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Georgette and Norman Hawe had to sell their home after investing $450,000 in what turned out to be an illegal scheme. (Peter Power/The Globe and Mail)
Georgette and Norman Hawe had to sell their home after investing $450,000 in what turned out to be an illegal scheme. (Peter Power/The Globe and Mail)

Crime without punishment: Canada’s investment fraud problem Add to ...

Norman Hawe, 78, and his wife, Georgette, 84, have spent their retirement volunteering with the Salvation Army, travelling the world to feed the poor and build homes and churches. Mr. Hawe, a carpenter who also worked on the blast furnaces in Hamilton’s steel mills, specializes in constructing giant wooden crosses.

An engaging story teller with a booming laugh, he becomes more soft spoken when he recounts the events that wiped out his and Georgette’s retirement savings. In 2007, Mr. Hawe learned that he had sunk $450,000 in what turned out to be an illegal scheme in which investors were told their money was placed in a portfolio of mortgages. The funds were actually diverted for other uses, a financial trap that forced the couple to sell their house.

“I started working when I was 21 years old,” Mr. Hawe says. “I did a job for this guy from Hamilton here, and he owed me $400. And he wouldn’t pay me. ... So, you know what I did? I went up and I stuck a knife in his four tires. And this, I lost $450,000, and I haven’t done anything.”

The Hawes aren’t alone. A 2012 survey conducted by the British Columbia Securities Commission found that 17 per cent of Canadians over 50 believe they have already been the victim of an investment fraud at some time in their lives, a number that jumps to 29 per cent among people who say they are active investors. Given the regulatory and legal resources available to victims of fraud, few of these individuals will get help. For years, victims and investor advocates have complained that smaller securities fraud cases – those that don’t get national media attention – rarely lead to criminal charges and jail sentences. Laws on parole and sentencing for white-collar criminals have been tightened in recent years, but that hasn’t brought more scam architects before the court.

The Hawes’ case involved more than 150 other investors who put over $8-million into a now-bankrupt outfit called Golden Gate Funds. The business was run by a Toronto-area businessman named Ernest Anderson, and the case was heard before an OSC tribunal, which cannot impose jail time.

The result was a 2009 settlement in which Mr. Anderson acknowledged using investor funds not to invest in mortgages, as he told investors, but to cover operating costs and make payments to previous investors. As part of the settlement, the OSC demanded $4.7-million in monetary penalties that, as of June 30, have still not been paid, which is typical in such cases. Mr. Anderson, who hasn’t been charged with any crime in connection with the case, could not be reached for comment.

The story echoes one that many fraud victims recount: Those who bilk investors in Canada often suffer little more than a slap on the wrist. And police, victims say, are often unwilling to investigate allegations of complex financial crimes, especially when cases involve smaller financial frauds that don’t attract media attention.

But, more help for victims like the Hawes might be on the way. In an indication that authorities are paying more attention to smaller-scale fraud, the OSC announced that it has set up a new squad designed to take more fraud cases to court and put more people behind bars for crimes that have been falling through the cracks. Police forces, including the Toronto police department, have also been responding to complaints with new resources to investigate securities frauds.

A centralized fraud agency?

A big part of the problem, critics say, is the disjointed way fraud is investigated in Canada. The RCMP, provincial police forces in Ontario and Quebec, and municipal police forces across the country all investigate fraud. So do the country’s 13 provincial and territorial securities commissions.

With so many agencies and overlapping mandates, it’s no surprise that lower-profile cases slip through the cracks, says Ermanno Pascutto, executive director of the Canadian Foundation for Advancement of Investor Rights (FAIR Canada), a shareholder advocacy organization.

He says victims are often bounced from agency to agency, trying to find someone with the time and expertise to investigate.

“And ultimately no one does anything,” he says.

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