Alberta has the unenviable reputation of being a centre for many
allegedly fraudulent real estate investment schemes, such as Shire
International, Lucid Group, Harvest Group and Foundation Capital,
Platinum Equities and Concrete Equities. In part, this is because
historically parties involved in raising capital in the
"exempt market" in Alberta have, in many cases, been able
to utilize marketing documentation, such as Subscription Agreements
or Offering Memoranda which were not pre-approved by the Alberta
Securities Commission ("ASC"). Generally, companies raise
capital via a "Prospectus", a document vetted by
securities regulatory authorities, which in Alberta is the ASC.
However, some companies rely on exemptions to the
"Prospectus" requirement. In those cases, until recently,
they may have been able to utilize un-vetted documentation to
solicit investments from the public. And it was only in the face of
actual fraud or misconduct that the ASC had taken enforcement
That began to change to some degree, on September 28, 2009, with
the enactment across Canada of National Instrument 31-103.
Thereafter, certain "exempt market dealers" operating in
Alberta were required to be registered with the ASC and their
marketing representatives were required to be licensed. Still, some
companies and their dealers may be exempt from registration and
still others may rely on certain Prospectus exemptions that do not
require them to have or to file with the ASC any marketing
document, such as an Offering Memorandum. And still other companies
have either qualified themselves, or pretended to be qualified, as
"mortgage investment corporations" (MICs), to make their
shares "qualified investments" for RRSP purposes.
One such case has recently surfaced in Alberta. Lawyers at
McLeod Law are acting for investors involved in the Investment
Exchange Mortgage Corporation, where approximately $27,500,000 was
raised over 10 years, from 2002 to 2012, largely from Alberta
investors. Many of these investments were RRSP funds. The funds
were to be used for investment in mortgages. Instead, the funds
were used, in part, to make limited repayments to earlier investors
as dividends and the majority of funds were transferred to other
companies owned by the principals, where they were used for
securities day trading activities and to support the
principal's highly extravagant lifestyle.
What do you look for and how do you protect yourself if you are
asked to be involved in a real estate development venture? In the
first place, if the company has filed a "Prospectus" with
the ASC, that has been approved or "receipted", you
should be provided with a copy of it. You will then have the
assurance that this document has been vetted by the ASC. If a
Prospectus has not been issued, then you know you are dealing in
the "exempt market", in which case the following are some
steps you can take to protect yourself:
Request the audited financial statements of the company you
have or are being asked to invest in. If they have no audited
financial statements, walk away;
Check with the auditor directly to verify the legitimacy of the
statements (in at least one recent case, audited statements were
Conduct online searches on the company and all of its main
principals to learn all you can about their background, training
If you are being told your money is being
invested in the particular project, ask to see the relevant
Ask the market dealer who is or has solicited you if he/she is
licensed, and ask to see a copy of the license;
Is the person or company offering you the investment registered
to sell investments? Confirm by checking the
www.albertasecurities.com website and select the tab "For
Investors", then "Check First";
Also check on www.albertasecurities.com to see if the company,
or its market dealers, have any enforcement record or history with
Check out the company with the Real Estate Council of Alberta
(RECA) at www.reca.ca to determine if a person or company is
authorized by RECA to trade in real estate or deal in
If you have suspicions, ask your lawyer or accountant to
investigate on your behalf;
Beware of promised high returns. Most fraudulent schemes entice
their investor/ victims with the promise of significantly
above-average returns or dividends (e.g. 10-18%). Initially, these
returns may in fact be paid out, but usually out of the proceeds of
investments made by subsequent investors (i.e. a "Ponzi"
Be wary if you are asked to invest your RRSP money, as this is
an area where many fraudulent schemes have been found to
Above all, exercise prudence and caution. You owe it to yourself
to conduct proper "due diligence". Hard earned
life-savings should not be hastily put at risk. And diversify!
Never invest more than you can afford to lose.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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