A Calgary man has been charged in what RCMP say was a years-long, multi-million-dollar Ponzi scheme.
Vernon Fauth, 73, is charged with fraud over $5,000 for activities police say took place between January 2012 and July 2015 for the company Espoir Capital.
RCMP said its integrated market enforcement team began investigating after a complaint from an investor.
“Unfortunately, the victims suffered a considerable loss as a result of their investment within the Ponzi scheme they believed was credible. The economic and societal damage of these types of criminal acts are immeasurable, and investors are reminded to remain vigilant with their investments,” said Cpl. Christopher Girard in an emailed release.
“Albertans are reminded to remain aware of potential scams, conduct their due diligence with their investments and report when suspected criminal acts are believed to have occurred.”
Fauth ordered to pay $3.2M last year
Last June, Fauth was sanctioned by the Alberta Securities Commission for breaching the Securities Act by illegally dealing in securities of Espoir, making misrepresentations to Espoir investors and perpetrating fraud.
He was ordered to pay a disgorgement of $2.6 million and an administrative penalty of $400,000, as well as investigation and hearing costs of $250,000.
The ASC also ordered him banned from trading or purchasing securities, becoming a director of an issuer or other entities, and acting in a management or consultative capacity in the securities market.
A previous ASC decision said Espoir had raised $15.5 million over a 10-year period and had told investors their funds were secure.
But an investigative accountant testified that between January 2009 and September 2014, he saw no uses of funds that corresponded with the representations made to investors.
Funds were loaned to Fauth and his family
“Its funds were primarily invested in and loaned to Fauth, members of the Fauth family, FairWest, the associated limited partnerships, and other entities controlled by Fauth and his family, including Fauth Financial.
“Though $1.73 million in mortgages in favour of Espoir were registered on the titles of two properties Fauth and his spouse owned in Edmonton and Calgary, the mortgages had little to no underlying value. Fauth acknowledged that they had been placed on the titles simply to ‘put some more security for Espoir on its balance sheet,'” the decision read.
It said Espoir used investor money to repay principal and make interest payments to other investors in the manner of a Ponzi scheme.
As of the end of 2014, Espoir owed investors over $12.3 million and there was little chance it would ever be repaid, the ASC said.
RCMP said the investigation was a complex and consumed a significant amount of time and resources. It was done in collaboration with the Forensic Accounting Management Group, Financial Transactions and Reports Analysis Centre of Canada, Public Prosecution Service of Canada and Specialized Prosecutions.
Fauth has been released on documents with a promise to appear in court on Sept. 14.
If guilty, the charge of fraud over $5,000 carries a maximum penalty of 14 years jail time.