Police pronounce Pigeon King a Ponzi

Sunday, January 24, 2010

© AgMedia Inc. by BETTER FARMING STAFF

Ponzi schemes aren’t illegal in Canada but through recently obtained court documents Better Farming has learned of a police plan to charge Arlan Francis Galbraith and the company he ran, with fraud over $5,000 under section 380(1) (a) of the Criminal Code of Canada. Maximum sentence is 10 years in prison although full sentences are rarely served and maximums rarely imposed. In an Information last June, Corporal Mona Alexandra Eichmann, a 23-year Royal Canadian Mounted Police member, told a justice of the peace that “…Galbraith and Pigeon King International Inc. defrauded many citizens of Canada and the United States by orchestrating a Ponzi scheme…”

An Information to Obtain a Search Warrant is a sworn statement by a police officer providing details of what they believe is an offence committed by a suspect. Neither the subject of the Information nor those mentioned in its contents are normally aware of its existence beforehand. They therefore have no prior opportunity to challenge the Information, or the warrant, if one is issued. Warrants can later be quashed if there are sufficient grounds. Ponzis depend on money from new participants to pay earlier investors. While the good times rolled for PKI, public statements by police, government officials and even some financial institutions ranged from “no comment,” or “do your own research,” to outright endorsement of the scheme.

Galbraith knew what he was doing In her Information however, Eichmann claims “Galbraith was fully aware that there was no end market for his birds.” She alleges he “also knew that in order for his scheme to continue he would need to make it appear that he was going to build a processing plant.” She estimates “that 40 per cent of the victims did not receive any funds whatsoever,” Eichmann needed the warrant to search bankruptcy trustee BDO Dunwoody Limited’s Kitchener office, for a large quantity of documents and electronic media surrendered by Galbraith when he placed PKI in bankruptcy. None of Eichmann’s allegations or the statements of others cited in her Information have been proven. No one involved with PKI has been charged criminally nor found guilty of any wrong doing. There is no certainty that any charges will ever be filed. Police could also add more charges or names. When the warrant application was filed about 100 investors had filed complaints. Police have since invited others to come forward. Many investors were Amish or Mennonites whose beliefs prevent them from participating in court proceedings.

Former employees have been talking too The Information states that on Nov. 10, 2008 former PKI bookkeeper Joan Carter told police the end market for PKI birds “was purchasing breeding pairs and for farmers to purchase another flock of breeding stock once the 10-year contract was completed – a never ending cycle of selling breeding stock.” The Information also says Carter acknowledged that Galbraith’s public explanation about the purpose of the birds changed “even though nothing else changed.” A few months before her statement to police, when PKI failed, Carter distributed an emotional letter to investors. “This was not ever a “scheme” (Ponzi, Pyramid or otherwise) and Arlan is not a crook,” Carter wrote. She described Galbraith as “a man of vision who had a very unique and brilliant plan that he was going along and executing brilliantly until the jealous fear mongers of the world decided to make him a target.”

Cooking the books? Eichmann’s Information cites a Nov. 3, 2008 e-mail from PKI communication manager Shelley Mason, relating an allegation from former PKI employee Lindsay Mitchell, that Carter had “made up receipts during a GST audit.” The Information also says Mason reported that Mitchell claimed on her last day (June 17, 2008) Carter requested help removing “entries that she (Carter) put in to make it look like the company had lots of money.” Eichmann’s Information says investor Richard Procee told her he handed Carter $65,000 two or three days prior to the PKI bankruptcy. According to the Information Procee alleges that Carter failed to mention that the business might fail. According to the Information, in a statement to police June 20, 2008, former PKI salesman Ken Wagler described his earlier unsuccessful effort to convince Galbraith to reveal his markets and agree to a non-voting board of directors made up of larger investors. The Information says he told police that Galbraith refused to identify his end market.

Not really a lending institution According to Eichmann’s Information, on Sept. 6, 2008, Wagler brought police details of a $262,500 loan at 12 per cent annual interest made to Galbraith by Jacob Hofer, of the Hutterian Brethren, Bow City, Alberta. The Information says police received confirmation from Hofer Dec. 22, 2008 and Hofer claims Galbraith disguised the loan agreement to look like a breeding contract to avoid the appearance of being a lending institution. The information says Galbraith told him the money was in part for Galbraith’s Benn Contracting which financed free pigeons for breeders under contract. Eichmann’s Information cites former PKI salesman Keith VanDyk’s statement claiming he loaned Arlan Galbraith Financial $150,000 at18 per cent interest and VanDyk claimed Galbraith’s 18 per cent offer stopped following a letter from the Ontario Securities Commission. The Information says VanDyk told police the company had no meat birds and the only end market was new breeders. According to Eichmann’s Information, Waterloo Regional Police interviewed Galbraith Feb. 15, 2005, the day after receiving a complaint through Phonebusters that “the suspect is preying on the Mennonites and Amish.” At that time, police say Galbraith wouldn’t give specifics but told them he was selling pigeons bought from farmers to purchasers around the world. Phonebusters (now known as the Canadian Anti-Fraud Centre) is a joint RCMP, OPP, Competition Bureau of Canada, venture.

Follow the money; if you can Eichmann’s Information says funds “started in Pigeon King International Inc. then flowed to Sacred Dove Ranch Inc. then transferred to Benn Contracting Inc. and eventually were moved back into Pigeon King International Inc.” Eichmann’s Information says “the timing was either the same day, or within a day,” and that all three entities were owned and controlled by Galbraith. According to the Information, Eichmann claims PKI bankruptcy trustee Susan Taves told her that in 20 years she had never seen “a three corporation structure like this that moved money in a circular fashion” and that Taves said she can’t find $150,000 of PKI money. According to the Information Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) provided investigators with a report showing two suspicious PKI transactions in Dec 2007. FINTRAC, which monitors financial institutions for signs of money laundering and terrorism, specified money laundering in their report.

Police officer a PKI investor Eichmann’s Information says on Aug. 8, 2008, former PKI salesman Edward Breault told police that Mark Fraser, a breeder and police officer from the Listowel area, contacted Galbraith “and was forwarded a letter before it was mass released, that the business would be declaring bankruptcy.” Eichmann’s Information reveals that Darryl Diefenbacher, PKI Chief Financial Officer between January 2007 and July 2007, provided a statement to police Aug. 15, 2008, which alleges that an OPP officer was a PKI breeder. Eichmann’s Information says Diefenbacher claims Galbraith told him that he wanted the OPP officer as a breeder regardless of how many pigeons he purchased. The Information says Diefenbacher claims Galbraith purchased a flock of meat birds near Edmonton so that he could claim he had pigeons for squab. Nevertheless, according to the Information, Diefenbacher says Galbraith “admitted there was no end use for his business,” and Diefenbacher also claimed Galbraith fired him for saying the business was a pyramid. On June 2, 2009, Kitchener justice of the peace Michael A. Cuthbertson denied Eichmann’s first application for a search warrant citing lack of detail and assorted errors. The application succeeded a few days later, with a different justice of the peace, after Eichmann submitted a taped interview with PKI bankruptcy trustee Taves, detailing dozens of file boxes, computers, other electronic media and two suitcases containing Galbraith’s personal documents. In a telephone interview today, Waterloo Regional Police Sgt. Robert Zensner confirmed that two RCMP officers and two from WRP, remain assigned to the joint task force investigating PKI. The two RCMP officers however will be leaving temporarily to help with the Olympics. Galbraith was recently declared personally bankrupt and is scheduled to appear in Kitchener for a meeting of creditors Wednesday.

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