Little left in the kitty for the farmers who invested millions in PKI

Wednesday, February 2, 2011

In its December 2007 issue, Better Farming broke the story of Pigeon King International, a multi-million dollar pigeon breeding business that left hundreds of farmers in the lurch when it went bankrupt six months later. Since then, charges have been laid but there is little money left to repay those who invested heavily in the scheme

by MARY BAXTER, DON STONEMAN and ROBERT IRWIN

Over the years, Cindy and Allan Frank had first a dairy, then a beef cattle operation on their farm just outside of Brockville. By 2008, Allan was working off-farm, Cindy's job was ending and the barn was nearly empty. Elderly parents on both sides needed support and Cindy and Allan weren't getting any younger, either.

They had begun to think about selling the farm, buying land down the road and building a house, but they needed the security of a second income to do it.

A business opportunity advertised on a flyer that arrived in their mailbox seemed to offer the ideal solution. The venture involved breeding pigeons and selling their offspring to the company which sold the breeding pairs, Pigeon King International. It meant Cindy could work at home and there would be plenty of time to help their aging parents.

So the Franks went to the Waterloo area to tour other farms that had become involved in the venture. They were all growing and were content, and said they had no problems with money, Cindy recalls. We said okay, looks good, sounds good.

They applied for a bank loan, but were turned down. They would have given up if Mark S. DeWitt, the PKI salesman, hadn't suggested they try Toronto-based Merix Financial Inc., which specializes in mortgages.

DeWitt came to their farm in the spring or summer of 2007, the year before Pigeon King collapsed. We were months talking to him. It was quite a while before the deal went through. Allan was dragging his feet. Allan was looking into it. We weren't really convinced at first.

She says DeWitt was very friendly, down to earth. A trusting kind of guy. He seemed to be.

By all accounts, DeWitt was a persuasive individual. Long before he joined PKI, a New Brunswick court once found that he managed to sell a non-existent apartment building to an unsuspecting buyer. (See The Checkered Career of a PKI Salesman on page 34.)

The Franks eventually obtained a mortgage to pay $110,000 for the birds and to erect a Cover-All building to house them. Then, less than a month after the birds arrived, PKI declared bankruptcy.

Two and a half years later, in the shadow of the empty Cover-All barn, the couple struggle to make ends meet. Cindy lost her job. Her severance settlement helped pay the Merix loan for a while and, when it ran out, there were the employment insurance payments she received while she retrained. Recently, she found a part-time job, which generates just enough money to meet the loan payments. But, says Cindy, if that doesn't work out, we are in dire straits, about to lose everything.

The Waterloo Police Service's fraud squad estimates that 1,000 people invested a total of $20 million in the pigeon breeding scheme from 2004 to June 2008, the month it was declared bankrupt. BDO Canada Limited, the bankruptcy trustee for both PKI and its founder, Arlan Galbraith, has estimated the amount of creditors' claims to be significantly higher – nearly $39 million against the business and $15 million against Galbraith.

Based in Waterloo, the scheme offered pigeon breeding pairs for as much as $500 and bought back offspring for up to $50 each. Mark Wolf, a former PKI employee, said that Galbraith, who often favoured overalls when dealing with breeders, had a lot of charisma and used almost propaganda in particular with Amish farmers who were recruited as pigeon raisers.

Galbraith called it 'pigeon religion' and he'd hype this up almost like a little cult of pigeon growers and he really just convinced them, Wolf said in a 2008 interview. At the root of his pitch was the idea that everyone was in it together and that everyone would make money, he said.

Unsuitable birds
By 2007, Galbraith had recruited hundreds of breeders in the United States and Canada, claiming that the birds would eventually be used for meat processing and that he was planning on building a squab processing plant.

But others, including former PKI employees as well as experts in pigeon racing and squab production, challenged Galbraith's claims, noting that the birds were not suitable for racing, showing or meat production. Many alleged that PKI was a Ponzi scheme, an illegal activity that depends on a continuing flow of money from new participants to pay off earlier investors. By May 2008, four U.S. states had taken steps to prevent the company from operating within their boundaries, including regulatory actions.

Unable to meet his financial commitments, Galbraith placed the business in bankruptcy in June 2008. Creditors forced Galbraith into personal bankruptcy in 2009.

In December, after a two-and-a-half year joint investigation with the RCMP, the Waterloo police laid charges against Galbraith, now 62. He faces one charge of fraud over $5,000 and four counts under the Bankruptcy Act. The charges have not been proven in court and Galbraith has not entered a plea.

