A Prince George bankruptcy trustee is seeking more than $500,000 from the son of one of the operators of a failed money-lending company than ran in Burns Lake before it was shut down by financial regulators.
In 2003, the British Columbia Securities Commission found Carl Glenn Anderson and Douglas Victor Montaldi had defrauded investors. They were banned from the securities market for 12 years and were each fined $200,000.
The commission found the pair solicited investments from Burns Lake residents by offering a 12-per-cent annual return, and then lending the money to individuals and businesses at 16- to 17-per-cent interest.
Customers would pay the higher rates because they were generally high-risk borrowers who could not obtain credit from conventional sources.
By early 2002, about 450 individuals and companies had invested $41 million in the numbered company. The loan portfolio consisted of about 1,475 loans with a book value of about $32 million, nearly $8 million of which Anderson and Montaldi loaned to themselves.
The company operated in the community of 2,100 people from the 1980s to April 2002 when it was shut down by the British Columbia Financial Institutions Commission.
In late 2004, following a successful appeal to the B.C. Court of Appeal by the two, the securities commission cut both the ban's duration and the penalties in half.
As part of bankruptcy proceedings against Anderson, John S. Beverly and Associates Inc. is now seeking a judgment against his son, Jarrett, for $537,866.80 plus interest after learning that in August 2005, Anderson transferred assets in a holding company he partly owned to Jarrett.
According to an interim reasons for judgment, Anderson transferred half his interest in the company, Gerobeco Holdings Ltd., as well as a loan from Gerebeco that was owing to Anderson.
In Beverly's opinion, the fair market value at the time was $187,024.50 for the shares and $350,862.30 for the loan, although an agreement put the shares' value at $24,137.70.
The transfer occurred to secure a $475,000 loan to Gerobeco from Bulkley Valley Credit Union, which stipulated that Anderson could no longer be a shareholder.
In 2005, Gerobeco's assets were valued at $781,962 and its liabilities were $806,082, including $711,962 in loans to Anderson and the one other shareholder, identified as Garth Jarvis. But by 2008, the assets had declined to $59,259 and its liabilities were $1,926 and no money was owed to the shareholders.
According to an affidavit from Jarrett, his interest in Gerobeco was transferred back to his father in September 2009.
Beverly is arguing the property was transferred at below value to a non-arms length recipient within the five years prior to Anderson being assigned into bankruptcy in January 2010 and that Anderson was insolvent at the time.
In the interim ruling released last Friday, Justice Ian Meiklem agreed with Beverly on all three points.
But he also found Jarrett's sworn evidence that he did not receive any benefit from the transfers "troubling" given that the loans to shareholders had declined from about $700,000 in August 2005 to zero three years later.
If true, said Meiklem, it would indicate the transfer was either a sham or he allowed his father to dispose of the property on his behalf.
Meiklem found that further evidence provided by the Andersons and by Jarvis has shed no light on how the loans were reduced or to whom the payments were made.
Moreover, said Meiklem, if he was to accept Jarrett Anderson's evidence he received no benefit, he would also find that he "actively participated in deceiving the Bulkley Valley Credit Union in August 2005."
Meiklem gave the parties leave to file more affidavit evidence by August 31. At that time Meiklem will review the new evidence and decide if further submissions are needed or a final decision can be made.
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