A Mormon church leader who blew the whistle on a $60-million alleged Ponzi scheme says "it’s wonderful" that RCMP have laid charges in the case whose victims span the globe, but called it "unbelievable" it took them six years.
Tom Matkin, a lawyer and a stake president in the Church of Latter-day Saints in Cardston, said he complained to authorities in 2004.
He had learned that as many as 150 of the town’s residents, some of them members of his church, had invested more than $1 million in a company "that had all the earmarks of a classic Ponzi."
Securities officials turned the case over to the Mounties, who swooped in and swiftly shut down the operation, but didn’t lay criminal charges until now.
"You’d think they could have gone to the moon and back since then," said Matkin, who initially raised the alarm after learning of an 85-year-old woman in his town who lost about $50,000.
On Monday, Mounties announced charges against four people — including a now-suspended Calgaryarea lawyer — in connection with the investment scheme that was based in southern Alberta. It made the rounds through several rural communities and had tentacles across the U.S. and as far away as Australia.
Former lawyer Garth S. Bailey, 57, is charged with fraud over $5,000, while his wife, Katherine Rodrique Bailey, 53, is accused of laundering proceeds of crime.
Robert Fyn, also known as Col. Robbie Fyn, 62, of Linden, and (Harold) Murray Stark, 73, of Three Hills, are also charged with fraud over $5,000.
It is the second high-priced international Ponzi case in seven months with roots tracing back to the Calgary area.
Milowe Brost and Gary Sorenson were charged with fraud in September in an unrelated case. Police allege the pair headed a Ponzi-type scam that raised more than $100 million from thousands of investors around the world.
The latest case centres around a company named HMS Financial, which operated between 2001 and 2004.
Police allege the company and its principals were offering investors a high rate of return, while little or no legitimate business actually took place. To keep the scheme going and entice new investors, the suspects allegedly paid out 10 per cent monthly interest in quarterly instalments — using money provided by new clients to pay off the earlier ones.
Commercial crime investigations are complex and take time to investigate, RCMP Supt. Eric Mattson said of the six years it took for police to lay charges.
Police allege money was placed in certain accounts and layered in those accounts, and moved again to hide where the assets were moving.
The Herald was unable to reach the three accused for comment on Monday. They are scheduled to appear in Drumheller court on April 16.
The hunt for evidence took RCMP to seven countries outside Canada, including St. Vincent and the Grenadines, the Bahamas and Bermuda — nations known as tax havens and offshore banking destinations.
The RCMP said the company collapsed after it couldn’t meet payouts to investors around the same time police launched their criminal investigation in 2004.
Because of the way Ponzi schemes are structured, investigators said some of the earlier investors received a portion of their money back before HMS Financial collapsed.
New clients, according to police, were often brought in by trusted family members, friends and colleagues who had already made money.
Indeed, word spread like wildfire around the small, predominantly Mormon community of Cardston after Gertrude Muriel Prete talked up the windfall returns she and her husband were getting from their $10,000 investment in a company related to HMS Financial. The Cardston senior, now 75, said she was introduced to the company some time before 2004 by a friend in Las Vegas, and was soon sending other townsfolk to "the colonel," a Linden farmer whom she said signed people up with the supposed investment. Even the then-Cardston town administrator jumped on board, said Prete, who remains unconvinced the scheme was a Ponzi.
Prete said she collected $500 each month for 10 months, until her original investment was repaid. She said she was advised to keep a remaining $5,000 in earned interest invested. But others got greedy, she added, investing larger amounts.
By the time the local lawyer and high-ranking church leader got wind of the investment scheme, townsfolk were putting up their houses and retirement nest eggs with dreams of turning $5,000 into $1 million in five years.
To Matkin, a business leader and lawyer, the extraordinary returns didn’t add up. When he did the calculations, a $5,000 investment would in 25 years grow into "some 20 odd quadrillion," said Matkin.
"This thing was completely impossible."
At one point, Matkin confronted so-called Col. Fyn, who tried to explain how the investment scheme worked and sign him up. "Fyn told me they were doing factoring," said Matkin, adding the man explained it was some sort of night trading in "some mysterious place."
Matkin immediately raised the alarm with the Alberta Securities Commission, which, after investigating, issued an interim cease trade order in 2004 against HMS Financial and Garth Bailey along with the other two men. It was lifted against Bailey, HMS’s lawyer, in 2008. Matkin complained to the law society about Bailey and the lawyer was suspended from practising law in 2005.
The securities regulator didn’t pursue further action and handed the file over to the RCMP.
"This was a criminal fraud and the ASC was not prepared to devote resources to a hearing knowing that it was being looked at by the RCMP," Dave Linder, ASC executive director, said in a statement Monday.
In the ensuing years, as the police investigation dragged on, so has a class-action lawsuit against a long list of people and companies alleged to be involved. It names dozens of defendants in Canada, the U.S., Australia, New Zealand, Ireland and Mexico as well as five banks, including CIBC and HSBC and seeks $100 million in damages.
But the whistleblower whose concerns for a community led to the unravelling of the alleged international scheme doubts whether anyone will ever see a dime of the money they lost.
"When we sin . . . we become blind. Then we become addicted. Then, if we persist, we’re eventually destroyed."
swilton@theherald.canwe st.com
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