Feature: Pigeon King International: 'Why is nothing being done about Arlan Galbraith?' ask breeders two years after the collapse
Monday, August 9, 2010
After hundreds of farmers and contract breeders lost close to $40 million in a failed Ontario pigeon breeding scheme, some are asking why it is taking so long for police inquiries and bankruptcy proceedings to bear fruit
by Mary Baxter
It's been more than two years since Pigeon King International collapsed, owing nearly $40 million to hundreds of contract breeders on both sides of the border. Since then, the Waterloo pigeon breeding business' failure has triggered two bankruptcies – those of the business and its founder, Arlan Galbraith – and a joint criminal investigation by the Waterloo Regional Police Service's fraud squad and the RCMP.
Yet, as of July 8, creditors hadn't seen a cent from the bankrupt estates and no charges had been laid. Galbraith, meanwhile, continued to reside in the luxury home he built using company money near Cochrane, ON.
The PKI breeding scheme offered pigeon breeding pairs for as much as $500 and bought back offspring for up to $50 each. Documents from both the RCMP and the Waterloo Police indicate that allegations the operation was a Ponzi scheme triggered the investigation. Ponzi schemes depend on a continuing flow of money from new participants to pay off earlier investors. Such schemes are illegal under the Criminal Code, according to a January 2009 report from the Office of the Superintendent of Bankruptcy.
Farmers who were involved in the venture wonder why it's taking so long to conclude the investigation and bankruptcies. They are discouraged by a lack of information and with the authorities' apparent inaction, they are puzzled about what steps to take next.
"Why is nothing being done about Arlan Galbraith? It completely mystifies me," says Dale Leifso, a Paisley area farmer who invested more than $256,000 to buy 550 pairs of PKI pigeons. "It's been over two years and information on this case has been very, very limited. And when there have been meetings, only certain people get invited."
In particular, he says he's "very upset" with the way BDO Canada Ltd., the trustee for both bankruptcies, has handled the issue.
He says that his calls to the trustee have often gone unanswered. When he does reach someone at BDO, "it's like Pigeon King is just one more challenge they've got to deal with and it doesn't seem to credit any sort of importance" to the bankruptcy, he says. "The magnitude of the money involved in this and the number of people that have been hurt should have catapulted this affair to the top of their (BDO's) list," he says.
He also worries that administrative fees will eat up the money available to reimburse creditors. BDO is not a victim of the company's collapse, he points out, yet they will be the first to receive any money retrieved from the estates.
When he got involved with PKI, Leifso thought he'd signed a contract that would earn him $250,000 a year for 10 years. Instead, PKI closed its doors a month ahead of his first shipment and he had to euthanize his birds four months later. He's since had to take off-farm work to tackle his debt.
In June, he attempted to reach five inspectors representing creditors in Galbraith's personal bankruptcy. Two responded by leaving messages and he called them back but, as of July 8, they had not responded to his calls.
"I think most everyone has given up," says Jolene Humbert of Republic, Ohio.
Humbert and her husband, Aaron, are among 50 former U.S. breeders trying to recoup their losses after PKI folded in June 2008. The couple obtained a $400,000 loan to acquire 1,200 birds and a barn to house them.
Getting information from Canadian authorities has been difficult, she says. Soon after PKI's bankruptcy on June 2, 2008, the group hired Toronto-based lawyer Maureen Ward to represent their interests with the trustee at the company's creditors meeting and investigate Galbraith's private assets. Ward, an attorney with Bennett Jones LLP, a Canadian firm specializing in fraud recovery, withdrew from the case in August, 2008.
"We believe that this private investigation is not necessary since the Trustee in Bankruptcy is thoroughly reviewing the accounts and personal assets of Arlan Galbraith and you will therefore be entitled to such information in that process," Ward wrote in her letter of resignation.
The group subsequently approached former PKI salesman Bill Top to represent their interests. After working with them for several months, Top resigned for personal reasons.
Humbert says the last contact she had with authorities was when she faxed a claim against Galbraith's personal estate to BDO last winter. Former PKI breeders petitioned Galbraith into bankruptcy in December 2009. Neither Humbert nor Leifso received notice about Galbraith's bankruptcy creditor's meeting in January.
In the months following PKI's collapse, phone calls from other U.S. breeders were so constant Humbert had to turn off her phone. Now, two or three calls a month trickle in.
It's not worth investing money "to get justice" if Canadian authorities do not want to do anything, she says.
"It didn't seem necessary to notify them (PKI creditors) again," said Susan Taves in February. The BDO spokesperson and vice-president explained the notice only went to creditors Galbraith listed on his personal statement of affairs. It was posted on BDO's website, she added.
