Poor investment decisions, or victims of fraud? Hicks on Biz column originally published in Edmonton Sun, March 2, 2013
You might read this column with skepticism, arms folded, chin tucked, frown lines creasing your forehead.
If you’re an investor, the golden rules of investing were long ago hammered into your brain.
The first three: Don’t lose money, don’t lose money, don’t lose money.
Don’t put all your eggs in one basket. Keep most of your money in boring safe investments. If you can’t afford to lose it, don’t go near the risky stuff. If the investment looks too good to be true, it is too good to be true. Finally, refer to the first three rules.
So why should we care about an estimated 26,000 Albertans who invested in, and then lost, at least $2.1 billion in dozens of intrinsically high-risk, mostly real-estate, investments, sold within the Alberta Securities Commission regulatory umbrella as “exempt” financial products?
Because, says Don Logan of the Alberta Investors Protection group, there’s a world of difference between a poor investment decision and being a victim of fraud.
The Alberta Investors Protection group (AlbertaInvestorsProtection.com) is an ad hoc group of individual investors who have lost a ton of money in Alberta-based real-estate developments that either went sour, or, they say, were swindles from the outset, i.e. fraud.
The out-of-pocket investors, Logan says, are well aware of their own culpability. See investment rules above.
What they want, says Logan, is not necessarily restitution – for most, their money is long gone – but justice.
They want Alberta’s financial regulatory agency, the Alberta Securities Commission (ASC) and the RCMP to prosecute the fraud artists, put them behind bars, send out a message that those who commit “white collar” crime will be punished.
The ASC and the RCMP are reluctant to go after the bad guys. Such investigations are expensive – all lawyers and accountants. A sophisticated fraud can be difficult to prove. “When the red flags started flying,” says Logan, “the ASC told the investors to hire a lawyer. The ASC did not want to take on the problem.”
The RCMP’s Commercial Crimes Division delivered a similar message, says Logan. “They are under-staffed and under-funded. They have too much on their plate as is … tough luck.”
Years ago the ASC decided to make it easier for “dealers” to present investment proposals, and easier for the investing public to purchase such financial products. The “exempt market” relaxed the strict rules that govern such offerings, relaxed the qualifications of their salespeople. Until the exempt market came about, only the most deep-pocketed of companies could go to the public to raise money.
Relaxing the rules had unintended consequences. In financial circles, what emerged became known as “Alberta’s Wild West.”
The “rules” for exempt market dealers have since been tightened. But the cat is out of the bag, the horse has left the stable.
The investments that have gone off the rails are now three or four years old. “At the time Interest rates and market returns were so low,” says Logan. “Nobody was making their expected 10% return. But the Alberta real estate market was still strong. The dealers were offering 10% to 13% returns on investments that appeared secure. We all took a leap of faith and trust. We were wrong.
“When things started to go bad, nobody had answers. Nobody offered support. Nobody was doing anything.”
The Alberta Investors Protection group held its first public meetings this past week, Monday in Calgary, Tuesday in Edmonton. About 350 individuals showed up at the Edmonton gathering. The MC was retired CTV Edmonton news director Bruce Hogle, himself a frustrated investor. Nobody from the ASC was there.
At the heart of the issue is the Crown’s ability to prosecute. Everybody agrees that the RCMP Commercial Crimes division needs to be beefed up across the country. Nobody has the budgets to do so.
I’m not sure how much public sympathy the Alberta Investors Protection group will garner.
Caveat emptor – buyer beware: Real-estate deals (condo developments, that kind of thing, where most of the exempt market “products” were) are inherently risky.
But, as Logan so clearly points out, where there’s fraud, fraudsters should be punished.
Examples of Alberta Exempt Market failed or failing companies, amount lost, and number of investors (as listed on AlbertaInvestorsProtection.com)
CBI Group, $31,000,000, 700 investors
Concrete Equities (court re-structuring in progress), $118,000,000, 3,900 investors
Focused Money, $54,000,000, 550 investors
Foundation Capital/Harvest (court re-structuring in progress), $500,000,000, 6,000 investors
Platinum Equities, $160,000,000, 2,300 investors
780 707 6379