How Alberta became a wild west for small investors

Nearly $2 billion lost. As many as 20 troubled or bankrupt companies. How Alberta regulators failed to guard against the biggest losses.


For “Maria,” the gnawing doubt began shortly after she signed papers handing over her life savings to a real estate developer in Alberta. She attended a seminar in Ottawa in 2009 touting the benefits of investing in real estate, which promised better returns than the tumultuous stock market. Among the investments on offer was a company called CBI Group, run by Red Deer brothers Ron and Travis Cadman, which promised a chance to invest in an array of projects they were developing around Alberta—a luxury vacation property in the resort community of Sylvan Lake, a condo project in Red Deer that listed a movie theatre and a resident chef among its amenities—as well as a chance to invest in foreclosed properties in Arizona.

Maria (who spoke on the condition her real name wouldn’t be used) signed on to invest $100,000 in two CBI investments, half in Arizona and half in Alberta. Almost immediately, she says, she grew concerned about her investment in Arizona since it wasn’t one she could easily sell on short notice. She pulled out and got a full refund. But she stuck with her $50,000 Alberta investment, which promised 11 per cent annual interest, paid quarterly until 2012. Real estate in Alberta was booming, the salesman told her, and it was about the safest bet you could make. “I remember thinking, ‘Well, yeah, I am investing in bricks and mortar and Alberta is hot right now.’ ”

For the next three years, the quarterly interest payments came regularly, totalling $10,000. But in March 2012, three months before her investment was set to mature, Maria says she got a bad feeling about the investment. “I started making some phone calls. There was no one answering any of the calls.” By June, the company sent a letter saying that due to “recent economic times” they were having trouble selling units in a condo project in Red Deer and wouldn’t be able to pay interest to investors. That, says Maria, was the last she heard of her $50,000.

What CBI didn’t mention in its note to investors was that in February, the Alberta Securities Commission had suspended the registration of the Cadmans’ investment dealership, Frank Capital Partners, which sold some CBI funds—including the one in which Maria was invested. While her fund has not come under scrutiny by regulators, the ASC has issued cease-trade orders for two of CBI’s other real estate investment funds. It wasn’t the first time the Cadmans had run afoul of the regulator. In 2008, they were slapped with a two-year suspension and a $250,000 fine for not disclosing to investors in a company they ran called Keystone Real Estate Investment Corp. that they had filed for bankruptcy in 1997. Shortly after the sanction, Keystone changed its name to CBI.

In an interview, CBI co-founder Travis Cadman says his company was the victim of an Alberta property bubble that burst, killing demand for vacation properties and condos. He understands why investors are furious, but says he’s still committed to finishing its projects, or possibly selling the land to pay investors. “Anytime an investor loses money, whether you invest in Lehman Brothers or you go into any of those dot-com busts, anytime that happens it absolutely makes an impact on the investors,” he says. “But be real clear—we’re an active company. We’re doing business. We’re moving ahead with these projects. Nobody is walking away.”

CBI is just one of as many as 20 Alberta real estate investment companies that have run into trouble in the past year after raising an estimated total of nearly $2 billion. Much of that money came from small Canadian investors now scrambling to recoup even a portion of their savings. The incidents have raised troubling questions as to how provincial regulators failed to guard against some of the biggest losses. Class-action suits, meanwhile, are piling up in Alberta, which is fast gaining a reputation as the new Wild West for investors.

In October, investors launched a lawsuit against Platinum Equities, a firm that bought and sold commercial real estate in Calgary—often, allegedly, at a huge loss—saying the firm owes nearly 2,200 investors a total of $160 million. The Alberta Securities Commission (ASC) is investigating Platinum for allegations it illegally distributed its securities. The lawsuit comes months after the ASC issued its largest-ever penalty—$3.3 million—against Platinum’s one-time chief marketing officer, Dave Humeniuk, for an earlier $118-million real-estate investment, Concrete Equities, that collapsed in 2009. He was previously banned from being a mortgage broker.

