A panel of the British Columbia Securities Commission says Michael Patrick Lathigee and Earle Douglas Pasquill, Vancouver residents at the time, failed to apprise the 698 investors that FIC was "close to insolvency" when they raised the money between February and November 2008.
Lathigee and Pasquill jointly directed and controlled a group of companies called the Freedom Investment Club, which included FIC Real Estate Projects Ltd., FIC Foreclosure Fund Ltd. and WBIC Canada Ltd.
By early 2008, the FIC Group had taken on significant debt in relation to several Alberta real estate properties it had acquired and was attempting to develop, with all of the loans including guarantees from other FIC companies, the securities commission said Monday.
Also at this time, Lathigee and Pasquill were aware that FIC as a whole was, in their own words, "in a very bad situation" and "close to insolvency," but chose to keep this information confidential and instead focused on raising money in an effort to "save" FIC, it said.
"The panel found that Lathigee and Pasquill knew when they were distributing the securities that FIC Group had severe cash flow problems, including an unfunded $8 million cost overrun on the company's biggest project," it said.
The panel also found that the Lathigee and Pasquill also committed fraud by using $8.5 million of $9.9 million raised from 331 investors in FIC Foreclosure to make loans to related companies instead of investing the funds in foreclosures of residential properties in the United States, the purpose for which the funds were raised.
"As a consequence of the respondents' dishonesty, the pecuniary interests of the investors in the corporate respondents were clearly put at risk. The 698 investors invested, and have lost, $21.7 million."
The panel has directed the parties to make submissions on sanctions.