Does white-collar crime pay in B.C.? Consider the case of Ontario huckster Jeff Eshun and his B.C. sidekick, Maisie Smith.
As I reported in the summer of 2010, this ruthless duo sold an array of money-losing investments to Lower Mainland residents, mainly members of the Filipino community. In many cases, they encouraged investors to borrow against their homes, with disastrous consequences.
Neither Eshun, who ran an Ontario financial advisory service called DSC Lifestyle Services, nor Smith, who acted as his "regional director," was licensed to sell securities, but that's no problem here. Our Securities Act provides all sorts of exemptions from registration requirements, which makes life a whole lot easier for people like Eshun and Smith.
Among the investments they legally sold was a risky and complicated bond-and-loan investment scheme called PFC 2016 Pacific Financial Corp.
It was sold under an exemption that allows anybody to sell anything to anybody in B.C. as long as the issuing company files an offering memorandum, which PFC did in this case.
The Canada Revenue Agency subsequently denounced the scheme as a "sham" designed to enable investors to withdraw funds from their RRSP on a tax-free basis. The net result is that investors are facing substantial tax reassessments. Meanwhile, they are making substantial loan payments to sustain a bond investment that may never pay out.
Eshun and Smith sold another, even more dubious investment that involved lending money to a private numbered company, 755720 B.C. Ltd.
Investors were told the company (later renamed J.V. Raleigh Superior Holdings Ltd.) would use the proceeds to buy "high-yield consumer protected notes." Investors would earn 12 per cent annually, and get back all their money in two years.
Eshun and Smith raised at least $3.2 million from 49 investors in B.C. for this investment, and another $2.5 million from 32 investors in other provinces. But as often happens in these schemes, the interest payments stopped and investors were left with worthless promissory notes.
When B.C. Securities Commission investigators looked into the matter, they discovered there weren't any exemptions from registration requirements that Eshun and Smith could legally claim, so they cited the pair for illegally distributing securities.
The hearing was held Monday. Smith did not show up, but lawyer Ron Pelletier appeared on her behalf. Neither Eshun nor his lawyer showed up.
BCSC enforcement counsel Ryan Carrier told the hearing panel that Smith had admitted the notes did not qualify for any exemptions.
The hearing could have ended there, but to provide some context, he called BCSC investigator Romolo Di Fonzo to the witness stand.
Di Fonzo said he learned that J.V. Raleigh was jointly owned by Smith and Eshun, and he hadn't seen any evidence they used any of the $5.7 million to buy notes.
He said most of investors' money had gone into bank accounts controlled by Eshun and Smith, in particular:
. $1,859,927 went to Trem DY Group Inc., whose directors are Eshun and his Ontario partner, Roger Blair.
. $1,504,500 went to 3897915 Canada Inc., whose directors are also Eshun and Blair.
. $152,461 went directly to Eshun.
. $370,000 went to 747940 B.C. Ltd., whose director is Smith.
. $234,426 went to Siboco Marketing Inc., whose directors are Smith and Eshun.
So where did the money go from there? Di Fonzo didn't know. He said he didn't attempt to trace the funds.
I don't blame the commission for not trying to trace the money. Its objective is to make a case that will remove Eshun and Smith from the market for many years to come. In view of Smith's admission and Eshun's non-appearance, I predict they will both be banned from the B.C. securities market for at least 20 years.
But who cares? Certainly not Eshun, and probably not Smith. After her stint with DSC Lifestyle Services, she joined another Ontario huckster, Mo Jiwani, to sell distressed properties in Las Vegas. In my experience, these people move from one bad promotion to another with alarming alacrity.
The key question is, where did all the money go? Did it end up in the pockets of Eshun and Smith? Were investors defrauded? Or is there some other possibility? Surely this is something that the police should investigate. Alas, I keep forgetting we live in B.C.
"We received a complaint about Smith and Eshun and we evaluated it," John Taylor, who heads the seven-person Investment Fraud Group of the RCMP Commercial Crime Section, said on Wednesday.
"But we have to consider the resources we have and how best to use them. There are other complaints that have really commanded our attention."
In my view, Smith and Eshun have been handed a free pass. In the pro-cess, the victims have been treated like roadkill - collateral damage in the relentless pursuit of easily accessible capital markets.
I can't blame Di Fonzo or Taylor, but I can blame the B.C. government, particularly Solicitor-General Shirley Bond, for failing to provide the necessary resources to criminally investigate a potential multi-million-dollar fraud. Even in tough economic times, we must ensure that crime doesn't pay.