Earlier this year, a group of investors tried unsuccessfully in court to win control over Harvest Group of Companies and Foundation Capital, real estate development firms run by a former Lethbridge pastor named Ron Aitkens that raised at least $93 million from investors. The company filed for bankruptcy protection late last year and a court-appointed monitor found it had transferred millions of dollars of investors’ money into projects in Ontario and Panama. The Alberta Securities Commission sanctioned Aitkens and Foundation Capital in 2009 for engaging “in illegal trading and distributions of the securities” and “making misleading or untrue statements” about its developments.

Last month, the ASC laid fraud charges against Calgary property developer Lucid Group, started by a 28-year-old former competitive figure skater. Investors have forced one of the company’s developments into foreclosure and are selling its Calgary property for $4.8 million, or about half of what they invested.

This spring, the Alberta regulator permanently banned a Calgary real estate developer named Jeanette Cleone Couch, saying her company Shire International Real Estate Investment, which raised money to develop property in Alberta and Hawaii, was actually a $20-million “fraud.”

All of these companies operate in Alberta’s freewheeling exempt markets. Unlike public companies that raise money on stock markets where investments are policed by a securities commission, companies operating on the exempt market aren’t required to have their investments reviewed by any regulator. Until recently, their salespeople didn’t need to be trained or licensed. Alberta has some of the most relaxed regulations for exempt markets in the country. In Ontario, for instance, investors who buy exempt market securities have to be “accredited,” either by having a high net worth or being able to spend at least $150,000 in a single investment. In Alberta, anyone can invest in speculative real estate development on the exempt market, although small investors are limited to $10,000 in any one fund.

Even after 2010, when provincial regulators began requiring exempt market dealers to be licensed, Alberta was one of three provinces—along with B.C. and Saskatchewan—to pass a rule that allowed many companies to avoid registration under certain circumstances. “There’s nothing to prevent someone who may have served time for fraud, a disbarred lawyer, or a real estate broker who lost their licence from going into one of these provinces and selling products in the exempt market,” says Ermanno Pascutto, founder of the investor rights group FAIR Canada.

Among the practices that went on under the watch of the Alberta regulator was an unusual arrangement that allowed a company called Eyelogic Systems, whose core business was renting equipment to eye doctors, to become a controlling shareholder in at least a dozen of the now-troubled real-estate ventures. Eyelogic was started by a Calgary doctor who had developed computer software that could replace traditional eye exams. But aside from renting ophthalmology equipment, the company also invested in hundreds of real estate ventures in Alberta in an arrangement that allowed many of the firms to market their investments as RRSP-eligible.

Under Canadian tax laws, investors can’t use registered funds to invest in most real estate developments unless they are public companies, or have a majority shareholder that is a public company. Eyelogic, which is listed on the TSX Venture exchange, paid an average of just $600 to buy a 60 per cent share in each real estate investment corporation. That allowed developers to offer their investments as retirement savings vehicles, opening the door to potentially millions of dollars in RRSP money that would otherwise be out of reach to developers.

In return, the company earned a percentage of all the RRSP money invested as a “management fee,” although it stated in offerings that it had little involvement in managing any of the firms that it controlled. At its height, in 2008, Eyelogic paid a total of $98,311 for a controlling interest in 171 private real estate companies in return for $660,000 in management fees.

While Eyelogic was backing investments and collecting management fees, a sister company, Olympia Trust, handled the RRSP accounts investors used to direct their retirement money into the real estate developments, charging investors an annual fee for its services. In an interview, Rick Skauge, CEO of both Olympia and Eyelogic, says he originally developed the arrangement as a way to help raise money for his own real estate project, called Bearspaw Tree Farm. It made sense to expand it to other investments, he says, giving small businesses access to needed cash and small investors better return on their money.

“It was just a way to facilitate businesspeople raising money,” he says. “It certainly wasn’t a licence to rob people of their wealth.” Skauge says he, too, was taken in by many of the now-failed developers, some of whom had a history of successful developments. “You’re assuming you can tell the good guys from the bad guys and you can’t,” he says. “I’ve been in this business a long time and I can’t tell the difference between the crooks and the good guys face-to-face.”

