Litigation Brief

Alberta Securities Commission imposes highest-ever penalty

The Alberta Securities Commission has assessed $4 million in penalties against David Greene and John Jenkins, two insiders of Nevada-based Gold-Quest International Corp. (“Gold-Quest”). The penalty, reported as Gold-Quest International Corp., Re, 2010 ABASC 278, is the highest ever imposed by the Alberta Securities Commission.

Between 2006 and 2008, Gold-Quest raised US$29 million from investors, using both a Ponzi scheme and pyramid scheme, promising investors annual returns of 87%. It also illegally traded in and distributed its shares in Alberta in contravention of the Albert Securities Act, R.S.A. 2000, c. S-4.

The Alberta Securities Commission found that Greene was the guiding mind of Gold-Quest and Jenkins played a significant role in administering the scam and luring in investors. Millions of dollars from investors in Gold-Quest was transferred to Greene’s and Jenkins’s personal accounts to pay for personal items including cars, golf clubs, hotels and restaurants.

As a result of the central roles played by Greene and Jenkins and the egregious nature of their misconduct, the harm done to Alberta investors and to the integrity of the capital markets in Alberta, a penalty of $2 million each was assessed against Greene and Jenkins. Greene, Jenkins and Gold-Quest are also the subject of several SEC enforcement actions with respect to investments by American investors.

To read the full penalty decision of the Alberta Securities Commission, click here.

To read Hakemi & Company's summary of the first part of the hearing, click here.

Receiver appointed in Canada's largest Ponzi scheme case

An Alberta court has appointed a receiver over Gary Sorenson's companies to ensure the remaining assets are not wasted or liquidated. Mr. Sorenson was charged last year, with Milowe Brost, for his involvement in an alleged $500 million Ponzi scheme that allegedly bilked more than 3,000 investors in Canada. The alleged Ponzi scheme is the largest in Canada. In 2007, the Alberta Securities Commission fined Mr. Brost $650,000 for various violations of the Alberta Securities Act and cease traded his company, Capital Alternatives Inc. 

Alberta Securities Commission finds offering was both a classic Ponzi and pyramid scheme

The Alberta Securities Commission (the "ASC") has concluded that Gold-Quest International Corporation had violated the Alberta Securities Act, R.S.A. 2000, c. S-4 (the "Act") by illegally trading and distributing securities, and by making misleading and untrue statements about Gold-Quest, all contrary to the public interest.  In a decision indexed as Gold-Quest International Corp., Re, 2010 ABASC 18, the ASC held that the Gold-Quest offering was both a classic Ponzi scheme and a classic pyramid scheme, where no legitimate trading took place and investors were paid “returns” using money taken from subsequent investors.

The ASC received substantial evidence and concluded that the Gold-Quest offering was indeed a sham investment, and that Gold-Quest had raised more than US$2 million from 412 Alberta residents.  The issues presented were (1) whether Gold-Quest was offering “securities” under the Act, (2) whether they were “traded” and “distributed” in violation of the Act, (3) whether the conduct was contrary to the public interest, and (4) did the respondents make statements that they knew or reasonably ought to have known were misleading or untrue in violation of the Act.  The ASC found against the respondents on all four counts, leaving a decision with respect to sanctions and costs for a subsequent hearing.

To read the full ASC decision, click here.

BC Securities Commission imposes sanctions for a US$16 million fraud

In August 2009, the British Columbia Securities Commission (the "BCSC") found that Manna Trading Corp Ltd., related entities, and the individual Respondents behind them, had committed multiple contraventions of the Securities Act by, among other things, lying to investors about how their money would be invested, the returns offered, and the risk associated with the investment scheme.  The Respondents raised US$16 million from 800 investors in BC and elsewhere, of which between US$10 million and US$13 million was lost. On October 22, 2009, in decision reported as 2009 BCSECCOM 595, the BCSC imposed sanctions.