Buyer beware: seven scam artists

If we could spot a con artist by his looks, protecting ourselves from financial fraud would be easy. But, in reality, crooks are difficult to pigeonhole. “They can be anywhere from 16 to 60, male or female, with or without a criminal record,” says Detective Staff Sergeant Barry Elliot, who heads up the Ontario Provincial Police’s national Phonebusters fraud centre in North Bay, Ont.

However, says Elliot, scam artists share one notable trait – the motivation for their crimes. In addition to the prospect of profit, “they enjoy, in a devious, vindictive way, stealing your money and rubbing it in your face,” says Elliot. Similarly, the fraud victim advocacy group, Fraud Aid (www.fraudaid.com) describes the “infinite pleasure” con artists feel as they “put one over” on victims.  Fraud Aid cites expert Richard H. Blum, who concluded that these criminals suffer from an identifiable compulsion. “Individuals with anti-social personality disorder frequently lack empathy and tend to be callous, cynical and contemptuous of the feelings, rights, and suffering of others,” writes Blum.

When advisers go bad
In so terrible cases, trusted advisers have turned out to be perpetrators of fraud. Stan Buell founded the Small Investor Protection Association (SIPA) after most of his retirement savings vanished in the hands of a financial adviser. Though he managed to wring a settlement from the firm, he regrets what he sees as misplaced trust. “If I’d looked after it myself, I probably could have done a whole lot better and been better off today,” says Buell ruefully. He says he’s become used to hearing from shocked investors who just can’t believe they’ve lost their money. “I’ve heard that dozens of times,” he says. His advice? “Play the ‘what if’ game. What if this guy I trust with my money runs off with it? What if he’s not telling me the truth?”

It’s one thing to lose investment capital as a result of market swings, but when money is lost through the fraudulent actions of trusted advisers or to bogus ventures pitched as legitimate investments, investors are shocked and humiliated.  In some cases, the amount of money defrauded is breathtaking. The following profiles offer details of some notorious cases of investment fraud in recent history.

Next page: Michael Holoday

Michael Holoday
On Oct. 19, 1987, Black Monday, two bad things happened to the investment industry: the stock markets plunged, and Michael Holoday joined Midland Doherty Ltd. (which later became Merrill Lynch Canada, then CIBC Wood Gundy) in Toronto. By the spring of 2001, he would face almost nine years in prison for defrauding clients of that company and of First Marathon Securities (now National Bank Financial) of nearly $13 million.

Unfortunately, as author John Lawrence Reynolds notes in Free Rider: How a Bay Street Whiz Kid Stole and Spent $20 Million, the true total was probably much higher. Holoday, once the youngest member of Midland Doherty’s Chairman’s Club, falsified KYC forms, churned accounts (buying and selling securities to generate commissions), kited cheques and sent clients misleading statements, which many chose to believe because they appeared to be making money. In fact, reports Reynolds, clients responding to an auditor’s letter reported they were receiving two statements, one from the brokerage company that was “indecipherable” and Holoday’s complex but more palatable one.  And Holoday always had a glib explanation as to why the two statements differed.

Patrick Kinlin
One of Patrick Kinlin’s victims hopes the con man is currently fuelling the fires of hell. Charming and without scruples, the 55-year-old Kinlin died in jail in 2001, two years after being sentenced to five years in prison for stealing $12.5 million from elderly clients – one of them his own aunt. Licensed to sell mutual funds, guaranteed investment certificates and life insurance in Ontario, he had convinced them he was also authorized to deal in stocks and bonds. He wooed them with friendship and gifts (purchased with their own money), but most of their cash went into his personal account to pay for designer clothes, fine dining, fancy cars and expensive vacations. Yet even while doing jail time, the incorrigible Kinlin, with others, set up a scam to defraud the federal government of old age benefits. Using his day pass, Kinlin retrieved the money from post boxes. 

Albert Walker
Albert Walker’s career reads like the plot of a nightmarish B-movie. The seemingly successful investment counsellor had impressed people as a trusted elder at his church in Paris, Ontario. When he fled Canada in 1990 with his daughter, more than 60 clients of Walker Financial Services soon discovered they were out more than $3 million. In 1996, a body found in the English Channel led police to Walker, who had assumed the dead man’s identity. During his trial for murder, he surprised Canadian police with the admission, “I took money I shouldn’t have taken.” He’s currently serving a life sentence in Britain and won’t be eligible for parole until 2016. In the meantime, he faces nearly 40 charges of theft and fraud in Canada.

Nelson Allen
Nelson Allen’s brother-in-law believed him, so did neighbours and long-time friends. But the promises of safe, low-risk investment were as phony as the Nelbar Financial Corporation “Corporate Investment Certificates” (CICs) he issued complete with embossed seals. The Investment Dealers Association of Canada (IDA) slapped Allen with a $525,000 fine plus $40,000 toward the cost of its investigation of his case. The IDA also barred him permanently from working in the industry. He was sentenced to a four-year penitentiary term in March 2003. A class action on behalf of investors is currently underway.

Next page: Kofi Hadjor

Kofi Hadjor
The colourful Ghanaian dress Kofi Hadjor affected made him unique in the buttoned-down world of accountancy. He set up Creative Arts Tax Services, a financial management company in Toronto. Dealing primarily with people from the entertainment industry, the chartered accountant turned to a Ponzi strategy–a pyramid scheme that uses money from an incoming wave of investors to pay the previous wave–that bilked clients of some $800,000 of their savings. He was eventually sentenced to two years less a day in jail following his conviction on five counts of fraud.

David Blow
Fraud artists often draw their victims in when they develop a rapport with people within an affinity group. Word got around that David Blow, a Stouffville, Ont., unlicensed financial adviser, was helping mostly elderly members of his church congregation invest their savings. Unfortunately, Blow was paying the interest on their “investment” with their own money, a classic Ponzi scheme. The Toronto Star reported that his take was $7.3 million from the 65 victims. Sentenced to 43 months in jail, he served less than eight months.  

Salim Damji
Betrayal of trust is always hardest to take when it’s committed by one of your own. Salim Damji conned 4,000 members of Toronto’s Ismaili community (the number of victims may total 6,000 worldwide, according to a Globe and Mail report) into investing in Strategic Trading System (STS), a company he claimed was about to sell a tooth-whitening product to Colgate Palmolive Inc. at a massive profit. But no legal entity that could be construed as STS was found, and Colgate denied it had any negotiations with Damji.

A class action suit claims Damji raised up to $100,000,000; however, he pleaded guilty to defrauding people of $77 million and, in November 2002, was sentenced to seven and a half years in prison.  So far, less than $5 million has been located.