4 Albertans accused of $60M Ponzi scam
Four Albertans are accused of running a $60-million US Ponzi scheme that allegedly fleeced 1,000 investors throughout North America.
The RCMP's Calgary commercial crime unit laid fraud and money-laundering charges Monday against three men and a woman in connection with the operations of HMS Financial Inc. between 2001 and 2004.
Alleged victims invested more than $60 million US with HMS Financial on the promise of returns of eight to 12 per cent, police said.
Investors were allegedly told their investments were risk-free and that Garth Bailey — the company's lawyer, who is among those charged — had millions of dollars in bonds that would be liquidated if the investments failed to pay out.
"Investigators have not been able to identify the existence of any bonds and believe this high-yield investment program was a Ponzi scheme," said RCMP Supt. Eric Mattson.
In order to perpetuate the scheme and entice new investors, HMS Financial allegedly paid 10 per cent per month quarterly to some investors. The payments are believed to have been drawn from funds provided by other HMS clientele, police said.
'They unfortunately buy into the trust of the investment as opposed to buying into the actual investment, and therefore they don't do what would normally be a due diligence.' —RCMP Supt. Eric Mattson
Investigators said the operation collapsed in March 2004 when the company could not meet its payout obligations. The RCMP began investigating at the same time.
About half of the investors are from Alberta, while the other half are in other Canadian provinces and the U.S., said Mattson.
RCMP investigators had to sift through banking records in eight different countries, he added.
"With money laundering, what we're alleging is money was placed in certain accounts, layered in those accounts and then moved again. So in order to hide where the assets were moving, multiple accounts were used in order to throw off people who might know where the money may be," said Mattson.
He said the probe was also time-consuming because of reluctance of some victims to come forward because of feeling betrayed, ashamed or guilty.
Buying into trust of the investment
The scheme relied on people spreading the word to their networks, in what Mattson called an "affinity" fraud.
"It wouldn't actually necessarily be the promoter. It would be [the investors'] friends, their family, their church group and they sell this trust," the RCMP superintendent explained. "So they unfortunately buy into the trust of the investment as opposed to buying into the actual investment, and therefore they don't do what would normally be a due diligence."
Murray Stark, 73, of Three Hills, Robert Fyn, 62, of Linden and Garth Bailey, 57 of Okotoks are charged with fraud over $5,000 and conspiracy to commit fraud. They also face charges — along with Katherine Rorique Bailey, 53 — of laundering the proceeds of crime and conspiracy to launder the proceeds of crime.
The accused are scheduled to appear in Drumheller provincial court April 16.
A Calgary law firm has filed a class action lawsuit on behalf of Alberta investors, as well as any others who opted to join the action.