Few people know how extensive Ponzi schemes really are in Canada, says a Toronto-based expert on the subject. Al Rosen, a long-time author and accountant, has spent much of his life trying to tell them. Through his company, Rosen and Associates Limited, he has called attention to politicians who don't take it seriously, police forces that don't follow up and an accounting system that acts on self-interest.
Few people know how extensive Ponzi schemes really are in Canada, says a Toronto-based expert on the subject.
Al Rosen, a long-time author and accountant, has spent much of his life trying to tell them.
Through his company, Rosen and Associates Limited, he has called attention to politicians who don't take it seriously, police forces that don't follow up and an accounting system that acts on self-interest.
"There is an attitude in the country that white-collar crime is not important," Rosen says.
"I guess it's just something the politicians have decided that the public doesn't care that much about the white-collar crime."
Ponzi schemes are fraudulent investment plans where original investors are paid out using the money from succeeding ones. Such a scheme appears to have been operating in St. Albert recently, costing local businesses and families about $14 million.
People fall for the schemes because they sound too good to be true, says Rosen.
The victims are promised higher-than-usual returns – often 10 to 20 per cent – for investments in everything from fast growing pearls to a new species of pigeons. They don't believe they are cheated out of money until the company goes bankrupt.
Rosen says there are about a hundred Ponzi schemes operating in Canada every year. Rosen and Associates knows about them because people come to them with their stories and pay for an investigation, he says.
But the politicians and Canadian securities regulators don't pay attention and do nothing to fix a lax accounting system that allows these schemes to happen in the first place, he says.
"The public is completely kept in the dark as to how extensive these cases are," he says.
There are some securities regulators in the country, such as provincial securities commissions and the Canadian Public Accountability Board. But the commissions are too weak and often lack the funding and determination to prosecute these cases, he says.
And the Accountability Board is run and financed by accountants who look out for their own interest rather than the public's, he says.
The principles on which the auditor's work is based, the International Financial Reporting Standards, are so loose that even the United States thought them inferior, he says.
"Canada's reaction was to self-regulate," he says.
"So you let people like the investment dealers and auditors regulate themselves and what the auditors have done is that they've set rules that are so loose that anything can go on."
Mark Dickey, spokesperson for the Alberta Securities Commission, says it's difficult to be exact about the number of Ponzi schemes operating in Alberta.
That's because the commission does not specify every breach against the securities act as a Ponzi scheme.
"When we, say, issue a decision on something that breached the act, it might be a Ponzi scheme or not, however the panel has not called it that," he says.
"They might say these people have sold without being registered."
Dickey said the maximum fine for individuals who breached the act could be an administrative penalty of up to $1 million and a lifetime ban from the market.
The commission can also ban companies from trading securities permanently. In some cases, it can bring charges before the provincial court of Alberta, act as an agent of the Crown and seek jail terms.
"We can seek jail terms of up to five years less a day and fine up to $5 million per offence," he says, adding the highest administrative penalty ever imposed on an individual in Alberta was about $3 million.
As soon as the commissions finds out about someone breaching the act it goes after them, he says. It would help if people called them to discuss an investment ahead of time.
Corp. Rob Harkin with the Edmonton RCMP Serious and Organized Crime Section agrees that people need to come forward if they think they were wronged.
At a minimum, he says, it makes police aware of the case and they can keep an eye on it.
The charge for common fraud over $5000 can be imprisonment not exceeding 14 years, he says. For a charge under $5000, the prison term does not exceed two years.
"The court can ask for a restitution from the accused but the accused may not have it or it's overseas or it's trying to get blood out of stone, he's gone bankrupt," he says.
Harkin and Rosen say many people don't come forward after falling for fraud.
The trouble with many of the corporations is that they don't want to admit that they were foolish enough to have lost the money, says Rosen.
Rosen and Associates often hunts around, talking to 10 to 15 people before finding one that agrees to be the plaintiff in a lawsuit, he said.
Even then, the case doesn't go to trial but is often settled with a monetary redistribution. By that time, Rosen said the victims have paid so much for the lawsuit that they end up with 10 to 15 cents on the dollar in return.
And most law firms cannot afford to take on big investment schemes, he added, which can go on for years.
"If you look at the big law firms across the country, they are defence-based firms," he said.
"The plaintiff who would take on actions on behalf of the public are little boutique firms and they don't have tons of money and they won't take on the really enormous cases."
Rosen and Associates has a sister company, Accountability Research Corporation, that offers analyses of different companies to over 1000 clients.
But taking advantage of these services is expensive and Rosen advises individuals can also seek advice from stockbrokers before investing their money.
"Before you do anything ask them what independent outsider research they use before they tell you to buy the stock," he said.
"If the broker you are dealing with is just taking the research out of their own bank then that research is going to be really seriously biased because they are trying to sell their own stock."
