Canadians charged in gold mining Ponzi scheme

Four Canadians and two Americans have been charged by the United States Securities and Exchange Commission for their roles in leading a US$300-million international Ponzi scheme that involved what looks like a fake gold mining operation in Honduras.

Calgary police originally charged Gary Sorenson and Milowe Brost of Calgary last September (2009) for their alleged roll in the scheme after the Alberta Securities Comission and the RCMP conducted a three-year investigation. Other states and provinces were also conducting investigations over the last several years.

The others charged are Larry Adair of Fort Lauderdale, Fla., Ward Capstick, a Canadian living in Snohomish, Wash., Bradley Regier of Calgary and Martin Werner of Boca Raton, Fla.

The SEC alleges that Brost and Sorenson were the ring leaders and the main beneficiaries of the scam, persuading more than 3,000 investors in both the U.S. and Canada to invest their savings, retirement funds and home equity over a span of nine years.

Brost and his sales team allegedly presented themselves as an independent financial education firm that had discovered investment opportunities with gold mining companies. They told investors they could earn 18-100% annual returns by investing in these companies.

But the companies were actually shell companies owned or controlled by Brost or Sorenson. They transferred investor funds from bank account to bank account in places as far away as Asia, Europe and South America. They used the funds to make fake interest payments to investors, fund the real but unprofitable mining operations they did have and to pay themselves and others involved in the scheme. They bought lavish homes, resorts and recreational vehicles.

Sorenson controlled a mining company called Merendon Mining, which investors were told was a successful gold mining and refining company that would pay investors out of its profits.

Brost’s sales team, hundreds strong, put investor’s money through a so-called structuring process, eventually transferring money from Syndicated Gold Depository, secretly controlled by both Brost and Sorenson, to Merendon mining.

Sorenson brought investors on tours of the mining operation in Honduras, finishing each tour with the pouring of a gold bar from the onsite refinery. A former employee of the mine told the RCMP that the company had only a little gold, and that every time a tour was held, the same bar of gold was melted down and poured again.

Sorenson’s wife and daughter have been named as “relief defendants” in the case in order to recover investor assets. Sorenson used investor funds to pay off the mortgage of his daughter and invested in a film company on her behalf and bought a home and other things for his wife.

One woman from British Columbia, reportedly took her life last October, when she was unable to withdraw her $150,000 investment.

A Calgary Herald report said the scheme was unique because it was so cult-like – a result of the secrecy surrounding the business. Investors who were investigated were angry at the ASC for interfering and went as far as to wage an unsuccessful Alberta court challenge so they didn’t have to testify. The majority of those who invested, even if they had private concerns, remained silent until the arrests of Brost and Sorrenson were made.

Although it took years before charges were finally laid against Brost and Sorenson, the ASC has said it did everything it could to warn the public about the scheme. On top of that the warning signs were classic – secrecy, promises of unrealistic investment returns and special tax advantages, offshore money and the lure of grand properties in foreign places.

Sorenson denied the allegations about the investment fraud during the ASC hearing about the May.

Neither the criminal charges nor the securities-related allegations have been ruled upon yet.