Financial fraudster to give up condo in Hawaii

Deal with B.C. Securities Commission

Money from the future sale of disgraced investor David Michael Michaels’ Hawaiian condo will go toward paying back victims of his fraud.

Michaels used to operate in Greater Victoria. Several of his victims, many of whom are seniors, live in the region.

The Third Circuit Court of the State of Hawaii granted the order to sell the condominium on the Big Island of Hawaii on Thursday.

Net proceeds of the sale will go to the B.C. Securities Commission, which in 2014 fined Michaels $23.3 million. None has been paid, an agency spokesman said.

In 2014, Michaels was also banned for life from participating in the securities market.

A securities commission panel determined at that time that Michaels had 484 victims, whose losses could surpass $40 million.

One panel member described Michaels’ business as “highly predatory,” targeting seniors.

Michaels denied that he advised clients as far as investing or buying securities and described his business as simply a sales operation.

The securities commission panel disagreed. “In fact, what Michaels was running was not a legitimate sales business but a massive fraud,” it said.

“Through dishonesty and misrepresentation, he put his clients’ money at risk. As a result, they have lost millions of dollars.”

Michaels sought clients through a weekly radio infomercial, Creating Wealth with David Michaels.

The panel’s ruling said Michaels “advised his clients to sell their stocks, bonds and mutual funds, and purchase high-risk exempt market securities instead. He also advised his clients to borrow against their homes to purchase these risky investments.”

Doug Muir, securities commission director of enforcement, said from Vancouver that he expects the condo sale’s net proceeds will be about $755,000.

The 1,400-square-foot, two-storey, three-bed, two-bath condo is in Waikoloa on lush grounds adjacent to a golf course and the ocean on the northwest of the Big Island of Hawaii.

According to B.C. Supreme Court records, Michaels paid $875,000 US cash for the condo in 2009. Most of the money for the purchase came from Michaels’ business, Michaels Wealth Management Group.

One Victoria investor who lost $176,000 had said that Michaels used the Hawaiian condo as a “carrot,” allowing investors to stay there as he enticed more people to join his investment scheme.

The condo is assessed at about $1.4 million US, according to Hawaiian property records, but there is a $240,000 US mortgage that must be paid first in any sale, as well as other fees and costs, including to real-estate agents, a receiver and for property taxes.

The securities commission had also launched a separate lawsuit against a 3,700-square-foot house in Mill Bay. That lawsuit has been discontinued now that Michaels promised to pay $50,000 cash to the commission.

Muir said there isn’t much equity in the Mill Bay home, valued at $762,000 by B.C. Assessment in 2018, and said because the property isn’t owned by Michaels himself, it makes legal action and collection more difficult.

The combined proceeds from the condo sale and money from Michaels fall far short of what investors lost and of the amount owed to the securities commission.

Muir said the securities commission will continue its efforts to recoup money from Michaels, but would not be specific about any upcoming actions.

Michaels’ lawyer refused to comment when contacted on Friday.