Victoria-area investors beware. David Michaels, principal of Michaels Wealth Management, is staging his "lunch-and-learn" seminars.
As noted in previous columns, Michaels used to be licensed as a mutual fund salesman with Dundee Securities.
Then, in 2004, he was caught selling penny stock in off-book transactions with clients, and borrowing money from clients - then lying about it to investigators. He was fined $60,000 and suspended for two months.
When his suspension expired, he never got re-licensed as a securities salesman or a securities adviser.
He is still licensed as a lifeinsurance agent, but due to his securities problem, the Real Estate Council of ÎÚÑ»´«Ã½ has insisted that an experienced lifeinsurance agent supervise him.
Now, you might think that if Michaels is not licensed to sell securities products, and his insurance activities are being closely monitored, then he is under pretty tight rein.
This is not necessarily the case, however. In ÎÚÑ»´«Ã½, anybody can sell securities products that qualify for exemptions from prospectus and registration requirements. That covers a vast array of high-risk, illiquid investments such as oil-and-gas and real estate limited partnerships.
As mentioned in previous columns, Michaels promotes relatively safe insurance products, and high-risk exempt products, through hour-long infomercials on CFAX Radio.
Last Saturday, he started by pitching a life insurance annuity that provided a guaranteed return, then quickly moved to an investment in distressed properties in Arizona, Florida and Nevada.
Michaels referred to this investment as a "once in a lifetime opportunity," but he did not identify the deal.
To get that information, listeners would have to attend a "lunch-and-learn" seminar at his office at 21 Erie St.
One of the people listening to Michaels' radio patter on her car radio was Megan Hanwell, who used to be one of his clients. She said that when she heard Michaels flogging foreclosure properties in the southern U.S., she almost drove off the road.
She said that in early 2009, she heard Michaels on CFAX radio and thought he sounded credible, so she attended two of his "free" seminars, which turned out to be not so free after all.
At his suggestion, she invested $120,000 in Focused Money Solutions Inc., a Calgary company that bought life insurance policies at a discount to their face value from policyholders who want the money now, rather than waiting until they die.
Hanwell said Michaels represented the investment as a "safe" way to earn a decent return.
She was supposed to be paid $1,000 interest per month, but after three months, the cheques stopped.
In December that year, the Alberta Securities Commission issued a notice of hearing against the firm and its promoter, Victor DeLaet, alleging they had represented the investment as "safe and secure" and the advertised returns as "assured and predictable," when they knew, or ought to have known, this was not true.
Hanwell sent me a list of creditors, who are owed a total of $23 million.
Many are from the Victoria area. I called two at random and confirmed they made the investment through Michaels. One couple, who had invested and lost $320,000, told me they were 83 and 85 years old.
This is not the first time Michaels has sold lemons to investors. Another former client, 55-year-old Karen Hopwood of Courtenay, told me she attended one of Michaels's presentations in Nanaimo where he introduced attendees to the Bethel Centre project in Sidney, a combination church daycare centre and longterm care facility.
In December 2009, Hopwood invested $100,000 in the project. By that time, it was loaded up with first and second mortgages. She and 16 other investors were supposed to get a third charge on the property, but never did.
She was also supposed to receive $1,000 interest per month, but after two months, the payments stopped. By April 2010, the project had been petitioned into foreclosure and unsecured creditors were not expected to recover a cent.
In these situations, it is difficult to hold Michaels legally responsible.
As an unlicensed securities salesman selling exempt securities products, he doesn't need a securities licence. He has no obligation to assess the viability of the investments he sells or to determine whether they are suitable for his clients.
And since he is not registered with a licensed securities dealer, investors have no licensed dealer they can hold vicariously responsible.
The ÎÚÑ»´«Ã½ Securities Commission is doing nothing to bridge this regulatory gap. It is firmly convinced that investor losses in the exempt market are not large enough to justify subjecting it to prospectus and registration requirements.
I strongly disagree. This market is financially ruining hundreds of families every year.
The insurance council, meanwhile, is implementing new rules that would hold insurance agents who sell exempt securities products to the same standards as when they sell insurance products. That means they must know the product and ensure that it is suitable for the client. Otherwise, they risk losing their licence.
Thank goodness we have at least one regulatory organization that takes to heart its mandate to protect consumers.
