BURST
Investors who lost money in a $300 million Ponzi scheme masterminded by B.C. resident Greg Martel are suing the Royal Bank of Canada and a B.C. financial regulator.
The three investors — Andy Todd Wilson of Vancouver, Dustin Frank Renz from Colwood on Vancouver Island, and David Cumby of Edmonton — hope to have their case certified as a class-lawsuit for the more than 1,200 investors who also lost money.
The trio filed the case in B.C. Supreme Court on April 25 and are seeking damages for negligence, wilful blindness and anti-money-laundering failures.
The Royal Bank and the B.C. Financial Services Authority have not yet filed responses and the allegations have not been proven in court.
The plaintiffs allege the Royal Bank and the provincial regulator failed to detect or prevent misconduct despite having clear regulatory duties.
“These failures — by the bank responsible for processing the majority of investor funds, and the regulator responsible for supervising the mortgage broker — enabled the scheme to persist unchecked for years resulting in massive and avoidable investor losses,” says the notice of claim filed by the trio’s Vancouver lawyer, Meldon Ellis.
The financial regulator had received formal complaints in 2017 and 2021 about Martel and his mortgage brokerage firm, which, if “properly investigated,” could have exposed the fraudulent scheme, says the lawsuit.
The claim says the bank failed to detect or act on several red flags, including high-volume deposits inconsistent with a mortgage broker business.
In a written statement, the financial service authority said Monday its investigations in 2017 and 2021 did not substantiate a breach under the legislation it enforces given the activities in question “presented” as outside the scope of regulated mortgage brokering.
The Royal Bank said Monday it was would not comment while the matter was before the courts.
Martel, who was a Victoria-based mortgage broker who later worked out of California, pitched investments for short-term loans to his clients and others. Those investors, according to court documents and reports compiled by receiver PricewaterhouseCoopers , had been collecting high returns on the basis that their money was pooled to provide bridging loans for real estate development, often for less than 90 days, to allow projects to secure permanent financing or pay off a current loan.
But PwC found the investments had been a massive Ponzi scheme and there were no bridge loans. In a Ponzi scheme, named after 1920s-era fraudster Charles Ponzi, earlier investors are paid off with later investors’ money and not from the profits of any real business.
An analysis of 65,000 transactions by the receiver found that $301 million was invested and $210 million was repaid using incoming funds.
The analysis also found that $91 million was lost through options trading, a failed car-share business in California and Martel’s personal expenditures.
When the scheme collapsed, there were more than $316 million outstanding claims, according to the civil suit.
Of the 1,800 people who invested, 1,229 had net losses, meaning they paid more into the loan scheme than they were paid out in their principle and interest payments.
Wilson, a building maintenance contractor, Renz, a military police officer, and Cumby, an entrepreneur, had net losses. The court filing does not say how much they lost.
In earlier lawsuits filed in Canada and the U.S. against Martel, investors claiming losses included those in Vancouver, Burnaby, Coquitlam, North Vancouver, Victoria, Kelowna and Prince George, and also in Alberta, California and as far away as New York.
Records obtained by Postmedia News through a freedom of information request found that B.C. financial regulators received complaints about Martel, including that a high-return investment opportunity might be a scam, years before the Ponzi scheme collapsed in 2023.
Martel was declared bankrupt in B.C. Supreme Court in 2023 and there are warrants for his arrest in Canada and the U.S. for contempt of court because he failed to properly provide answers and information on what happened to the money.
After telling investors in a series of online videos they would get their money back, Martel fled to Thailand and disappeared, according to U.S. court filings.
PwC’s report filed last year made it clear that investors were not getting their money back from Martel.
The report noted that Martel’s spending between 2018 and 2023 included $3.1 million on travel, $3.1 million on vehicles, $1.1 million on rent, $261,000 on meals, $200,000 on jewelry, and $150,000 on recreation and vacations.
Martel’s whereabouts are unknown but PwC had said last year that it learned he had been exiled from Thailand after Aug. 30, and later travelled to Dubai.
There are investigations underway by the B.C. Securities Commission and the Victoria police.
With files from The Victoria Times Colonist