Michael Ruge, a hedge-fund promoter in Victoria, professed to be a great humanitarian and, even worse, a great friend to the people he victimized, many of whom were elderly.
He signed a settlement agreement May 5 with the B.C. Securities Commission, admitting he bilked investors out of $1.2 million. He agreed to a 25-year suspension and a $150,000 fine, but he doesn’t appear repentant.
“I didn’t cheat anybody,” he said in an interview, insisting he settled to avoid the expense of a hearing.
Ruge began raising money for his Chivas Growth Fund in 2001, promising investors he would place the money with hedge-fund traders who were “at the top of their profession.”
The Chivas Web site called Ruge an “accomplished entrepreneur and professional investor” and claimed his business pursuits had been “almost unerringly profitable.”
In fact, his prior securities experience consisted of promoting money-losing companies on the Canadian Dealing Network and the OTC Bulletin Board in the U.S. Ruge’s business card featured a picture of Chivas, his golden retriever, and folded out to reveal photographs of Albert Einstein and Winston Churchill, as well as inspirational sayings, such as Gandhi’s, “Be the change you want to see in the world.”
Ruge claimed he would only accept money from investors who were charitably minded: “You must give back to the community or we won’t trade your money. We have already turned down two people who wanted to invest half a million dollars.”
He joined the Victoria Rotary Club and ingratiated himself with its members. The strategy worked. One member, who is well into his 70s and lives in an assisted-living home, invested $75,000 in Ruge’s fund. “I did it because he’s a Rotarian, and Rotarians are honest and straightforward people,” the investor explained.
Ruge dressed up the Chivas offering memorandum with logos of the Victoria Chamber of Commerce, the Better Business Bureau and Royal Bank Financial Group, but none of the organizations had given him permission to do so. He claimed to have an office on Wall Street, where he employed “cream-of-the-crop people,” but this was a lie. It was just a phone-answering service and mail drop, which served only to give the illusion of financial credibility.
Part of Ruge’s sales pitch was that investors would get free food and accommodation at the Castle di Tornano near Siena, Italy, where he held court, but they would have to hurry because the rooms were going fast.
He also claimed that B.C. regulators were about to increase the minimum investment amount for such offerings to $100,000 from $25,000. “You must act now,” his letters urged. In fact, regulators were not contemplating any such change.
Web of lies
Ruge pretended that his offering was being well received. In October 2002, he said 100 people had invested $10 million. He later claimed the fund had nearly reached its “$20-million cap.” This was a lie. He actually raised only $1.5 million from 50 investors.
He claimed the fund was returning 26%-45% a year, and that chartered accountants KPMG would soon produce audited statements to substantiate the numbers. That, too, was a lie. KPMG sent Ruge a brusque letter reminding him that KPMG has “never been engaged as the auditor of Chivas Growth Fund, nor will we accept such an appointment.”
It took commission investigators months to piece together what happened, and it was not a pretty picture. Almost none of the $1.5 million raised from investors was placed with professional traders. Ruge used most of the money himself, or for people or companies associated with him. Investors recovered only $243,402.
Although Ruge signed a settlement agreement admitting that he had defrauded investors, he appears anything but contrite.
“I made some mistakes, but I didn’t rip off anybody. I didn’t cheat anybody, either,” he said in a telephone interview.
Meanwhile, Ruge and his wife, Elly, have been running a bed-and-breakfast at Shawnigan Lake near Victoria, and offering eco-tours in four-wheel-drive vehicles. In recent months, they have been travelling to Central America, claiming to represent the Royal Oak Rotary Club and the South Cowichan Rotary Club. To fund their “Rotary Safari,” as they call it, they are soliciting corporate sponsors, including cash donations.
Rotary International, based in Chicago, is not amused. “Elly and Michael Ruge are not authorized to use the Rotary name or emblem in connection with their tours,” it said in a written statement. “The Ruges have been asked to stop using the Rotary name in connection with their tours, and Rotary International is taking additional steps to stop this unauthorized use.” IE