The trustee and PKI inspectors also permitted Galbraith to skip his bankruptcy creditors meeting. The self-anointed Pigeon King had asked to be excused, saying he was short of money to make the trip. In a July 2010 e-mail, Taves noted that she did not know if the RCMP would charge him for not attending the meeting. "Something they are looking at I am sure for their full investigation," she wrote. "They look at all/any issues with a bankruptcy investigation order."
Faced ridicule
Bill Marshall (not his real name), a farmer near Listowel, says he was interviewed by the RCMP a month or two after the company's collapse but hasn't heard anything since. He has been in touch with an inspector appointed by PKI's creditors. He doubts he'll see any of the money he's owed. "We've kind of put it behind us."
After PKI collapsed, Marshall says he was ridiculed for getting involved and has asked that his name be changed to protect him against further ridicule. He says Canada's legal system "doesn't favour the victim."
Marshall says he was attracted to the venture by the promise of high returns on his $150,000 investment and the opportunity to become involved in what he understood would eventually become an effort to promote pigeon meat worldwide.
Marshall and his wife obtained 300 pairs of pigeons and sold the offspring to PKI for six months. They were just getting ready to ship birds on their second contract when the company collapsed. He estimates he's owed more than $100,000, not including the $20,000 spent to renovate his barn.
He was one of about 60 breeders who tried to set up a new company after PKI went under. The venture mostly ran on volunteer power. Each participant paid in "a few hundred dollars" for materials and administration expenses and each paid for his own butchering. But it soon became clear that the biggest hurdle involved the birds themselves. "We had contacts in Europe and they said 'get rid of them; they're the wrong kind of birds,'" he says.
When the venture quietly wrapped up last summer, only about 15 breeders remained, he says. Marshall acquired a breed more suited to squab production from another participant in the venture and now sells offspring from these for $5 each to the Chinese market in Toronto. He also has had to find a job off-farm.
He says he believed in the legitimacy of the venture right up until the PKI bankruptcy creditors' meeting in July 2008 when Galbraith, who attended the meeting, rebuffed his invitation to share tips with those thinking of pursuing the new venture.
Lost 'a pile of money'
Ken Wagler, one of PKI's top sales consultants and a contract breeder, was also involved in the follow-up venture.
Wagler, who farms near Embro, had crisscrossed western Ontario and Western Canada to promote PKI and company records show the work was lucrative. Between March 2007 and July 2008, PKI paid him $267,519 for his sales services and another $37,803 as a pigeon breeder.
He claims he has lost "a pile of money" on the venture and that he and his son are struggling. Bankruptcy records indicate that he's owed about $5,000 as a vendor to PKI and nothing as a breeder. He says he now receives an old age pension and supplements the income with cash crop farming and some custom lumber sawing.
Wagler says money wasn't the only disappointment. He had known Galbraith for more than two years and counted the company's founder and sole owner as his friend. He says the last time he spoke to Galbraith was the week before the company's bankruptcy.
Wagler promoted the follow-up venture to media in June 2008, emerging from a meeting of breeders and showing reporters a cooler filled with trays of squab, explaining that "Sicilian style" squab sells for $125 a plate at a Montreal restaurant. In an interview after the meeting, he said there was a processor interested in the birds and there was a potential to distribute them around the world.
Two years later, Wagler says the group encountered several hurdles and "economics ground it down." For one thing, the birds were too small.
"By the time we got enough birds in an entrée to make a suitable product for the market, it was going to be $28" for a meal that would feed four people. That amount didn't cover marketing costs. Application paperwork for government grants was also daunting. "You almost had to prove you didn't need them," he says.
After PKI collapsed, Wagler had wondered if the chicken industry conspired to put his former employer out of business and worried it might target the new venture. An industry spokesman denied the conspiracy theory. Wagler continues to wonder. "They're afraid of losing market share," he says. "I think the potential (to popularize pigeon meat) was huge."
On top of everything, Wagler says he faced a personal hurdle as well; he was becoming allergic to pigeons and had to wear a mask when working with them. He sold some of his birds for $2 to $3 at a market in Kitchener. Someone near London bought another 100.
Wagler says he was interviewed by both the RCMP and the Waterloo Police Service fraud squad early on, but has had no contact in recent months. He says he was aware of Galbraith's creditors' meeting in January but was out of the country at the time.
Wagler speaks of feeling a responsibility to some of those who invested in PKI. "I was the man who got a lot of folks interested and all I did was try to explain the whole situation to them as I knew it and understood it. So when it went bad, I felt bad."
He says that, just before the company's collapse, Galbraith had introduced silver king pigeons, which are used for squab production, into his inventory. He wonders if Galbraith had planned to cross the birds with his "high flyers" to produce a bird that produced offspring at a faster pace, so he could raise capital more quickly to build a processing plant.
