BULLETIN: Alberta Securities Commission Rules Gold Quest International A Ponzi Scheme AND A Pyramid Scheme; Panel Concludes GQI Was A ‘Sham’

UPDATED 7:03 P.M. ET (U.S.A.) The Alberta Securities Commission (ASC) has ruled Gold Quest International (GQI) a Ponzi and a Pyramid scheme.

An ASC panel determined that GQI met the conditions for a Ponzi scheme because it had no viable product and paid earlier investors with money from new investors. It also was a pyramid scheme, ASC ruled, because of a commission structure that rewarded earlier entrants and left later entrants holding the bag.

“The Gold-Quest Offering was a sham investment,” ASC ruled. “On the evidence before us, we are satisfied that, during the relevant period, Gold-Quest itself did not receive income from any currency trading, have an active currency trading program or indeed any actual currency traders in its employ, or place investors’ money with external foreign currency traders.

“Rather,” ASC continued, “Gold-Quest depended on the influx of new investors’ money to make its payments to existing investors.”

In its ruling, ASC cited the SEC’s probe into GQI, and also referenced GQI’s claim that, although it was registered in Panama and operated from Las Vegas, it was immune from U.S. and Canadian law because of supposed ties to a “sovereign” Indian tribe in North Dakota.

“[W]hen securities regulatory authorities had begun investigating Gold-Quest, Gold-Quest claimed that it was subject only to the jurisdiction of the sovereign Little Shell Nation of the Anishinabe Culture . . . purportedly headquartered in North Dakota, and that it was not subject to the jurisdiction of Canada or the United States,” ASC said.

“In a 16 March 2008 e-mail to ‘Gold-Quest Members,’ the ‘Board of Directors’ of Gold-Quest asserted (emphasis added):

Note that while we have or have had offices in Panama and Costa Rica we operate under the legal Authority, venue, and Jurisdiction, of The Little Shell Nation.

But GQI had no authority to operate outside of either U.S. or Canadian law, investigators said. For its part, the SEC said the tribe had no federal recognition.

After regulators in Canada and the United States began to probe GQI, the firm blamed its predicament on the governments of both countries, according to ASC’s findings.

In late 2008, according to ASC’s findings, GQI told members it was under “attack.” (Emphasis added):

The recent attack on Little Shell Gold-Quest International and its members by the Securities Commissions of Canada and the United States has caused a severe breakdown of trust in these governments [sic] promise to protect the rights of private men and women to conduct business without governmental interference.

At the same time, GQI told investors they could get their money back if they paid $40 for a debit card, ASC said. (Emphasis added):

The use of this debit card Pay card through USA Global Trust is the safest way we can devise to return your investments. Let us pray our governments do not interfere any more.

GQI, which claimed it would pay back members for the debit card and also pay them 10 percent on their existing investment after they purchased the debit card,  also instructed investors through its website FAQ that they could retrieve their lost profits from the SEC, according to ASC’s findings. (Emphasis added):

Q: What about the 87½% profit I was supposed to make?
A: All profits up to the May 6th 2008 seizure of Little [sic] Gold-Quest International by the receiver for the SEC will be paid in full. All other profits after that date were assumed by the receiver for the SEC. We will endeavor to work on your behalf concerning that matter in the near future.

“Investor witness GD said that he applied for such a debit card but did not pay the administrative sign-up fee and received no response to his application,” ASC said.

Another witness — “SB” — believed that  “none of the investors she brought into the Gold-Quest Offering received a refund of, or a return on, their investments,” ASC said.

GQI, which promised an 87.5 percent annual return, misled investors, ASC ruled.

“The statements that investors would receive an 87.5% annual return were misleading and untrue,” ASC ruled. “The evidence does not disclose that Gold-Quest had produced any trading profits which could generate the promised return. Specifically, on the evidence, we are satisfied that, during the relevant period, Gold-Quest itself did not open any foreign currency trading account, receive income from any currency trading, have an active currency trading program or any actual currency traders in its employ, or place investors’ money with external foreign currency traders.

“Further,” ASC continued, “the evidence is that any foreign currency trading had been done through foreign currency trading accounts opened in the names of [David] Greene and [John] Jenkins, had been minimal and had resulted in heavy losses. The evidence does not disclose that this foreign currency trading was done for the benefit of Gold-Quest or its investors. Thus, there was simply no possibility that Gold-Quest could pay the promised return to its investors.”

Both Jenkins and Green — also known as “Lord David Green” — were named in complaints in the United States and Canada. Other named GQI figures included Michael McGee and Delroy Atwood.

“The evidence shows that millions of dollars of Gold-Quest investors’ money, in total, were transferred to Greene’s, Jenkins’ and McGee’s personal and trading accounts,” ASC ruled. “This money was apparently used to pay for their personal expenses, including purchases at stores, hotels, restaurants, golf clubs and an automobile dealership.

“It seems that a few investors — those who invested in the early days of the Gold-Quest Offering — received all the payments they expected, but that beginning in February 2008 Gold-Quest began to experience difficulties in making payments to its investors,” ASC ruled.

“Some investors received their monthly commissions for a time until these payments ceased in early 2008,” ASC said. “Many, if not most, investors received nothing back in principal or interest. In sum, Gold-Quest failed to make the payments promised to its investors, other than from other investors’ money.”

GQI was doubly bogus, meeting the conditions of both a Ponzi scheme and a pyramid scheme. ASC ruled.

“The Gold-Quest Offering, which extracted more than US$2 million from approximately 412 Alberta investors (approximately US$29 million from approximately 2940 investors in total), was a sham investment scheme,” ASC ruled. “The Gold-Quest Offering was both a classic Ponzi scheme and a classic pyramid scheme which denied Gold-Quest investors the very protections mandated by the fundamental registration and prospectus requirements of the Act.”

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