A news release issued by both police services attributes the fraud charge to allegations that the accused defrauded individuals in Canada and the United States of monies exceeding $1 million between 2004 and the date of bankruptcy in 2008.

In a December email, Susan Taves, BDO spokesperson and vice-president of the Kitchener-based bankruptcy trustee, says the other counts relate to Galbraith's failure to appear at a creditor's meeting last January, not delivering all credit cards to the trustee, obtaining credit of $500 or more since bankruptcy by the way of a Royal Bank cash advance and not informing the creditor of bankruptcy.

Galbraith turned himself in to police at their Kitchener station. He was released on bail Dec. 1, with his next court date set for Jan. 25. Police say no further charges are expected.

We're happy that he's been arrested, says Cindy Frank, although she doubts the charges will benefit them directly. Cindy never met Galbraith and wonders if he knew that the business was going bankrupt when he signed their breeding contract. You don't do that (reach bankruptcy) overnight.

Leo Donkers, a former dairy farmer near St. Thomas, says he was involved in the venture for over a year and recovered most of the his investment. He had to do some modifications to an existing barn to house the 200 pairs of birds, which now houses dairy goats and is used for storage.

He wishes the investigation had been concluded sooner. He talked to Galbraith once and recalls him as a smooth talker. He made everybody believe that he was the one that was going to save a lot of farmers, he says.

Donkers says he was drawn to the business opportunity, but recognized that it was a gamble. He claims that, if he had seen the newsletters the company issued to breeders beforehand, he wouldn't have bought the birds. He didn't like the way the business aligned itself with religion, pointing out that it often featured letters from breeders from Amish communities that referred to Galbraith as the man of the saviour.

But Donkers counts himself lucky, with PKI only owing him about $20,000 from the $100,000 he initially invested. He knows of one man who borrowed money to build a barn and another who bought about 100 birds shortly before the company collapsed. He knows of another former breeder whose birds became sick and who regretted spending so much money building barns to house them. The majority of people got hurt, Donkers says.

Three years ago, Kris Harris, who bred pigeons on his parents' property near Tupperville in Chatham-Kent, estimated that it would take four years to reach payback for investing in more than 1,000 breeding pairs and building a barn to house them. In December, Harris said he had moved on from the failed venture but declined to comment further on that subject or the charges against Galbraith.

Investment lost
Some investors are relieved the case is going to trial. One is Ken Wagler, a top sales consultant and a contract breeder. I've said all along that I'd like to see it go that way and let the justice system find out what the real truth is, he says. Was there a plan to run a Ponzi scheme and I was part of it, not knowing, or was there a legitimate business plan that went foul?

Wagler says that, because he was involved in sales, he made a pretty reasonable income from PKI. But five months before the business crashed, he turned much of his earnings into a breeding contract and lost the investment. Virtually, I worked three years for nothing.

Wagler says the failed venture meant that his son, who had invested heavily as a means of paying off the farm, now has to work hard off-farm to make ends meet.

For his part, Listowel farmer Bill Marshall (not his real name) wonders if the charges will stick. Galbraith claimed he was building a breeding flock for large-scale squab production. The explanation sounded so valid, Marshall says.

Marshall estimates that PKI owes him more than $100,000 for his investment in the birds. He also spent $20,000 to renovate his barn. He had to seek off-farm work when the venture collapsed and says he was mocked for getting involved. He's asked that his name be changed to protect him against further ridicule.

Marshall and Wagler were among about 60 breeders who tried to set up a new squab venture when PKI failed. That venture was also unsuccessful and wrapped up about a year ago. Marshall has continued with squab production and sells the young birds for $5 to the Chinese market in Toronto. Monthly income from the venture ranges from $400 to $750, but with feed costs rising, profits are getting slimmer. When he walks through the area in the barn where he kept PKI nesting boxes, I still think of those $9,000 cheques every month, he says.

He doubts much money will be left over once all of the legal dust settles. Knowing charges have been brought against Galbraith won't help financially, but is satisfying in one way. We'll see how it plays out.

Susan Taves, spokesperson and vice-president of the Kitchener-based bankruptcy trustee for both PKI and Galbraith, says they have retrieved $225,000 from the sale of Galbraith's 300-acre property near Cochrane, which was sold at auction in September.

The trustee is also trying to negotiate with the federal revenue department money for reimbursement of the proceeds of the sale of Galbraith's Kitchener residence, which was sold in 2008 to cover outstanding GST payments. Earlier this year, Taves estimated the sale value of the property to be about $300,000.

