Pigeon business financially unsustainable: forensic accountant

Thursday, November 28, 2013

by DAVE PINK

The contracts signed by Arlan Galbraith would have entitled the 894 investors in his Pigeon King International business to more than $387 million, a forensic accountant testified in Kitchener Superior Court Wednesday.

Instead, many of the people who invested in Pigeon King ended up thousands of dollars in debt and were stuck with barns full of worthless pigeons when the business went bankrupt in June 2008.

Galbraith is on trial for defrauding those investors.

Jeff Good, a specialist in investigative and forensic accounting with the Government of Canada, testified that the business was unsustainable. Good based his calculations on the terms of those contracts, as well as on the production expectations promised by Galbraith himself.

Galbraith was in the business of selling breeding pairs of pigeons to people, most of them farmers, with a promise to buy back the offspring at a price stipulated in their five- or 10-year contracts. The business was dependent on attracting more and more investors, but as more investors were brought on Galbraith’s commitment to them grew at a rapidly increasing rate.

“Eventually, you were going to run out of investors,” Good told Galbraith, who is defending himself on the fraud charges. Considering that there were a limited number of breeders, “if not people in the world, you wouldn’t have enough. You wouldn’t have been able to continue.”

Initially, Galbraith had told the breeders that he planned to sell the offspring to hobbyists and pigeon enthusiasts for racing and shows. If any of his pigeons were actually sold to hobbyists, Galbraith has not told the court.

Galbraith started the business in 2001, but Good said he examined only those contracts signed after July 2005. Before 2005, Good said much of the business was based on handshake deals.

Good said the amount of money Galbraith would have owed to his investors was based on the production of 10 offspring a year from each breeding pair – a figure provided to investors by Galbraith.

Good said the contracts he had reviewed showed that in the three years leading up to the bankruptcy that Galbraith had taken in $41.6 million from investors.

Had the company not gone bankrupt when it did, Good said Galbraith would have been obligated to pay out more than $2.6 million to the breeders in June 2008. Galbraith did pay out $2.5 million in that May, and $2.4 million in April. “As he added more breeders that number was increasing each month,” said Good.

Good also concluded that of the 670 breeders who signed contracts after January 2007, 664 of them had no chance of ever recovering their initial investment.

Throughout the trial, Galbraith has contended that he intended to develop a breeding program to raise pigeons for human consumption, and that he was going to build a pigeon processing plant in Cochrane, in northern Ontario, in December 2011.

Good testified that Galbraith would have had to pay out more than $163 million to his investors to carry the business another three years, not including the cost of building the plant and the cost of trucking the pigeons to it.  

Crown attorney Lynn Robinson asked, hypothetically, if Galbraith had been able to raise that $163 million by attracting 163 investors at $1 million each how much would that eventually cost him? Good said the cost of carrying those investors would have eventually amounted to $1.5 billion.

The trial continues Thursday before Justice G. E. Taylor. BF