The Supreme Court of British Columbia has ruled that investors who received more than they invested in a Ponzi scheme must return their excess gains. The court granted a trustee’s request to void payments made to so-called net winners, investors who withdrew more than their original stake before the scheme collapsed.
The scheme, which operated from 2008 to 2020, promised investors high returns on real estate investments backed by promissory notes offering interest as high as 18 percent. However, no such investments existed, and money from new investors was used to pay earlier ones and cover the operator’s living costs.
Ponzi Scheme Details
Over roughly 12 years, the scheme’s operator issued about 2,508 promissory notes across 518 transactions, moving just over $174 million through 11 financial institutions. When the scheme collapsed, 84 investors had lost more than $8.3 million in principal, with many reporting that the money was their life savings or retirement.
The operator was declared bankrupt on June 1, 2020, and Campbell Saunders Ltd. was appointed trustee. Investors filed claims totaling almost $26 million, but the trustee recovered only about $528,000 from the operator’s assets.
Legal Consequences
Edmonton police had charged the operator and his common-law partner with fraud and laundering proceeds of crime. However, the operator drowned in the Okanagan River in June 2024, and the charges were stayed.
Unable to recover much from the estate, the trustee turned to the investors who came out ahead, asking the court to declare the excess payments void as fraudulent conveyances, unjust enrichment, and money had and received. Justice Fitzpatrick agreed, finding those payments void and repayable to the estate.
None of the net winners disputed that a Ponzi scheme had operated, and the court noted there was no suggestion they knew about the fraud or took part in it. That did not shield their profits, as the judge ordered a summary clawback process to settle the amounts owed.
Settling Claims
The trustee has already settled with 28 net winners for about $1.44 million. Twelve remain, with roughly $2.5 million still sought. Claims against them range from about $42,000 to more than $789,000.
For advisors, the case serves as a reminder that returns which look too steady to be real can carry a hidden liability. Investors who take money out of a fraud, even in good faith, can be ordered to give it back long after the operator is gone. This highlights the importance of due diligence and caution when dealing with investments that seem too good to be true, such as those involving company buyout issues.
In the context of investment schemes, the consequences of a Ponzi scheme can be far-reaching and affect not only those who lose money but also those who inadvertently profit from it. The British Columbia court’s ruling sets a precedent for how such cases can be handled, emphasizing the need for investors to be aware of the potential risks and consequences of their investments.
The case is a significant development in the ongoing efforts to address and prevent Ponzi schemes, and its impact will likely be felt by investors and advisors alike. As the trustee continues to settle claims with net winners, the total amount recovered is expected to grow, providing some relief to those who lost money in the scheme.
It is a complex issue.
Investors must remain vigilant and perform thorough research before investing in any scheme, including those that promise high returns with minimal risk, to avoid falling victim to similar scams, and they may find strategies to successfully pass selection processes helpful in their own investment decisions.
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