One of the most seductive — and risky — investment propositions is the “seed stock” deal. And Vancouver sometimes seems to be Canada’s seed stock headquarters.

“Year in and year out, they are our leading source of complaints and investigations,” says Lang Evans, head of enforcement for the B.C. Securities Commission. “Tens of millions of dollars are lost each year in B.C. alone. At best, these are very high-risk deals; at worst, they are outright scams.”

Such deals are seductive because they offer investors the opportunity to get in “on the ground floor” while the company is still private, with the hope they can sell their shares at higher prices once the shares are publicly listed. Problem is, the company may never get off the ground and the shares may never be listed. That makes it difficult, if not impossible, for investors to sell their stock and cut their losses if the company falters.

One seed stock deal that seduced many is Vancouver-based Photo Violation Technologies Corp. Under founder and president Fred Mitschele, from 2005 to 2007, the company raised at least $4.9 million from more than 300 investors, mainly in B.C.

The company’s principal product is a high-tech parking meter called the Photo-ViolationMeter, which automatically takes a photograph of each car that pulls into a parking spot. If time expires, drivers can pay the amount owing without getting a ticket. If the driver pulls away without paying, a ticket is issued automatically.

It’s a clever idea that Mitschele marketed to dozens of media outlets: Time magazine named it one of the “50 best inventions” of 2007. But like many seed stock deals, the company had no track record, which made it very difficult for investors to assess the company’s commercial potential. To allay such concerns, Mitschele commissioned an appraisal from a Toronto trademark and patent lawyer, who concluded in June 2004 that the technology was worth an astounding $133 million. That estimate, however, was based on the company’s own projections.

And while Mitschele portrayed himself as a successful parking industry executive, his track record was spotty. In August 1996, he became insolvent and he made a proposal to his creditors to avoid bankruptcy; the creditors rejected his proposal because they didn’t trust him. The bankruptcy trustee also noted Mitschele had “not been forthright in providing details of his true income.”

Mitschele and two associates licensed the parking meter technology to Photo Violation Technologies in 2004 in a terribly lopsided deal. Mitschele and two associates obtained an 81% interest in the company for a mere $954. All other investors ponied up almost $4.9 million for the remaining 19%.

The company never did get publicly listed. Last year, Mitschele announced the company would do a reverse merger with Natco International Inc., listed on the OTC Bulletin Board in the U.S. Natco advanced $1.5 million, then the merger dissolved in litigation. Investors still can’t sell their shares.

Nor did investors get any accounting of their money — until May 2008, when the company finally issued audited statements. The statements showed that, as of Dec. 31, 2007, the company had not generated any revenue (aside from some investment tax credits). It had raised a total of $8 million in debt and equity capital, but virtually all of it was buried in a single line: “operating and administrative expenses.” No breakdown was provided.

In October 2008, the company’s largest trial, a 94-meter installation in Niagara Falls, Ont., ended in failure when the company pulled out all their machines, leaving the city with a nasty cleanup bill and the company’s future in limbo. IE