ESCAPING PUNISHMENT
Most B.C. fraudsters avoid criminal investigation or jail time
Only EIGHT investment fraud cases investigated by police resulted in jail in 10 years.
Only SIX of the more than 80FRAUDSTERS penalized for the worst violations went to jail.
Criminal investigations by the B.C. Securities Commission led to only EIGHT court convictions in the last 10 YEARS.
Nearly 3,500 VICTIMS have lost at least $119 MILLION in fraudulent investment schemes in the past decade.
Beginning in February 2007, Surrey resident Tom Williams masterminded a Ponzi scheme that bilked investors of millions of dollars.
When the scheme collapsed in 2010, Williams and a coterie of “associates” had raised $11.7 million from 123 people, including a nurse, a construction contractor, a 75-year-old retiree and a psychologist.
As in all Ponzi schemes, some of the money had been used to pay back investors, a ruse that hid the fact there was no legitimate business carried out by the Global Wealth group of companies. The companies had purported to be putting investors’ money in “secure” and “guaranteed” investments, in overseas financial institutions such as Banco de Roma, where it would serve as security for further financial transactions. The promotion was little more than financial “bafflegab,” and $6.8 million was lost, according to a judicial panel decision by the B.C. Securities Commission.
When the scope of the scam came to light, victims and those familiar with how Williams operated wanted to know if the RCMP would be investigating.
The startling answer: no. Investors were stunned, but the lack of a police investigation was not unique.
In the past decade, police investigations and criminal prosecution of investment fraud in British Columbia have been rare, an examination by Postmedia has found.
Among the cases that have resulted in significant prosecution were a six-year jail sentence in 2016 for notary Rashida Samji for carrying out a Ponzi scheme where investors lost about $11 million and a nine-year sentence for fraudster Ian Thow in 2010 for taking $6 million from his clients in investments that did not exist.
But as few as six other police investigated cases have landed fraudsters in jail in the past decade, according to a review of court records and news files. Even when fraudsters have been singled out by the B.C. Securities Commission as having carried out the most egregious violations of the Securities Act, jail sentences are unlikely.
Among more than 80 fraudsters handed administrative penalties of more than $100,000 or permanently banned from B.C.’s capital markets in the past decade by the securities regulator, only half a dozen have served jail time in British Columbia, according to an analysis of securities commission and court records.
Another three have served jail time outside of B.C.: two in the United States and one in South Korea.
Kelowna resident Paula Cryderman, a retired teacher who lost hundreds of thousands of dollars in Williams’s Ponzi scheme, wanted the police to investigate.
RCMP told her Williams was not a big enough fish to go after.
“As far as I am concerned — white collar crime — you can get away with a whole load of s--- in this country and you will never, ever, ever pay for your crime,” said Cryderman.
Surrey resident Simon Cumming invested and lost $10,000 in an earlier investment scheme by Williams.
When Cumming, who lives in the same neighbourhood as Williams, found out about the larger Ponzi scheme, he contacted the RCMP’s commercial crimes division to encourage them to launch an investigation.
After repeatedly trying to get the RCMP interested, Cumming was told in a May 2017 email from Surrey-based RCMP Staff Sgt. Rick Koop that while there would be “some satisfaction” in seeing Williams receive a criminal conviction, it would take significant police and court resources and would not return investors’ money.
“The RCMP’s limited resources are needed to target other individuals where the crime continues to go on,” Cumming was told by Koop, a member of the RCMP’s Financial Integrity Section of the Federal Serious and Organized Crime Division.
Koop added it would not be in the public’s interest to go after Williams with a criminal prosecution when the securities commission had already issued penalties, which totalled $21.8 million, and had banned the fraudster from B.C.’s capital markets.
Williams, however, has paid none of his penalties, among more than $500 million in unpaid penalties issued by the securities commission in the past decade, as reported by Postmedia last week.
The case is an example where a fraudster has not paid his administrative penalties — following a hearing by a B.C. Securities Commission panel — and also does not face jail time.
