BC’s biggest Ponzi scheme wasn’t just bad for investors, it was also bad PR for several banks and credit unions.
Coast Capital Savings, Toronto-Dominion Bank (TSX:TD), Royal Bank of Canada (TSX:RY), Vancouver City Savings Credit Union and Worldsource Financial Management Inc. were named in a class-action lawsuit, alongside the mastermind of the Samji Ponzi scheme.
The class action resulted in the financial institutions agreeing to pay into an $8.5 million settlement fund.
Rashida Samji, a B.C. notary public, was behind the Ponzi scheme that raised $110 million from more than 200 investors and paid out $99 million, leaving an $11 million shortfall.
It resulted in the biggest fine ever handed out by the BC Securities Commission (BCSC), which in January 2015 ordered Samji to pay back $10.8 million and levied $33 million in penalties (see “Levying fines is easy” – page 4).
Also implicated in the scheme was Arvin Patel, a Coast Capital financial adviser and mutual fund dealer for Worldsource. According to court documents, Patel introduced clients – and even his own family members – to Samji’s Ponzi scheme, eliciting from them a total investment of $28.9 million. Samji held accounts with the banks named in the class-action suit.
The scam involved investors putting money into a trust account that they were told would be used as collateral for B.C. wineries to obtain loans from foreign lenders.
Between 2003 and 2012, Samji sold “investments” in Mark Anthony Investments. Mark Anthony Group owns the Mission Hill Family Estate Winery. According to the BCSC and the BC Supreme Court, the Mark Anthony Group was not involved and was unaware that its name was being used.
Another high-profile B.C. Ponzi scheme involved Global Wealth Creation Opportunities. No penalties have yet been levied in that case.
The BCSC says Surrey resident Thomas Arthur Williams was the Global Wealth scheme mastermind. He used “finders” to bring him investors.
Between 2007 and 2010, Williams raised $11.7 million from 123 investors who were promised returns of 2% to 6% per month. The investments were in “managed risk opportunities,” which the BCSC characterized as “bafflegab.”
Some initial investors did receive payments, but not from any interest generated from investments. Rather, it came from investors that came in afterwards. Of the $11.7 million raised, investors got back $4.9 million.
“There is no evidence that the investors have any hope of recovering the rest,” a BCSC panel concluded.
Of the money raised, $6 million went to entities controlled by “individuals who had a history of criminal or securities regulatory fraud.” They included Mac Stevenson (banned from securities markets by the BCSC for fraud), Michael Slamaj (sentenced to prison in the U.K. for fraud), Cem Ali (sanctioned for illegal distribution of securities) and Milowe Brost (permanently banned by the Alberta Securities Commission for fraud).
Williams pocketed $440,000, according to the BCSC.
Also implicated in the scam were the finders who brought investors to Williams: Susan Grace Nemeth, Renee Michelle Penko, Irene G. Beilstein and Dennis Carl Weigel.
Ponzi and pyramid schemes work only as long as new investors pay previous investors. Original investors may receive some of their original investment back; the newer ones are left empty-handed when the scheme collapses.
Ponzi schemes typically promise high returns and low risk, and investors are typically pressured to “get in now” to prevent them from performing due diligence.