B.C. men defrauded investors of $600K, used money to pay personal debts and bills
Three B.C. men defrauded investors of $600,000 – spending more than half of the money they obtained to finance a bogus battery business to repay personal debts, pay personal bills and make a slew of cash withdrawals.
The BC Securities Commission found that, in 2015, John Sand, Jolyon Charles Christopher Gulston and Karol Achs told two investors that they would be helping to start a business that would manufacture and sell zinc-air fuel cell batteries.
In a decision released Monday, the financial markets regulator said the three men engaged in two separate types of fraudulent conduct that breached the province's Securities Act.
"First, by making statements to the investors which were not true, and second, by using the invested funds for purposes inconsistent with how the funds were intended to be used," the documents say.
LYING TO INVESTORS
The "lies" the men told included telling the investors that they had made significant progress on building and equipping a local manufacturing facility and that there was already substantial demand for the batteries, including a large purchase order from the Namibian government and a similarly substantial order from a company in India.
"In fact, there were no orders for the batteries and little to no progress on the development of the production facility," a summary of the decision notes.
In one instance, the proof provided for the order was "entirely fictitious" and consisted of letters Achs created using Photoshop. The commission found that in particular showed "the extent to which he was willing to intentionally make false claims to investors."
In his interview, Achs was asked if there were ever any orders for batteries.
"He said 'we had lots of opportunities for orders, but nothing was coming to finish,"" according to the BCSC.
About a year after the investment, the funders became "increasingly concerned about a number of things" demanded their money back, the BCSC notes.
While a series of cheques were written totalling $600,000 not all of them cleared and the majority were "dishonoured," the commission found. The investors have been repaid a total of $200,000.
WHERE DID THE MONEY GO?
The BCSC investigation found that some of the money was initially used to make payments to alternative energy companies.
"It is not alleged that these initial payments to related companies were inherently improper because it is possible that the related companies might have assisted in the development of the production facility," the documents say.
The investment was paid in two installments, the first was $20,000 and the next was $580,000.
"The bank accounts of the businesses related to the battery business were essentially empty when the investment funds were received. The executive director submits that the first $20,000 of the invested funds was used for the intended purpose. But as soon as the remaining $580,000 of the invested funds were deposited into the bank accounts, improper payments began to flow, and that continued until the funds were nearly depleted," the BCSC decision reads.
"It is not clear exactly how much of the $600,000 invested by Investor P and Investor K was improperly diverted … The executive director alleged that it was $429,625.05. It is possible, for example that some of the investment funds withdrawn as cash was spent for proper purposes."
However, even if that were the case, the commission found that more than $360,000 was "fraudulently spent." These expenditures included $120,000 paid to Sands' girlfriend for what he described as a loan repayment. Achs paid $63,485 to a relative, which was also explained as paying a debt.
All in all there were $107,772.25 in cash withdrawals.
When interviewed about what this money was spent on the commission described all three men's answers as "vague."
More than $62,000 was spent on a combination of credit card bills, cell phone bills, and "personal expenses" like cable, groceries and car repairs. The BCSC also found $620 in restaurant charges.
None of the men attended the hearing in January of 2022. A decision on sanctions will be made at a later date.
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