In some cases, he says, Eyelogic was able to remove bad managers from troubled companies. In other cases, he says, company management simply ignored Eyelogic’s requests. Eyelogic took Shire, the banned Calgary company, to court to force a management overhaul, but it went into receivership before the case was over.

Investors, meanwhile, have launched as many as six different lawsuits against Eyelogic over allegations it failed to properly act as a controlling shareholder. None of the lawsuits have been successful, Skauge says. Investors may be looking for someone to blame, he adds, but they all signed disclosure statements that set out Eyelogic’s involvement in the deal, and agreements indemnifying Olympia Trust. “We weren’t the investors’ partners. Eyelogic made a small fee for that and we’ve been dragged into court enough times that we’ve paid significant legal bills,” he says. “But we probably had 260 companies that were controlled subsidiaries. Do you think for a minute we didn’t think some of them would go bad? They had to.”

But investors say the structure allowed potentially thousands of unsophisticated investors to pour their RRSPs into risky real-estate deals they didn’t understand. Myron Achtman and his twin brother, Malcolm, lost money in two different real estate developments that listed Eyelogic as a controlling shareholder in order to make them RRSP-eligible. They are now leading investor groups fighting to recoup their losses. “Some investors put in everything they owned,” Myron says. “Some of these people lost their homes.”

While investors can sue to try to recoup their money, the process is time-consuming and expensive, and courts have little ability to force regulatory change. “It’s not like the courts will be able to do anything about this,” says Kevin McGuigan, the Calgary lawyer leading the $160-million lawsuit against Platinum Equities. “The question that does come up then is regulation—who should be regulating this, and how should it be scrutinized in order to protect the public interest?”

Alberta Securities Commission chair and executive officer Bill Rice says the regulator investigates all allegations of fraud and misconduct and takes action when necessary. But not every investment that goes bust is illegal, he says. “It’s not our mandate to sanction people for incompetence,” he says. “We are simply not in a position to go and sanction people because investors make strong allegations concerning their conduct.”

Ultimately, he says, it’s up to the investor to decide whether a deal that sounds too good to be true is worth the risk. “We spend a great deal of time and money trying to warn people that they should look after themselves,” he says. “But in the end, it’s the investor who is going to make his or her own choice.” He says that the real estate problems represent a small piece of Alberta’s exempt markets, which are a useful tool for small businesses to raise capital.

Despite the problems in exempt markets, Skauge has no plans to get out of the industry. Instead, he says he’s come up with a new structure that he believes will “fix the industry.” Rather than simply pass money between investors and developers, Skauge says Olympia Trust now plans to act as a custodian, essentially keeping investors’ money in escrow and passing it to developers when they’re ready to buy land, in exchange for title to the property. Olympia will charge developers a fee. “The crooks won’t like this new structure because they won’t have any chance to take their dollars and do things they’re not supposed to do with it,” he says.

On the other hand, Travis Cadman says he’s taking a break from the exempt markets. He now runs a company called Arizona Investar, which buys foreclosed properties in the Phoenix area, renovates them and sells them to investors. He says the exempt market has become too difficult a place to raise money, now that it’s been tainted by too many investor lawsuits and fraud accusations.

“I’ve been in the real estate space for 28 years and seen a lot. I just look at it and I’m just not comfortable,” he says. “I think there are a few shysters out there who shouldn’t be in the business.”

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How Alberta became a wild west for small investors

  1. Sounds like a bunch of greedy people screwing each other. No loss there.

    • sounds like you have no understanding of this.

  2. Not much has changed in Alberta since they issued their own currency…in what…1935?…..yet Macleans only looks at Quebec.

  3. I’m glad that the article mentions the Lucid Group and the 28 year old Adam Drybrough,I’ve seen the damage that this company has done and cant wait to see them pay for their crimes.

