Duped investors to recover $3.5 million from ad fraudsters

Frozen assets will also be used to pay back creditors, including the CRA

About US$3.5 million will be returned to 451 investors duped in a Ponzi scheme run by a pair of Burnaby financial fraudsters following a B.C. Supreme Court order.

The money comes from about US$10 million frozen in bank accounts during a B.C. Securities Commission investigation into a fraud in which investors bought online advertising that turned out be a false business.

In 2014, the two fraudsters — Yan (Rachel) Zhu and Guan Qiang Zhang — were found by a tribunal to have violated BCSC laws. In their ruling, the tribunal said: “Their activities were at the most serious end of the range of misconduct under the (Securities) Act, caused serious harm to investors and damaged the integrity of our capital markets.”

In 2015, the pair was banned from B.C.’s capital markets and, along with their company Bossteam E-Commerce Inc., was issued penalties totalling US$42 million.

The pair has not paid those penalties.

Receiver Grant Thornton Ltd. was appointed to oversee the call to investors to apply for return of their funds and a plan to disburse the money.

“This is a major success for investors,” BCSC spokeswoman Alison Walker said in a written response.

“The court also granted the BCSC’s application to pay claims filed after the deadline and to pay interest to investors at five per cent. Interest was not originally contemplated by the court.”

However, applications from nearly 600 investors for millions of dollars were rejected.

Investors had to appeal in order to contest their rejected applications. Only three have done so.

Walker said the receiver followed a process that vetted the investor applications and pointed to the receiver’s report as to why claims were rejected. Those reasons include lack of supporting documentation, according to the receiver’s report.

Grant Thornton noted some money was invested in bulk deposits with multiple investors. There were sometimes no record to show the identity of individual investors and the company, and Zhu and Zhang did not provide reliable records of amounts received or returned to individual investors, according to the report.

“It is not clear that the people whose claims were denied were investors,” noted Walker.

The process was fair to investors, she said.

Asked if the BCSC offered assistance to investors to complete applications, Walker said the BCSC published two press releases about the receivership process, encouraging investors to submit their claims to the receiver before the deadline. The BCSC also worked with the receiver to develop an online claims process, as well as details on how to make a claim that were provided in two languages, she said.

In court documents, Jimmy Li, an investor making an appeal of the rejection of his US$67,017.07 claim, said he was not a sophisticated investor and did not keep a record of the complicated system of digital cash deposits. Li’s rejected claim included a list of multiple handwritten receipts outlining various purchases and dates, as well as emails he used to access accounts.

Li’s lawyer Robert Vangenne said he could not discuss the case in detail. He said, however: “We’re still pushing forward with the claim.”

The value of the claims in the three appeals is about US$200,000. The value of 75 late claims totals about US$1.9 million.

Another US$1.6 million will be paid to creditors: the Canada Revenue Agency and law firm Miller Thomson, which represented Zhu.

The receiver stands to be paid about US$750,000, bringing the total potential payout to about US$8 million.

That would leave about US$2 million remaining. A small portion of the funds available to investors came from $123,000 in proceeds of the sale of land owned by Zhu.

Walker said any amounts left after the investors have been paid will be directed to creditors, of which the BCSC is also one.

Walker said the BCSC will continue to pursue collection of the millions in penalties issued to Zhu and Zhang, but would not provide details on how that will be done.

Zhang was deported to China from Canada on April 5, 2012, according to court documents. BCSC said Zhu returned to China in March 2012.