. This loss required them to limit their spending and to reduce any risk in their other investments. It also led him to scale back on his “public life”, in part from being “too embarrassed to say to the general public . . . what happened to us”. He and his wife are now approximately $3,000 a month short of being able to afford living in a reasonable local retirement facility as they had previously expected.

Paragraphs 54-58 of the ASC decision details the respondents lack of remorse, their conviction “from the bottom of their hearts” that they didn’t run a Ponzi scheme, and the belief that their losses eclipsed those of the investors.

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If past experience accurately predicts future behavior, the RCMP will be laying charges in a couple of years.

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How does this compare to CEF? Let’s see –

• Large amounts taken from depositors? Check.
• Funds misappropriate for unauthorized uses over a long period of time? Check.
• Large number of affected depositors? Check.
• Significant impact to the affected depositors? Check.
• Respondents continued assertion that they did nothing wrong? Check.  (And to the entire Synod when arguing for restructuring no-less!)

Care to speculate how the upcoming May, 2019 ASC hearings will turn out?

And how about a guess when LCC will finally exercise some ecclesiastical supervision, police its own ranks and dispense the justice that this sordid affair so desperately calls for?

“Blessed are those who hunger and thirst for righteousness,
for they shall be satisfied.
Matthew 5:6