A provincial regulator has found four B.C. residents operated a "deliberate and well-organized" fraud that caused investors to lose over US$10 million in two years.
Lang Evans of the B.C. Securities Commission said the so-called Ponzi scheme defrauded more than 800 investors, mostly British Columbians.
"People contributed a few hundreds dollars to tens of thousands of dollars," he said. "It's a widespread and staggering operation."
The Commission found the scheme began in 2005 as an investment club, starting with a handful of investors and working its way up to hundreds. Investors deposited more than US$16 million before it collapsed in June 2007. Investors received "as little as US$3 million and no more than US$5.6 million."
Evans said the fraud, which operated similar to a pyramid scheme, was hard to trace.
"It was very difficult because they told investors it was a good deal and to keep it confidential," he said. "I do believe it could have been cut off earlier but people were reluctant to come forward."
Misrepresentation
The commission ruled Hal Allan McLeod, David John Vaughan, Kenneth Robert McMordie and Dianne Sharon Rosiek violated B.C. securities laws when they traded without being registered.
Evans said the foursome misrepresented themselves to investors about how their money would be invested, and what returns they should expect.
"This deal in particular had lots of red flags. They promised five to seven per cent returns compounded every month, it was offshore and they made investors swear to secrecy," Evans told ctvbc.ca.
"The people at the very top were pulling the strings. The four at the top created the scheme, orchestrated it and they benefited the most financially."
The frauds were made through four registered companies, Manna Trading Corp Ltd., Manna Humanitarian Foundation, Legacy Capital Inc. and Legacy Trust Inc.
Investors were lured into loaning Manna money and told it would be "placed with experienced traders who had a long history of producing double-digit monthly returns through foreign currency trading."
What happened to the money
In a judgment posted on its website, the B.C. Securities Commission panel concluded: "The reality is that Manna was a Ponzi scheme. Manna fraudulently used the investments of later investors to fund the promised returns to earlier investors, to pay commissions to the affiliates and consultants, to invest in an online gaming business, and to buy real estate in Costa Rica."
"McLeod, Vaughan, Fox and Rosiek fraudulently used investors' funds to enrich themselves."
Evans says what makes this operation so tragic is that investors were offered a commission to bring in new clients, which meant it wasn't just people's finances that were destroyed.
"Two people introduced a third, and they were good friends. And now they're not talking," he said.
"There is severe financial damage, some that many will never recover from, but there is also damage to trust and friendship and families."
Despite the widespread losses, the commission is confident they prevented it from ballooning further.
"We helped stop it in its stream," he said. "What the intervention did is capped the size of it and stopped it from getting bigger."
The B.C. Securities Commission will now go before the panel and make submissions on penalties. A final decision is expected in October.
Evans hopes the foursome will be given the maximum penalty, a lifetime ban on trading in B.C.
"These schemes are insidious. They inflict all kinds of harm onto people who choose to trust them. They destroy lives."