Processing plans
During the final months of the business, Galbraith claimed that the birds would be used for meat processing and he was planning on building a squab processing plant on his property near Cochrane.
However, Mark Wolf, a former PKI employee, says Galbraith never seriously considered processing the birds. A statement in one of Galbraith's guides for contract holders appears to support Wolf's claim. On page 24 of the guide, obtained by a prospective grower in February, 2006, it claimed that "Arlan Galbraith has no meat type birds as the market price is low, feed is high and profit is low."
The statement, which appears as one of four points made under a subsection titled "feed costs," was removed from the section in an updated version of the book, published after Wolf was hired in March 2006.
In 2008 interviews, Galbraith said that becoming involved in meat production had always been in the back of his mind, but he'd started out small. There was "no way I could contemplate building a processing plant unless I knew that I had the interest of enough people to do it on a large enough scale."
As interest grew in PKI, he decided to take the leap. He said he chose the northern Ontario location because it was within a day's drive of major markets in southern Ontario, Montreal and the Eastern Seaboard and was also close to breeders in Western Canada.
Galbraith said he spent $30,000 to commission engineering plans for a processing plant, which was going to be a prototype for others to be located in Canada and the United States. He wanted to build his own plant rather than use an existing processor because he wanted federal licensing. "The provincial plants are no good for what I wanted to do." (In Canada, products processed at a provincially licensed abattoir can only be sold within provincial boundaries).
When asked about how he planned to make the transition from multiplier flocks to meat flocks, he noted the switch would be "gradual."
As for Wagler, he says he wishes the case would go to trial, "so ultimately the truth could come out. None of us would be left in speculation."
'Extraordinary' investigation
Dale Roe, a fraud squad staff sergeant with the Waterloo Police, calls the ongoing investigation "extraordinary" because it is much larger than those the police service normally takes on. "It's unfortunate that some incidents do take a long time to investigate," he says, explaining that the volume of information the investigators have been trying to uncover is what makes it unique.
In January 2009, the Waterloo Police and RCMP each assigned two officers full-time to the case. Six months later, they escalated their review of the scheme to a criminal investigation and obtained PKI documents and electronic media from BDO with a warrant. Galbraith had surrendered these when he placed PKI in bankruptcy.
The records included bank and financial information from Galbraith's former businesses Pigeon King International, Sacred Dove Ranch and Benn Contracting, personal business records as well as records relating to seven former breeders and pigeon barn operators. Police have estimated there are more than 50,000 PKI business documents that have to be reviewed.
By October 2009, police were also processing about 150 complaints about the venture and had sent letters to former breeders to invite them to contact them.
"Each file had to be looked at, reviewed, and the information confirmed," said Wally Hogg, the Waterloo Police fraud squad's staff sergeant at the time. (Hogg retired shortly after the investigation was escalated.) Along with those who have made complaints, police have also interviewed former employees.
By press time, however, no listing for Galbraith's Cochrane property had appeared on the Canadian Real Estate Association's multiple listings service. BDO and the bankruptcy inspectors have allowed him to reside there indefinitely until it is sold.
In an e-mail to Better Farming in June, Taves stated, "we are moving forward with the sale of the property." In a July e-mail, she confirmed a MLS listing was not yet in place. "We are also considering other sale options given nature of property," she adds.
Taves says a meeting with the bankruptcy inspectors was scheduled for July to discuss the next steps. Otherwise, the trustee has had no other significant activity on either file "other than our contact with the RCMP/police for their investigation."
Taves wrote that the bankruptcy file will stay open pending the investigation's outcome. "Once funds are realized from the sale of the property, we will update all creditors related to payout of funds, to whom, timing etc." No funds have been paid out to date, she said.
In February, Taves said that nearly $100,000 had been spent to administer the bankruptcies. She did not know if more trustee and legal fees would result if the case ended up in criminal court. Nor did she know if remaining fees to administer the bankruptcies would consume most of the assets. It would depend on how much the property in Cochrane, Galbraith's only tangible asset, sold for, she said.
A document Galbraith supplied to the trustee estimated the property's net realizable value at $300,000. (Galbraith's former Waterloo residence was sold in 2008 to cover outstanding GST payments. BDO has asked the federal government to return the funds to the estate, but the Canada Revenue Agency has refused the request, Taves wrote in July, adding that BDO will review further steps and options with inspectors.)
There are about 550 former pigeon breeders and holding barn operators who could file claims against Galbraith and another 450 with claims against PKI. Preliminary reports for the bankruptcies indicate there are 123 claims filed against PKI, of which 58 are from Canadian breeders and 50 from U.S. breeders for nearly $39 million. The reports also indicate that 35 Canadian and six U.S. breeders filed personal claims against Galbraith for more than $15 million. BDO is exploring the possibility of combining the two groups of creditors. BF