From the Regulators

Wellspring Capital, Springpay Systems admit to fraud

By James Langton |

Victims of a British Columbia Ponzi scheme have finally recovered the funds they lost in 2003.

BC’s Civil Forfeiture Office and the B.C. Securities Commission said Thursday that they have recovered $190,121, the full amount that 37 B.C. residents lost to a fraud perpetrated by two B.C.-based companies, Wellspring Capital Group and Springpay Systems. The amounts reimbursed ranged from $250 to $50,120. The average claim was just over $5,100.

Acting on a tip from authorities in the United States, where similar scams were discovered, the BCSC froze about $440,000 in Canadian investors’ funds it discovered in B.C. bank accounts.

The regulator investigated the case, settled with the offenders (finding that the scheme took a total of about $570,000 from 191 investors throughout Canada), and then referred the matter to the Civil Forfeiture Office, which pursued a forfeiture action and has now returned funds to investors in B.C.

As part of the BCSC settlement, the companies admitted that the money frozen by the BCSC is the proceeds of unlawful activity, and they agreed to consent to court orders that would give the CFO custody of the money as well as consent to variations of the freeze orders as may be required for restitution to Canadian investors. In addition to the fraud admission in the settlement, the two companies further admitted to trading and distributing securities without being registered or filing a prospectus as required under the Securities Act. Both companies are ordered to cease trading in and be prohibited from purchasing any securities in BC.

“These are some of the most satisfying civil forfeiture cases, where there is a clear relationship between forfeited assets and certain victims, and an opportunity to pay them back. Too often, we read about people who are at or near the end of their working lives, who have lost a significant amount of money in what they thought was a legitimate investment,” said B.C.’s minister of public safety and solicitor general, Shirley Bond. “The happy ending here is that the victims got all of their initial investment back. Still, I think it bears repeating that, if an investment opportunity seems too good to be true, it probably is.”

“We are pleased to be able to work closely and co-operatively with the Civil Forfeiture Office to strengthen protection for investors. This is another case where we have worked together to return money to investors who have been defrauded,” added Brenda Leong, chair of the BCSC.

BC’s Civil Forfeiture Office, which is now five years old, has recovered $17 million in proceeds so far, although only about $700,000 has been returned to victims directly linked to forfeited assets. In July 2007, the office and the BCSC also recovered $500,000 for residents who lost an estimated $1.3 million in another scheme.

Last year, the Civil Forfeiture Office concluded 74 cases and secured 18 properties, six vehicles and 56 sums of cash. So far this year, police have referred 71 new files for which the office has initiated proceedings. It reports that more than 200 cases are currently ongoing and the net value of assets currently restrained pending resolution of active forfeiture actions is $22.6 million.