  4. If anyone is interested in seeing some of the damage that I mentioned Lucid Group has done they can go to a website called Reviews Talk.On there they can find documents backing up victims claims,not just investors but suppliers,employees and contractors.Adam Drybrough and Blaine Kennedy have’nt been paying anyone for work that they hired them to do.

  5. Excellent article, mind you it is tough for the average investor to really know about any investment. The ASC says to do your due diligence, however when you attended the Investment companies presentations, looked at their slick advertising/promotional material and even phoned the ASC to see if they were sanctioned, everything seemed to be above board. Regulators cannot protect investors from fraud or shady promoters. The Alberta Securities Commission has sanctioned many investment companies for engaging “in illegal trading and distributions of the securities”, yet for years they allowed the above mentioned companies to raise capital and file the securities with the ASC. Why did they allow these companies to operate and distribute securities in the first place, if they knew they were engaging in illegal trading. If you would like to see how an investment can go bad, and how it impacts investors then go to this link and read:

  6. By Dan Healing, Calgary Herald October 27, 2012

    Two men are charged with fraud for allegedly illegally selling
    securities in the Calgary-based Lucid Group of Companies, the Alberta
    Securities Commission said Friday.

    Blaine Russell Kennedy, 43, and Adam Gilchrist Drybrough, 28, are to
    appear Nov. 28 in provincial court to face charges of fraud, making
    false statements, trading in securities without a prospectus and
    unregistered trading, the ASC said in a news release.

    The commission alleges the illegal activity under the Alberta Securities Act has taken place since 2007.

    The two face 17 charges jointly, while Kennedy faces 23 additional charges alone.

    In a phone interview, Drybrough told the Herald he can’t comment on the case because he hasn’t enough information.

    “We need to see what they’re saying and then speak to counsel and go from there,” he said.

    “Myself, nor Blaine, nor the company has been provided any documentation
    at this point. I found out about it by way of the news release this

    He refused to say what the current status of the Lucid Group is or answer any further questions.

    According to sparse information on its website, “Lucid is a group of
    real estate-focused companies which hold and develop land. Our business
    locations are positioned throughout Alberta.”

    The Lucid Group has had a high profile in Calgary, bidding $65,000 to
    sponsor Kelly Sutherland’s chuckwagon in the 2011 Calgary Stampede,
    after sponsoring Vern Nolin in 2008.

    ASC spokesman Mark Dickey said Friday the commission decided to invoke
    its option to pursue the charges through provincial court in part
    because it would allow the ASC to seek jail sentences. None of the
    allegations have been proven in court.

    The charges relate to a series of Lucid real estate-related projects
    including Lucid Communities, Lucid Gregoire Lakes Project, Lucid Capital
    American, Lucid American Investment Fund, Lucid Hotels Meadow Lake
    Limited Partnership, Lucid Commercial Ramsay Crossing, Lucid Capital
    Barlow and Lucid Capital Fort McMurray.

    At least 13 victims are listed in an information filed for the case.

    According to its website, Grant Thornton was appointed trustee in
    bankruptcy for Lucid Capital Barlow, owner of the Flatiron Restaurant
    and Bar, in September 2011 and later reported that unsecured creditors
    were owed about $9.3 million. It listed as assets unspecified securities
    worth $8.5 million.

    The restaurant at 2493 27th Ave. N.E. is now closed and listed for sale by Colliers International for $4.8 million.

    Grant Thornton is also the trustee in bankruptcy for Lucid Commercial
    Barlow and Lucid Capital Fort McMurray, according to its website.

    Last February, an ASC panel ruled against an application by Harrington
    Capital Partners Inc. to become an exempt market dealer with Kennedy as
    the ultimate designated person for the company, citing in its written
    decision Kennedy’s record of bankruptcies and civil actions that he did
    not contest.

