A B.C. judge has approved a plan to “claw back” money from net winners of a Ponzi scheme run by a Victoria, B.C., mortgage broker who defrauded hundreds of investors out of more than $316 million.
In an Aug. 6 ruling, B.C. Supreme Court Justice Shelley Fitzpatrick approved a plan put forward by PricewaterhouseCoopers Inc. (PwC) — the appointed trustee — to recover funds for victims of the scheme carried out by Gregory Joseph Martel.
The ruling confirmed Martel had run Mortgage Auction Corp. as a Ponzi scheme, with investor funds used to pay off past investors and fund Martel’s lifestyle, instead of funding promised real estate bridge loans.
The company, which started doing business under the California registered name Shop Your Own Mortgage in 2017, operated a website that claimed to run an independent mortgage marketplace that sourced mortgages for U.S. and Canadian buyers of residential properties.
Mortgage Auction Corp.’s business also claimed to solicit funds to provide real estate developers bridge loans — short-term financing that lasted weeks to months.
The scheme began to collapse in late 2022, when Martel’s company stopped making payments and halted the distribution of funds to investors who asked for payment.
PwC carried out an audit of the company’s documents from 2018 to May 2023, ultimately confirming the bridge loans did not exist and Martel “was a fraudster.” To date, 930 investors had submitted claims to the trustee, but few of the lost assets have been recovered and the situation is not expected to improve, according to the ruling.
“The inescapable conclusion is that no bridge loans were ever put in place and funded,” said Fitzpatrick in her ruling.
Clawback plan to recoup funds
In court, PwC proposed a plan to recover assets from investors who received more than their original investment (net winners) or who received payments in the three months leading up to the B.C. company’s bankruptcy (preference recipients).
“No investor here is a ‘winner’ in the true sense — each is a victim,” wrote Fitzpatrick.
At the same time, the judge added that there is a “substantial disparity” in the outcomes faced by the investors. Some reaped profits from the scheme through “blind luck,” often getting in at the right time and only coming out on top because Martel raised money by defrauding later investors.
The financial consequences of the collapse of the Ponzi scheme have led to 1,229 “net loser” investors facing about $149 million in losses and 480 “net winners” to reap $68.2 million in excess funds. Another 81 investors received a combined $3.1 million in payments from the company in the three months before its bankruptcy.
Under the approved proposal, PwC will provide investors who received the excess funds with a “clawback” calculation. Each recipient would have an opportunity to dispute the calculation, with the court acting as the ultimate arbiter of what should be paid back.
Many investors raised concerns to the court that they had paid hundreds of thousands to millions of dollars in income taxes on payments they received. Fitzpatrick said there is no doubt the Canada Revenue Agency collected millions of dollars in tax revenue as a result of the scheme.
“The tax issues are complex and, at least at this stage, incapable of being resolved on a global basis,” the judge wrote.
Martel's evasion and lavish spending
Martel left Canada for Thailand shortly after PwC was appointed as a trustee over his bankrupt company. In August 2023, he was deported and travelled to Dubai, U.A.E. Martel has not appeared in person since the hearings into his Ponzi scheme began and has refused to confirm his whereabouts, according to Fitzpatrick.
Martel had previously obstructed efforts to disclose business and digital records; lied about a Scotia Capital Inc. account which he said contained $16 to $18 million in investor funds; and concealed rental payments connected to his Victoria residence, the ruling states.
Two days before his bankruptcy, Martel disposed of his property in Las Vegas, and is “strongly suspected” of failing to disclose other assets used to fund his life after leaving Canada.
“Mr. Martel’s limited cooperation has only decreased over time,” wrote Fitzpatrick. “He has also actively hindered PwC’s attempts to recover funds for the benefit of the estate and has evaded a warrant for his arrest.”
A funds flow analysis found that of the more than $300 million contributed by investors, only $210 million was returned. Martel was found to have lost $27.1 million trading stock options and in other short-term investments. Martel was found to have spent $18.4 million on credit card payments and interest charges.
Another nearly $15 million was spent on luxury goods and services, meals and events, travel, vehicles and real estate.
