© AgMedia Inc.
by BETTER FARMING STAFF
No Canadian authorities have found anything wrong with Arlan Galbraith’s now- insolvent pigeon breeding scheme. Nevertheless, before it declared bankruptcy in June, the business activities of Pigeon King International Inc. (PKI) 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.
Now, a method that has proved successful south of the border is being applied in Canadian jurisdictions. Could the approach be used to recover investor funds in PKI?
Jim Patterson, who leads the Toronto-based law firm Bennett Jones LLP’s fraud law practice group, told Better Farming earlier this week that he is not currently informed enough about the PKI situation to comment specifically, but will look into it.
Speaking in general terms about Ponzis, Patterson, who has dealt with 20 to 30 Ponzis over 15 years, describes the U.S. approach as “the way to go” for victims looking to recover money lost. The approach involves a court-appointed receiver recovering the gains made by all participants in the scheme and then administering the monies among all of the victims.
A receiver can tackle fund recovery for a scheme that was operated by either an individual or a business, Patterson says. Two or more people who have lost money consult a lawyer and determine whether they could apply to a court to have a receiver appointed.
There are disincentives to people taking part in this recovery, Patterson says. Operators of a typical Ponzi actively cultivate secrecy about the business, often by including a confidentiality term in the business agreement that forfeits the agreement if it’s disclosed. Moreover, investors, who have been earning “fantastic” returns typically don’t report the gains on their income tax. And then there is embarrassment.
“Ultimately when a Ponzi scheme fails, the victim is left in a real dilemma. They haven’t reported on their taxes, they’ve typically got others involved, other family members and are embarrassed about that.” Finally, some victims “still believe that if they just hold on and wait, their ship will come in.”
“The crook takes advantage of that.”
The issue of recovering monies for the victims is complicated because the nature of the scheme fosters a “lack a community of interest,” Patterson says. “If there’s a hundred victims and you’re victim number one, you may have put your money in and got your money out and enjoyed some sort of a return. Well, victim number 99; they put their money in and they got zero.” In a recovery, some of victim one’s money will pay back the losses of victim 99.
Other problems can arise when victims band together. Using the example of 20 victims banding together to pursue repayment, Patterson notes two victims have completely lost their investment, 10 may have been repaid the initial investment and are “going after their profits,” four may still believe their ship is going to come in, and “four of them may still be in contact with the crook.”
It’s for these reasons, the receiver is “very critical,” Patterson says.
Last December when Iowa’s attorney general Tom Miller became one of four attorneys generals to achieve a ban on further pigeon sales in their states he issued a statement saying he could not find a “legitimate purpose for PKI pigeons “other than providing inventory for new growers in furtherance of a ‘Ponzi’ type of investment scheme.”
In June, the State of Maryland also issued a formal cease and desist order concerning PKI, citing violations of its business opportunities act in the form of failing to register with the state, failing to give prospective buyers disclosure details as required by the state and making false statements or “omissions of fact” about the venture. BF
PKI summary
Comments
mjgrenier replied on Permalink
More on PKI...
From now, farmers have to be very careful what they will do.
There is a possibility money put into PKI by the farmers would be considered as investments instead of accounts payable.
That way, most of the farmers would not be considered as creditors and could not vote at the end of July creditors meeting.
If I was an American farmer, I would contact the FBI asap and make sure that a Court appointed receivership is assigned. I would also make sure that all the money recovered from PKI, Galbraith and the first comers in the scheme, be put together to create a pool of money. Then, the pool would be shared between all the creditors on a pro-rata basis.
If I was a Canadian farmer, I would do the same thing, except that I would contact RCMP instead of leaving the file dormant in the hands of the Waterloo Regional Police that already considered that evident Ponzi fraud as a normal business practice and perfectly legal in Canada, as we all saw on TV.
So... the chances of the farmers seem very thin with them.
Remember that, according to the figures already published, around $100,000,000 have been collected by PKI, and around $40 to $50,000,000 spent.
Where is the other $50 to $60,000,000? At the Galbraith's Cochrane Sacred Dove Ranch, hidden in coffers, or already transfered to a remote country?
Follow the money, my friends, and make sure to ask the hard questions.
Michel J. Grenier
an online visitor replied on Permalink
"previously published"
As a former pigeon breeder for PKI I would like to point something out here. I had a contract for 100 pair at $200.00 per pair with a buy back price of $25.00. My knowledge from talking to lots of other breeders before and after getting my contract is that there are a LOT of other contracts out there just like mine. There are also a lot of smaller dollar amount contracts out there because previous to September of 2006 I understand the price was only $160.00 per pair with the same buy back price. The point I would like to make is that Mr. Michel J. Grenier in the above comment says that "according to figures already published, around $100,000,000 have been collected by PKI and around $40 to $50,000,000 spent". I believe these numbers are GREATLY exagerated and the only place they have been "previously published" is anywhere Mr. Grenier has made any comments. The mainstream media has been smart enough not to print these speculative numbers because they are totally unsubstantiated and blatently not true. It bothers me that this kind of inflamitory misinformation is showing up on a reputable site like Better Farming. It is one thing for people like Mr. Grenier to spew this kind of "guesswork" on places like forums - where only people who like to read all kinds of this stuff will go, it is another for it to show up attached to "mainstream media" places like this. I realize Better Farming probably can't control who and what is commented on their stories as they do invite people to comment, so I thought the least I should do is point out to people outside the business who might be reading this stuff that you REALLY CAN"T BELIEVE EVERYTHING YOU READ ON THE INTERNET. Just to clarify - I am not in anyway condoning or defending PKI as I too lost my investment. I am just standing up for factual information being reported - not guesswork that has no basis of fact or reality. I am waiting to hear further from the Trustees in this case as I believe that as representatives of the courts who have access to all the financial records of PKI they are the only ones we are likely to ever get the "truth" out of.
Add new comment