    In a separate ASC decision rendered in April 2009, Drybrough and a
    company called Lucid St. Petersburg Holding L.P. agreed to jointly pay
    $25,000 to settle ASC allegations, plus $5,000 in costs, after admitting
    they had made a “prohibited representation” by using the word
    “guaranteed” in a brochure to describe an investment that wasn’t

    Read more:

  7. The writer fails to acknowledge that the Exempt Markets are now regulated and requires those in the business off selling Exempt Securities be licensed and registered with an Exempt Market Dealer (EMD). Will this top failures? NO but it does required the EMD’s perform due diligence on each company they offer.
    The writer is also naive to think that as she states” Unlike public companies that raise money on stock markets where investments are policed by a securities commission ” companies offering there securities deliver a prospectus that meets disclosure requirements but there is no guarantee the company has a sound business plan or management.not so only for disclosure.

    She should also acknowledge that there was 7 times more funds raised in the exempt markets than was raised in the prospectus market (according to the BCSC)

    Having a bureaucrat tell you how to invest your money does not make sense, look at Ontario its OSC is run by the Banks & Bay st. That is how RBC made 7 Billion in profit so far this year– amazing

  8. Great article, I should add, what is not mentioned here is that registered Exempt Market Dealerships sold both CBI and Foundation. Pinnacle Wealth Brokers and Solid Financial Solutions are two organizations that promoted and sold millions of dollars in both of these products. In the case of Pinnacle Wealth Brokers, this adds to the long list of failed investments that they have been plagued with since changing it’s name from Alberta Land and Investment Brokers. I think we investors also research the people running investment firms, to see what their values are. Then look at the investments that those firms offer and do some due diligence on the investments.

  9. “Alberta Securities Commission chair and executive officer Bill Rice says the regulator investigates all allegations of fraud and misconduct and takes action when necessary.” Hmmmm, I think not. While lawyers and those close to the ASC make tens, perhaps hundreds of millions in legal fees from exempt products, restructuring, receiverships, etc? I think we now know why the ASC does want to turn this cash cow over to the federal government. Profit to the few, at the expense of the many. More examples at

  10. Foundation Capital raised around $500 million not $97 million, Aitkens made over $150 million personally, the investors are looking at getting back $0.10 to $0.20 on the dollar.

  11. Don’t forget Bridgecreek Group of Companies starring Coluin Becker and Bill Bradley!! two shining stars of the human race…

  12. Hmmm. Can we now have a discussion about the ASC lawyer who signed a due diligence document, handled to potential investors of a company listed on the ASC, that is now entangled in a Special Crown Prosecution Criminal Case ? Hmmm ? Can we ?

  13. Has anyone heard of Bernie Madoff? I think 70 Billion by the time it was said and done?

  14. This excellent article touches the surface of the problem. Yes, there is risk in any investment. But when foul play or outright criminal behaviour is involved, the investors find themselves at the behest of the wrong doer for any timely information about the status on the project until it is too late. Then there is the ambivalence and/or disregard by the RCMP due to poor communication between them and the regulators.. Once the investors finally locate one another to start any type of shared legal action, they are required to pay huge amounts to legal firms just to try to obtain the basic information that they should have been provided by the promoter. The promoters know this and drag out any process of information sharing until forced.Then the court process takes more time and more money and the end result leaves the investors questioning their understanding of justice or fairness; after the courts allow the wrong doer to walk free with no restitution or punishment. The only penalty that occurs in the few cases that are prosecuted, is to be paid to the Alberta Securities Commission, who’s mandate is/was to protect the public. Where is the fairness in that? What about the investors that lost everything? And who allowed these promoters to operate under an exemption to a proper prospectus? Only the ASC can do that. Do we see a pattern developing here? Why is this issue so prevalent in Alberta.

    The number of people affected by questionable investment promoters in Alberta is estimated to be 25, 000 – 30,000. Then Extrapolate that number into families. This is a serious issue. There are cases of suicide, loss of homes, marital discord, coming out of retirement to return to work to make ends meet, and soon-to-be retirement plans – long delayed. The damages are significant and long lasting. The cause of the damage can be ascertained, and mitigated if a proper process existed to investigate matters before it is too late.

    The regulators and the police, and the justice system that are all supposed to serve the public, must do a better job and should be held accountable.