Two men conducted an offering fraud tied to a purported “bridge lending” business and wiped out investors in a $52 million Ponzi scheme, the Alberta Securities Commission said yesterday.
Some of the allegations against Dale Joseph Edgar St. Jean and Gregory Dennis Tindall were remarkably similar to allegations in the United States against the Profitable Sunrise “program,” which also had a purported bridge-loan business. While the Profitable Sunrise “Long Haul” plan promised 2.7 percent a day and purportedly was operated by “Roman Novak,” St. Jean and Tindall promised far less: between 15 percent and 22 percent a year.
St. Jean and Tindall were at the helm of entities known as TransCap Corporation and Strata-Trade Corporation, the ASC said. The agency was among the first to issue a warning against Profitable Sunrise earlier this year.
“The ASC panel found that payments to TransCap and Strata-Trade investors were funded from their own and their fellow investors’ money, ‘by definition, an unsustainable ‘Ponzi’ scheme,’” ASC said in a statement. “Investors (Albertans among them) having been lured by deceptive or false information into investing in a Ponzi scheme, their pecuniary interests were placed at serious risk. Indeed, there appears to be no money remaining to pay them any interest owing or repay their principal investments.”
Another similarity between the St. Jean and Tindall capers and Profitable Sunrise is that investors appear to have dealt mostly with pitchmen regurgitating the company line, not the operators. (Garbage In, Garbage Out (GIGO) recited by commission-based pitchmen is an element in many Ponzi schemes, including AdSurfDaily in 2008. It’s often the case that the pitchmen aren’t financial professionals and are not licensed to offer securities.)
It remains unclear whether “Roman Novak,” the purported operator of Profitable Sunrise, actually exists.
With respect to the St. Jean/Tindall caper, Tindall’s “current whereabouts are unknown,” ASC said in its decision.
Both men were charged by the SEC in a 2010 case that alleged they were managing members of a $34 million offering fraud based in Florida that led to the collapse of two hedge funds known as Arcanum Equity Fund LLC and Vestium Equity Fund LLC and subsequent bankruptcy filings.
Bridge-loan scams are not rare — and may feature an offer that sounds plausible on the surface: a company solicits loans from one subset of customers at a lower interest rate to lend out to another subset at a higher interest rate, purportedly profiting from the spread. The “business” brings both securities laws and lending laws into play. (See the California Desist and Refrain Order against Profitable Sunrise.)
In the HYIP sphere, the “model” quickly can become absurd on its face. Profitable Sunrise, for instance, was positioned as an enterprise that paid MLM-style affiliate commissions on three levels while also paying out preposterous sums of compound interest on a daily basis. (The infamous AdSurfDaily Ponzi scheme ($119 million) operated with a similar confluence of payout schemes between 2006 and 2008, although ASD did not purport to be a bridge lender.)
One of the most infamous bridge-lending scams in U.S. history was the Nicholas Cosmo and Agape World Inc. scam, a Ponzi scheme that gathered more than $400 million and put Cosmo in federal prison for 25 years. Some of his pitchmen also were charged criminally.
Some HYIP pitchmen may make boiler-room cold calls to fleece marks. Others may line up their so-called “warm market” as investors, perhaps by sponsoring seminars and webinars and encouraging family members, friends and business and social acquaintances to attend.
Members of one Alberta family alone lost more than $1.6 million to the St. Jean/Tindall scam, ASC said in its decision.
One investor (“TL”) and his wife plowed $1.22 million into the scam after being advised by a pitchman that TCC was “in the business of offering short-term loans at high interest, that St. Jean was its president, and that an investment in TCC was ‘without . . . risk’ – it was ‘supposed to be solid’, and ‘there was no threat of losing principal or interest.’”
Profitable Sunrise, meanwhile, told investors that “investments in the program were insured by a leading investment bank,” the SEC said in bringing fraud charges in April 2013.
Secrecy often is an element of HYIP scams.
“In response to a Staff demand for documents evidencing contracts for securities purchases, ‘forward committing contracts’ and bridge financing contracts, St. Jean responded that TCC was ‘engaged in these business activities through other entities under private and confidential agreements’ and ‘[t]herefore [did] not have any specific documentation respecting any specific trade transaction,’” ASC said in its decision.
