RCMP arrested an Alberta man and laid charges against another on allegations that both were involved in a Ponzi scheme that police say raised at least $100-million - and perhaps as much as $400-million - from thousands of investors.
Police say as many as 3,000 victims in Canada and the U.S. were involved in the alleged Ponzi scheme that promised annual returns of as much as 40 per cent and channelled funds through a highly complicated series of companies. The family of a British Columbia woman believes she committed suicide over her losses.
The RCMP arrested Milowe Brost, 55, who lived in Chestermere, not far from Calgary. Police also charged, but did not arrest, a Calgary man, Gary Sorenson, 66, who is believed to be in Honduras, which does not have an extradition treaty with Canada.
Why wasn't it stopped when it should have been? Gloria Lozinski, sister of dead victim
Both men were charged with fraud over $5,000 and theft over $5,000, following a 31/2-year investigation that some say took far too long.
"Why wasn't it stopped when it should have been?" said Gloria Lozinski, whose 42-year-old sister, Edna Coulic, committed suicide last October after investing over $300,000 in the scheme.
Ms. Coulic, who worked in real estate development sales, had been invited to invest by a friend, who received a $5,000 payment for signing her up, Ms. Lozinski claimed. Promised returns of up to 40 per cent, she made her first investment in October, 2007, well after police say they began their investigation.
"But they never made the public aware, which I'm not sure why," Ms. Lozinski said. If they had, "then my sister would not have been a victim."
Ms. Coulic's writings made clear that the financial loss was behind her suicide, Ms. Lozinski said.
The difficulty is that we investigate many things, and not all things end up in charges. RCMP Sergeant Patrick Webb
RCMP refrained from issuing a warning because officers had not collected enough evidence to lay charges until recently, said RCMP Sergeant Patrick Webb. The force could be held liable if it cautions investors about a company that turns out to be legitimate, he said.
"The difficulty is that we investigate many things, and not all things end up in charges," he said.
Still, others say they can't understand the length of the investigation.
"I have no idea how it can take that long. I think it's horrific," said Graham McMillan, a San Diego-based chartered accountant who says his octogenarian father in Manitoba invested $50,000 with a firm associated with Mr. Brost. "A lot of people lost their farms, and they lost their businesses, and they lost their life savings. I've spoken to plenty of people who are out on the street."
Mr. McMillan was able to help his father recuperate his money, but went on to start a website devoted to exposing what he claims is a scam perpetrated by Mr. Sorenson and Mr. Brost, who was issued a lifetime market ban and a $650,000 administrative penalty in July, 2007.
At the time, the Alberta Securities Commission said that Strategic Metals Corp., a company Mr. Brost was involved with, defrauded investors by illegally selling $36.5-million in securities.
The Canadian law firm Bennett Jones has launched two class-action lawsuits against Mr. Brost and some of the companies he is alleged to have worked with, said lawyer Albert Pelletier.
"We're seeking recovery for victims," he said. "We're certainly pleased to see the RCMP [arrest Mr. Brost]"
The Institute for Financial Learning, a firm RCMP say was controlled by Mr. Brost, was also linked to an alleged tax fraud that, according to the U.S. Justice Department, lured in seven NFL players. Although Mr. Brost was not charged, the institute was used to market an investment promoted by a Colorado-based Merendon Mining Corp., which was itself part of Calgary-based Merendon Mining Corp.
RCMP believe Mr. Sorenson and Mr. Brost were involved with both Merendons, as well as a long list of offshore shell companies that includes Asset Trax Inc., Quatro Communications Corp., Rapid Express Corporation and Strategic Metals Corp.
RCMP said yesterday the two men created a business called Syndicated Gold Depository S.A., which lent money to Merendon Mining Corporation Ltd. (MMCL) and promised high returns.
A note on MMCL's website, signed by Mr. Sorenson, the company's chief executive officer, denies any involvement with fraud.
"MMCL has reason to believe that the investors in the US Merendon Companies may have been victims of fraud, and that the people perpetrating that fraud may have suggested that the US Merendon Companies were somehow affiliated with MMCL and its subsidiaries," the note says. "Any such representation is untrue."
The length of the investigation owed partly to the international travel involved, said RCMP Superintendent Eric Mattson.
The Ponzi scheme is the largest he has seen in 20 years with police, he said.
"It's very significant," he said.
None of the charges against the two men has been proven in court, but Mr. Pelletier said the Institute for Financial Learning was created to entice investors to investments that were allegedly part of the Ponzi scheme.
The institute's instructors - called "structurists" - offered educational sessions that bad-mouthed mainstream investing tools such as stocks and bonds. Once potential investors had paid a membership initiation of about $1,700, it offered an alternative: Members were given the ability to make offshore investments with promised annual returns of between 35 and 40 per cent.
Mr. McMillan described Mr. Brost as a gifted salesman who would on occasion say a prayer before a meeting in order to break the ice with potential investors, some of whom believed he was a God-fearing man.