British Columbia regulators have imposed fines and repayment orders totalling $42-million against four people accused of running an aggressive and sophisticated Ponzi scheme, but a provincial securities official said most of the accused have disappeared and it appears little of the money is likely to be repaid.
A British Columbia Securities Commission hearing panel yesterday said the $16-million "Manna scheme" targeted 800 seniors and unsophisticated investors, some of whom mortgaged their houses and invested their retirement funds, only to lose most or all of the money.
The panel found Hal (Mick) McLeod, David Vaughan, Kenneth McMordie (also known as Byrun Fox) and Dianne Rosiek fraudulently sold securities to investors through Manna Trading Corp. Ltd. and related companies.
The panel imposed fines of $8-million against Mr. McLeod and ordered the other three to pay fines of $6-million each. In addition, the panel ordered the four accused and their related companies to repay the $16-million obtained from investors.
Investors were lured with promises their money would be invested in low-risk and secure products by experienced foreign currency traders, the BCSC said. Manna claimed its investments typically earned profits of not less than 240 per cent per year, and that investors historically had earned returns of 125 per cent annually. Investors were offered extra commissions if they helped to recruit others.
Many investors later told the BCSC that one of the most compelling parts of the pitch was a promise that some of the profits would go to charity to support humanitarian causes.
But Manna did not invest any of the funds in foreign currency or anywhere else, the hearing panel said. There were no trading profits, no investors received the promised returns and there is no evidence any money went to charity.
"The reality is that Manna was a Ponzi scheme," the hearing panel said in its ruling. "This was a deliberate and well-organized fraud that resulted in the loss of at least $10.4-million (U.S.) and probably closer to $13-million."
Lang Evans, enforcement director at the BCSC, said yesterday the panel's ruling sends a strong message that the BCSC will not treat such schemes lightly. "It was a blatant fraud, and I think the commission has reacted in the clearest terms possible," he said in an interview.
However, Mr. Evans said it will be difficult to collect on the penalties imposed against the four accused. He said Mr. McLeod, Mr. Vaughan and Mr. McMordie did not participate in the hearings and have "fled the jurisdiction." The BCSC does not know where they are. Mr. Evans said Ms. Rosiek has reported having no assets.
"If these people are poor, this will keep them poor," Mr. Evans said. "But we're not hopeful that we're going to recover anything in fines."
The RCMP has launched a criminal investigation in the case, but no charges have been laid yet, he said.
For two of the accused, the Manna case is not their first brush with scandal.
The BCSC hearing panel noted Mr. McLeod was president of First Capital Trading & Financing Corp., which was forced to cease operation as a deposit business in 2003 after the British Columbia Superintendent of Financial Institutions found the company and two related entities had engaged in deceptive and misleading practices.
Mr. Vaughan was disciplined by the BCSC in 1999 for engaging in an illegal securities distribution that had many features in common with the Manna scheme.
Mr. Evans said the case demonstrates the need for further investor education because the scheme had many of the classic "red flags" of a fraud, including promises of extraordinary returns at low risk, movement of funds to offshore locations and a requirement that investors keep the investments a secret.
Secrecy was so paramount that Manna investors were required to sign confidentiality agreements that kept them from even seeking professional advice about the investments.