Fraudster to sell Hawaiian condo to pay victims
Partial settlement Island man made with regulator will go to bilked investors
Vancouver Island financial fraudster David Michael Michaels is giving up a luxurious Hawaiian condo in a partial settlement agreement with the B.C. Securities Commission.
The condo will be sold — a Hawaiian court order has approved the sale — and the proceeds turned over to the BCSC, which will distribute the money to victims of Michaels’ fraud. A BCSC tribunal determined in 2014 that Michaels had illegally and fraudulently advised 484 clients to buy $65 million in securities from 2007 to 2010 that became almost worthless.
A hoped-for net return of about $750,000 from the condo sale amounts to a very small portion of the tens of millions of dollars in losses, but BCSC director of enforcement Doug Muir said it provides some resolution now.
The deal halts lawsuits that the BCSC had launched in Hawaii and B.C. to collect on $23.3 million in penalties against the condo and a family home in Mill Bay on Vancouver Island. In consideration of dropping the suit against the Mill Bay home, Michaels will make a cash payment of $50,000 to the BCSC that will also be turned over to the investors.
“It gives us a chance to give some money back to investors earlier rather than having to go through the whole (legal) process,” said Muir. “You have to keep in mind that many of the victims in Mr. Michaels’ misconduct were elderly.”
The average age of the investors was 72.
As part of an investigation, The Vancouver Sun highlighted in a story last year how Michaels was trying to avoid paying his penalties, including at one point transferring the Hawaiian property into his wife Joanne’s name only. Later, it was returned to both their names.
According to B.C. Supreme Court records, the Michaels paid cash — US$875,000 in 2009 — for the condo. 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 1,400-square-foot, twostorey, three-bedroom, two-bathroom condo is at the tip of the island of Hawaii, on lush grounds adjacent to a golf course and the ocean.
The 3,700-square-foot house in Mill Bay is in a quiet community about 40 kilometres north of Victoria by road and near the ocean.
The condo is assessed at about US$1.4 million, according to Hawaiian property records, but there is a US$240,000 mortgage that must be paid first in any sale, as well as other fees and costs, including to realtors, a receiver and for property taxes.
Muir noted 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 BCSC said the settlement doesn’t affect its ability to collect on the $23.3 million in penalties. The BCSC wouldn’t reveal what, if any, strategy it has to collect the penalties.
Michaels is among more than 80 fraudsters who have harmed thousands of investors in the past decade — in B.C., other parts of Canada, the U.S. and as far away as Switzerland — yet have escaped paying more than half-a-billion dollars in penalties issued by the securities commission, according to a Sun probe published in 2017.
Between the 2007-08 and 201617 fiscal years, the commission collected less than two per cent of the $510 million it levied in fines and in orders to pay back the proceeds of fraudulent activities, according to commission records.