Regulators in British Columbia have accused a Canadian woman of running a Ponzi scheme that raised $135-million from investors by promising them returns of up to 60 per cent annually.
The British Columbia Securities Commission alleges Doris Nelson ran the Little Loan Shoppe, a loan business she financed by raising funds from investors in B.C. and across the U.S. by paying commissions to existing investors who recruited new investors.
The BCSC alleges Ms. Nelson promised investors returns of 40 per cent to 60 per cent a year, telling them the investment was risk-free. In reality, the regulator alleges her business was not profitable because of a high level of customer loan defaults. The firm collapsed in 2009 and was forced into bankruptcy by creditors.
"Nelson was able to create the appearance of profitability, and to pay high rates of interest on promissory notes, only because she used money obtained from later investors to make payments to earlier investors," the BCSC said Monday in a statement of hearing.
The BCSC case is the latest in a string of legal proceedings launched against Ms. Nelson, who is under house arrest in Colbert, Wash., after the U.S. Justice Department charged her in November, 2011, with 93 counts of fraud or mail fraud and a further 17 counts of international money laundering. The case is scheduled to go to trial in June.
The U.S. Securities and Exchange Commission also launched a civil case against Ms. Nelson in 2011, accusing her of "conducting a massive Ponzi scheme and stealing investor money to fund her home improvement projects, gambling jaunts to Las Vegas and purchases of a Corvette and a Mercedes."
The BCSC alleges Ms. Nelson raised more than $69-million from 355 investors in British Columbia, who contributed the majority of the total $135-million she collected from 800 investors.
An examiner appointed in her U.S. bankruptcy proceeding calculated she paid $118-million back to investors during the time she operated her business, including $2.2-million in commissions to those who recruited new investors. But a further $17.4-million could not be recovered. The examiner said the money appeared to be lost by her companies or withdrawn by Ms. Nelson for her own use.
The U.S. criminal cases alleged Ms. Nelson bought a $127,000 (U.S.) motor home, a $61,000 Corvette, and a $112,000 Mercedes Benz S550. She was accused of spending $220,000 on clothes at St. John Knits and another $217,000 at Nordstrom, as well as amassing a collection of art and expensive jewellery. She was also accused of spending thousands on luxury vacations and of losing $400,000 at Las Vegas casinos.
The SEC case alleges victims in the case ranged from Mexico to Canada. They were falsely told their money was safe because the company had "insurance or a separate account to pay investors back."
The BCSC also accused Ms. Nelson of misleading the commission, alleging she provided a false affidavit and also e-mailed investors "coaching them to hide relevant information if contacted by the commission."