“The breadth and depth of this (scheme) is huge,” says Sgt. Robert Zensner of the Waterloo Police Service’s fraud squad, pointing out that it involves thousands of people and took place over a long period of time. “So that’s why it’s taking longer (to reach a decision).”
As many as 1,000 investors in four provinces and more than a dozen states, were caught with what bankruptcy officials say are worthless pigeons, when Arlan Galbraith’s pigeon breeding scheme, Pigeon King International (PKI), collapsed in mid June. Typically investors handed Galbraith or his company $100,000 each but in a few cases investments reached $1 million or more. Initial estimates put the amount owed by Galbraith’s company to creditors at $23 million and assets at $46,000.
By Wednesday, police had received more than 80 formal, written complaints, Zensner says. “That includes contracts that they’ve signed as well as proof of their payment and their loss then and any other information they choose to send us.”
Nevertheless, police will hold off until after a creditors’ meeting organized by the company’s bankruptcy trustee takes place. The meeting is scheduled to take place in Kitchener on July 30.
Zensner says the reason the police’s current activity is called a preliminary investigation is because a formal one is “going to require a large amount of resources that we’re going to have to commit to this which will take away from other things.” Zensner does not rule out the possibility of a joint undertaking between police forces if the crown attorney and senior management within the Waterloo Police Service decide to proceed with a formal investigation. If the Waterloo opts not to take it on, there is a chance that the Ontario Provincial Police could investigate, he says. But “they have less resources than we have for this sort of thing.” He adds that it’s not the RCMP’s mandate to spearhead an investigation of fraud complaints that lie in another jurisdiction, but the force can partner with others.
Currently, two officers are working part-time on the preliminary investigation. Although the volume of complaints has grown, the investigation is “not a lot of in-depth investigation in terms of interviews,” he says, noting at the moment work involves organizing forms and entering information on spread sheets. Police are preparing to move onto next steps, which include gathering direct evidence from the company’s former employees.
“Shortly after that we’ll be in a position to make our decision.”
Meanwhile, Susan Taves, PKI’s bankruptcy trustee and a senior vice president with BDO Dunwoody Limited’s Kitchener-Waterloo office says her office has also fielded several calls from across Canada and the United States after sending out 500 notices to creditors earlier this month. Most of those calling are asking how to fill out claims or to find out about the creditor’s meeting. Only creditors will be allowed into the meeting, which is intended to review the bankruptcy and what was found in the banking records.
Some are also asking what the trustee will be doing with Galbraith, whether it was a Ponzi scheme and where did the money go. Taves emphasizes that her company is not acting as the trustee for Galbraith in a personal bankruptcy. Galbraith is, however, required to attend the creditors’ meeting, she notes.
Taves says her office has the company’s computer records and bank statements from the past couple of years and and will present findings from a wide review at the creditors’ meeting. Her office is trying to summarize all the cash disbursements. She says so far there is no sign of any money paid out to new or expanding contract holders within the week or two before the company’s collapse.
However, she has ruled out the possibility of attempting to recover some of the funds using an approach successfully used recently in Alaska to recover about 50 per cent of the money lost be investors in a Ponzi that operated there in the 1990s. After consulting with a lawyer, Taves says it appears the United States has laws that specifically address certain schemes that Canada doesn’t. The laws address Ponzis, and provide investigative powers for authorities to look into a scheme they suspect might be a Ponzi.
“I don’t think we have the same legislative stick that maybe is available in the United States to try and correct a possible Ponzi situation,” she says.
Of growing concern is whether those who held breeding contracts with PKI are “really owed money or is it their investment that they in theory haven’t gotten back.” The other, related question at play is whether “they are owed by Pigeon King International or is this owed by Arlan Galbraith personally?”
She points out that if the contract holders are treated as investors, they would be considered to be shareholders with ownership in the company. That means “they would stand behind payment first to creditors who were contracted to provide services on a monthly basis.” Shareholders, she says “are always at the back of the bus.”
The issue is “significant,” admits Taves, and she emphasizes that no decisions on how to treat contract holders – as creditors or investors - has yet been made. “At this point in time that’s really not the key point for us to focus on right now,” she says, identifying the main focus to be on what happened in the corporation. “At this point we have no money to pay out to them anyway.”
To date, no Canadian authorities have found anything wrong with Galbraith’s venture. Nevertheless, before it declared bankruptcy in June, PKI’s business activities fell under the scrutiny of jurisdictions in the United States with one of these calling the venture a “‘Ponzi’ type of investment scheme” and another alleging false statements or omissions of fact had taken place.
The hallmark of a Ponzi is using money from new investors to pay off earlier investors, making the eventual collapse of the business inevitable. Since the term “Ponzi” was first coined (after Charles Ponzi, who convinced 10,550 investors in 1920s Boston to invest US$9.8 million in a scheme that played on the value of international postal reply coupons in different currencies), defenders of creditors’ interests have scratched their heads to find ways to recover the money. BF