On August 22, the Alberta Securities Commission issued a notice of hearing to Calgary residents Arnold Breitkreutz and Susan Elizabeth Way. Through Base Finance Ltd and Base Mortgage & Investments Ltd – together referred to as “Base” – the two purportedly orchestrated a massive scheme to defraud investors.
According to the notice of hearing, Base Finance raised about $137 million from at least 261 investors between Aug. 1, 2006 and Sept. 24, 2015; around $96 million of the amount came from 191 Alberta investors.
Investors were sold securities in the form of an "Irrevocable Assignment of Mortgage Interest" agreement. Berkowietz, Way, and Base told investors that the funds would be lent by Base Finance to borrowers and secured by first mortgages on real estate in Alberta, from which they would supposedly earn on interest payments from mortgagors.
Instead, Base allegedly used new investors' funds to pay interest and principal owed to existing investors in a manner consistent with a Ponzi scheme. About $83 million was raised from Base Finance investors between Jan. 1, 2011 and Sept. 1, 2015, around $80 million of which was paid out to investors in the form of principal and interest payments over the same period.
As of around September 2015, Base Finance owed some $122 million to around 240 investors, and had no funds to pay them with.
The notice of hearing also alleges that Breitkreutz attempted to mislead ASC investigators. He supposedly said that Base Finance had loaned the $122 million to a business associate, Brian Douglas Fox, and his companies. In fact, the amount was used to operate the Ponzi scheme, and Base Finance paid Fox and his companies only about $462 thousand.
Breitkreutz, Way, and Base are accused of breaching section 93(b) of the Securities Act; Breitkreutz is alleged to have breached section 221.1(2) for his misleading statements. The hearing for their case is set for Oct. 19.
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