How to get money from scofflaws is the vexing problem confronting the B.C. Securities Commission. When it comes to collecting fines and costs from stock market offenders, the regulator’s record is not very good.

Since April 1995, the BCSC has assessed almost $21 million in financial penalties, but only about 40% has been recovered. It has so far been unable to collect $12.7 million owed by 175 persons or companies.

The track record does not mean, however, that the commission is doing a bad job. It’s just that, as the saying goes, it is difficult to get blood from a stone.

Two of the more notable stones are Eron Mortgage Corp. principals Brian Slobogian and Frank Biller, who were both banned from the market for defrauding investors of millions of dollars.

Slobogian was also ordered to pay $309,525 in financial penalties; Biller, $169,842. But both are bankrupt and in jail. Four Eron-related companies were also ordered to pay $100,000 each, but all four firms are dead.

If any of the individuals or companies ever get into a solvent position, the commission has agreed to postpone its claims, giving Eron victims, who are owed millions, priority over its claims. So the chance of any recovery is remote.

Other scofflaws, such as former Abbotsford, B.C., businessman Ken Erickson, have flown the coop. Erickson was assessed $119,351 in 1999, after he claimed to have access to “old gold” plundered by Japanese soldiers during the Second World War and buried in the Philippines countryside. He offered the implausible premise that the gold could be acquired at a discount and sold at world market prices. A former associate says Erickson is now living in the Philippines, well out of the reach of the BCSC.

Other debtors have always lived out of province, or out of country, making BCSC collection almost impossible.

An example is Tri-West Investment Club, a Belize-based Internet scam that promised monthly double-digit returns but delivered little or nothing. The companies — Tri-West, Haarlem Universal Corp. — and the people (Alyn Waage, Cary Waage, James Webb and “individuals holding themselves out” as Alex Haarlem, Mark Goldman, Jason Kingsley and Alan Richards) involved were assessed a total of $962,778 in 2001. The BCSC hasn’t been able to collect one cent.

In October 2004, BCSC staff reported that Webb and the two Waages had confessed to the Tri-West fraud and had been imprisoned in California. They also revealed that Kingsley, Goldman, Richards and Haarlem were fictitious names used to effect the scheme. The BCSC order, however, was never changed, so the fictitious people still appear on the debtor list.

Elsewhere, Vancouver lawyer Michael Seifert agreed in 1999 to pay $450,000 to settle allegations that, while a director of several pubic companies, he dealt stock through secret offshore accounts. After paying half that amount, he went to court, arguing that the total amount was more than the maximum allowable fine.

The courts recently ruled against him, saying that in lieu of going to a hearing — where maximum fine limits would definitely apply — respondents are free to enter into whatever voluntary settlements they can arrange. Presumably Seifert will now pay the remaining $225,000.

Some people on the BCSC’s debtor list profess no ability to pay their fines. An example is Michael Ruge of Victoria, who ruthlessly bilked investors — some of them fellow Rotarians — out of $1.2 million. In May 2005, he agreed to pay $150,000 to settle the matter, but has so far paid only $5,000. Why hasn’t he paid the rest? “Because I’m insolvent,” Ruge says. “I don’t have any money.”

Judging by Ruge’s biography, however, published on his Web site, life is good: “An inveterate traveller, Michael jaunts around the world to benefit various charity causes. In his spare time, Michael operates an adventure tour company, BigFoot Safari, from a lakeside home on Vancouver Island, where his wife, Elly, operates three luxurious bed and breakfasts that are used for weddings, family reunions and business brainstorming meetings.”

30 months in jail

Then there is Marino Specogna, fined $57,608 in 1996 for goosing up the drilling results of his junior exploration company, Doromin Resources Ltd., and manipulating the share price. He hasn’t paid a cent — but he could have. In March 2005, the Canada Revenue Agency accused him of defrauding taxpayers out of more than $1 million in a GST scam, which may explain how he was able to finance his stable of thoroughbred racehorses.

@page_break@In December, a jury found Specogna guilty of obtaining or attempting to obtain $348,258 in illicit refunds and he was sentenced to 30 months in jail. So, unless he earns a lot of money making licence plates, his debt to the BCSC, too, will remain outstanding for some time to come.

Another who claims he can’t pay is Paul Maudsley, a former White Rock, B.C., mutual fund sales rep who defrauded 23 clients — many of them elderly, and several of them disabled — out of $1.6 million. With the proceeds, he bought cocaine and booze, and gambled away the rest.

In September 2005, a BCSC hearing panel fined Maudsley $250,000, the maximum for an individual. It also fined his private company, Shaylor Management Ltd., $500,000, the maximum for a corporation. With costs, the total assessment was $807,960. BCSC staff have been able to collect only $63,728.

Why does the BCSC assess penalties and costs that it is not likely to collect?

“We want the monetary penalty to reflect the seriousness of the offence,” says BCSC spokesman Andrew Poon. “It is not necessarily related to the respondent’s ability to pay.”

John Hinze, the BCSC’s chief financial officer and the person in charge of collections, says the BCSC “makes every attempt to collect these outstanding amounts.”

Among other collection tools and tactics, it hires outside lawyers and collection agencies to pursue defaulters, registers its decisions against real property when possible, garnishees wages, freezes assets and petitions debtors into bankruptcy.

The BCSC, he says, “is very concerned about these amounts outstanding. We obviously want to increase the amounts we collect.”

The Alberta Securities Commission, by comparison, assesses far lower amounts — an average of $400,000 a year during the past five years — but collects virtually all of it.

The Ontario Securities Commission, which only recently obtained the ability to impose monetary penalties, has historically incorporated its financial assessments into settlement agreements. For the five years ended March 31, 2005, it had assessed slightly more than $10 million by way of settlement agreements and had collected all but $94,000. During 2004 and 2005, the OSC assessed costs totalling $742,000 and $1.6 million, respectively, and collected the full amounts.

OSC staff say the commission does not enter into settlement agreements unless it is sure it will get the money. In most cases, the respondents are market participants (i.e., registrants) and are, therefore, more willing and able to pay. However, as the OSC exercises its right to impose fines, it will no doubt encounter some of the same collection problems that vex the BCSC. IE