To date, the money remaining in the combined estates, including that realized from the sale of the Cochrane property, stands at $400,000.

Taves acknowledges that the amount currently recouped is low and would result in small payouts because of the number of creditors. She estimates that about $200,000 of the money collected has gone to professional fees.

She says the criminal proceedings put the bankruptcy process on hold. If a restitution for funds to be repaid is ordered, (by the criminal court) we expect that would be paid to us as the trustee, so that BDO could distribute it to creditors.

Efforts to obtain comments from Galbraith for this article were unsuccessful because Better Farming staff could not locate him. We used to see him around town quite often, but it's been quite a while since anyone has mentioned seeing him, said one Cochrane resident, who spoke on condition of anonymity. BF


Sidebar: The checkered career of a PKI salesman
Former PKI salesman Ken Wagler isn't the only salesman who says he lost money in the PKI crash. Former district sales manager Mark S. DeWitt is also listed as a creditor. He was on hand for the first PKI creditors' meeting. He had questions for the trustee and even seconded a couple of motions, including one affirming the appointment of the trustee and another appointing the inspectors.

During an interview for Better Farming's original Pigeon King story: “Faith in Arlan Galbraith, Ontario's Pigeon King,” published in December 2007, DeWitt was asked if he had ever been a lawyer in New Brunswick. “No, I don't know where you got that from,” he challenged.

In fact, he began his law career in 1973, but by 1987 he had been disbarred by the New Brunswick Law Society for stealing from a variety of clients. A New Brunswick court found the following:

That in 1982, DeWitt stole $66,299 from Roger Landry, a disabled Moncton, NB, man in his twenties who had been awarded the money through a personal injury claim. DeWitt told the man he would invest his money and double it within five years.

The court also found that in 1984, DeWitt sold Leo Maillet a fictitious 10-unit apartment building. In 1986, he cashed a trust account cheque for $60,000 in the name of Borg Warner Acceptance. In 1986, he stole $7,745 from Atlantic Bondag.

By December 1986, DeWitt had sold his real estate holdings in New Brunswick and fled to Arlington, Texas. A Canada-wide warrant was issued for his arrest and, on June 4, 1987, New Brunswick Provincial Court Judge Roger McIntyre sentenced DeWitt to three and a half years in jail. Despite an earlier apology from DeWitt, the judge found that he showed no sympathy for his victims and that, when he fled the country, he arranged his affairs in such a way that he would not have to pay restitution if he were ever brought to justice.

On Oct. 28, 1987 while in Dorchester Penitentiary, DeWitt declared bankruptcy with debts totaling $294,964. In June 1988 he was released to a Dartmouth halfway house after serving seven months.

He received a bankruptcy discharge on Jan. 1,1989.Halifax Provincial Court Judge Albert Bremner later found that on Aug. 14, 1991, DeWitt robbed Central Guaranty Trust in Halifax and got away with $4,048, then on Sept. 4, 1991 robbed the Grand Digue Caisse Populaire of $2,233. Police arrested him on Sept. 6, 1991 and he was held without bail. He was sentenced to consecutive terms of four years for the Central Guaranty robbery and 3.5 years for the Caisse.

By 1995 he was out of prison and working as a taxi driver, earning $800 per month, when he declared bankruptcy a second time, listing liabilities of $83,540. He was discharged from that bankruptcy on Aug. 29, 1996.

The New Brunswick Law Society has a judgment against DeWitt for $75,395 for some of the money it paid to his former clients. The society says that, despite DeWitt's bankruptcies, it still wants the money.

By May 2000, DeWitt was reaching out to Ontario farmers from a Saskatchewan phone number. His ads in the farm press offered “farm supply network franchises,” for a Calgary business. He still owes money for ads in Better Farming magazine.

By 2006, DeWitt was living at Erin, 80 km northwest of Toronto, and being pursued by lawyer Stephen Brogden on behalf of his client, Areia Concrete, over a small claims court judgment totaling $7,274. In 2007, Brogden attempted unsuccessfully to issue a garnishment against DeWitt's Royal Bank of Canada account in Moncton. In February 2008, when he discovered DeWitt had moved to Ottawa, Brogden filed a “writ of seizure and sale” with the Ottawa court.

Mark DeWitt applied for and received a pardon from the Parole Board of Canada, for his crimes. He has not been accused of any wrongdoing in the Pigeon King International affair. BF