“Why is it not a big enough case? People have lost their life savings,” Cumming said in a recent interview.
Williams has declined to talk to Postmedia about his penalties.
Koop declined an interview, referring the request to the RCMP’s media office.
After repeated requests for an interview beginning last week — via email and by phone — B.C. media officer Staff Sgt. Annie Linteau said in an email the RCMP could not accommodate Postmedia’s request as “our subject matter expert is away.”
HAPHAZARD APPROACH TO CRIMINAL PROSECUTION
Among the most egregious cases that have been excluded from police attention is that of West Vancouver resident Virginia Tan, who perpetrated a Ponzi scheme of at least $40 million, involving as many as 177 people.
Tan admitted to the Ponzi scheme in a settlement agreement with the B.C. Securities Commission in April 2017 and was ordered to pay a $3 million penalty. The penalty has not peen paid. Among those who lost money in Tan’s scheme were four priests who had invested their retirement savings and a couple who had to sell their home, according to court records.
A widow lost her entire life savings and had to move in with relatives, according to information obtained by Postmedia.
In response to questions from Postmedia, neither the RCMP nor the Vancouver Police Department would say whether they would investigate the scam.
“If she walked into a bank and stole the money, wouldn’t she be prosecuted?” asked one Vancouver investor who lost hundreds of thousands of dollars to Tan.
Both the Williams and Tan cases — in both the number of victims and amount of money lost — surpass cases where police have investigated, underscoring the seemingly haphazard approach to criminal prosecution of investment fraud.
Following an RCMP investigation, real estate developer Michael Jerome Knight received a one-year jail sentence in 2016 for defrauding dozens of investors of $3.6 million in a condo-development scheme — about half the money involved in the Williams case.
After another RCMP investigation, Malcolm Cameron Boyd Stevenson was sentenced in 2011 to five months in jail for bilking 89 investors of more than $10 million in a Ponzi scheme that was of similar magnitude to the Williams case but smaller than the Tan case.
In April 2017, the Victoria Police department arrested former Olympic rower Harold Backer when he returned after disappearing for 18 months. He had fled to the U.S. after he told investors he had lost their money.
He’s been charged on two criminal code counts of fraud over $5,000 and awaits trial.
According to records from a disciplinary hearing of the Mutual Fund Dealers Association of Canada, Backer allegedly failed to pay about $1.23 million to at least eight people, a much smaller alleged fraud than the Williams and Tan cases.
LITTLE SUPPORT FROM POLITICIANS, POLICE
Nearly 15 years ago, the federal government established Integrated Market Enforcement Teams (IMET), including one in B.C., to tackle investment fraud.
The idea was to get police officers who had business backgrounds to put a high priority on investigating financial crimes.
According to Treasury Board of Canada figures, more than $300 million was spent on the effort between the fiscal years 2003-04 to 2015-16, but IMET has been criticized, including in a 2014 Public Safety of Canada report, for delivering few prosecutions.
Retired RCMP senior officer John Sliter, the founding head of IMET, told Postmedia that whitecollar crime traditionally takes a back seat to every other crime.
There’s little chance investment fraud will be investigated, even less chance of it being prosecuted and a great reluctance to send fraudsters to jail, Sliter said.
That’s because tackling investment fraud takes patience and significant resources, including compiling and working through mountains of paperwork, which gets little support from politicians and police brass, he said.
The bosses would rather see investigators take on a drug case, that can be wrapped up more quickly than a complex fraud case, he said.
“That means it’s a free-for-all (for fraudsters), unfortunately,” Sliter said.
Security commissions try to fill this gap with fines and orders to pay back the proceeds of fraudulent activities, but those penalties go unpaid, observed Sliter.
“Addressing criminal behaviour with regulation just doesn’t work,” he said.
The B.C. Securities Commission has had its own criminal investigation team since about 2007, staffed with about four officers a year that have some of the same powers as police.
In 2012, the commission announced eight arrests.
