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Two charged with fraud after raising nearly $22-million from investors

New housing construction in Calgary, Alta. on Thursday, June 26, 2014.

JEFF McINTOSH/The Globe and Mail

Two Vancouver businessmen committed fraud when they raised almost $22-million from investors without telling them important facts about their group of companies -- including that they were short of cash and near insolvency, British Columbia regulators said.

A British Columbia Securities Commission hearing panel has ruled Michael Lathigee and Earle Pasquill, who operated the Freedom Investment Club (FIC) Group of companies, fraudulently raised $21.7-million from 698 investors between between Feb. 1, 2008 and Nov. 15, 2008, without telling them about severe cash flow problems, including an unfunded $8-million cost overrun on the company's biggest real estate project in Alberta.

The BCSC panel said Mr. Lathigee knew what was at stake when he raised money from investors, writing in private e-mails in March, 2008, that the FIC Group needed $10-million "to stay solvent" and was in "the worst situation [it has] ever been in" and was "close to insolvency."

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In a written decision released Monday, the hearing panel said it was clear investors lost money as a result of dishonesty.

"As a consequence of the respondents' dishonesty, the pecuniary interests of the investors ... were clearly put at risk," the BCSC panel said in a written decision released Monday. "The 698 investors invested, and have lost, $21.7-million. It would be hard to find a more compelling example."

The panel ruled the men committed fraud when they raised $9.9-million from 331 investors for a fund to invest in foreclosed residential properties in the United States. The BCSC panel said the men instead used 8.5-million of the funds to bail out related FIC Group companies with unsecured loans.

Mr. Lathigee and Mr. Pasquill told the hearing panel there was no dishonesty in the case because the offering memorandum for the foreclosure fund allowed them to invest funds in inter-company loans, citing provisions allowing the corporation to "reallocate funds for sound business purposes" or to other real estate investments.

However, the BCSC panel ruled that investors were clearly told the money was meant to be invested in the the U.S. housing market.

"Even if the evidence had shown that there was a 'sound business reason' to allocate the FIC foreclosure funds to short-term interest-bearing vehicles, there is nothing in the [offering memorandum] to suggest the choice of vehicle would be inter-company loans to other FIC Group companies," the panel ruled.

The panel has asked for written submissions before making a decision on penalties in the case.

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Mr. Lathigee participated in a Globe and Mail stock picking competition in 2006, placing third in a field of eight competitors. The contest was won by a Wilfrid Laurier University student, who competed against seven professional investors, including Mr. Lathigee, in a contest to pick a favourite stock for the year.

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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