Five years went by before another six arrests were announced, some of those for relatively simple cases of breaching existing prohibitions.
These cases are lower hanging fruit involving fewer victims and smaller amounts of money than those the commission has pursued with large monetary penalties following its own panel hearings.
The eight court convictions resulting from investigations undertaken solely by the commission’s criminal investigations, and five recent arrests, have involved less than 100 victims and less than $10 million in fraudulent activities, an analysis of securities commission and court records show.
For example, after an arrest in 2012, Robert Castano received a 27-month sentence.
The Castano fraud was small compared to the Williams and Tan cases: seven investors were duped of $1.5 million. Most commissioninvestigated prosecutions saw sentences of 50 days to six months or conditional sentences, where no time is served in jail.
After a 2012 arrest, Kelly Fielder received a conditional sentence of two years, 50 hours of community service and an order to pay $144,000 restitution.
The case involved only one investor.
These smaller cases the commission’s criminal investigation team has taken on are dwarfed by nearly 3,500 victims who have lost at least $119 million in fraudulent schemes in the past decade, according to Postmedia’s analysis. These are administrative law cases where the commission issued fines of $100,000 or greater to fraudsters or permanently banned them from B.C.’s capital markets, yet there has been no jail time.
A former police officer, who did not want to be named, lost $10,000 in a scheme that fraudulently raised $21.7 million from nearly 700 investors. He is chagrined that one of its perpetrators, Michael Lathigee, has not paid his penalty and has moved to Las Vegas and started an investment club there. “Why isn’t he in jail?” wondered the former cop.
Doug Muir, the director of enforcement for the B.C. Securities Commission, defended the commission’s record. “It’s important to understand an administrative case and a criminal case can be very, very different,” he said.
The decision to pursue a criminal investigation rather than an administrative penalty is made based on a variety of factors, including what kind of evidence can be collected, he said.
For example, said Muir, you cannot force an accused to give evidence in a criminal investigation and can only seize evidence with warrants obtained from the courts. In an administrative case, an accused can be compelled to give evidence.
Muir noted there also has to be consideration of the different standards of proof that must be met: beyond a reasonable doubt in court proceedings versus a balance of probabilities in securities commission panel judicial hearings.
The B.C. Securities Commission would not provide a figure of how much of its $46.6 million operating budget is spent on its criminal investigation team and declined to name its members other than team manager James Coates, a lawyer.
B.C.-LINKED FRAUDSTERS GET STIFF U.S. JAIL TIME
Fraudsters who have worked beyond B.C.’s borders, and get caught in other jurisdictions, are likely to receive stiffer sentences.
For example, Doris Nelson, who operated a Ponzi scheme in B.C. and in Washington State, and duped at least 121 investors in B.C. of $19 million, received a nine-year sentence in 2014 from a Spokane U.S. District Court judge.
Sung Wan (Sean) Kim, who took $15.7 million from 35 B.C. investors and one Korean investor, is serving a 10-year jail sentence in South Korea.
David Brian Anderson, who duped 352 investors, including 57 in B.C., out of $14.7 million in a Ponzi scheme, received a 7½-year sentence in the U.S. after an FBI investigation.
Simon Fraser University criminologist Neil Boyd said B.C. should take note of the U.S. approach.
A decade ago, Boyd was commissioned by the B.C. Securities Commission to produce a study on the effects on victims of a major Ponzi scheme in the 1990s.
Thousands of investors lost about $200 million in the Eron Mortgage scheme.
Boyd said the far-reaching effects on investors was “really quite shocking,” not only on their financial security but their emotional well-being and their health, and included the breakup of marriages.
He noted that these consequences can be farther reaching than those of violent, criminal activity, which generally receives much more substantial penalties, a point stressed in the study.
“I feel from having studied it in some detail and recognizing the harm that is done by something like a major fraud, I do think we should put more resources into (prosecuting investment fraud),” he said.
It’s important to understand an administrative case and a criminal case can be very, very different (including different standards of proof.)