The B.C. Securities Commission has, for the first time, invoked the province’s Civil Forfeiture Act to secure $500,000 restitution for 80 investors from British Columbia who lost a combined $1.3 million in a massive faith-based Ponzi scheme run out of California.

The restitution is included in a settlement agreement the commission negotiated on Jan. 25 with John DeVries, a leader of the New Life Church in Kelowna, B.C.; Reed Grafke, a pastor at the Gateway Church in Southlake, Tex.; and two other men connected to the NLC in Kelowna, Ralph Bromley and Wesley Campbell.

The BCSC also broke new ground by alleging the respondents exploited the religious affiliation of investors by claiming the investment was “sanctioned by God.” However, because the case was settled in advance of a hearing, this allegation was not formally tested.

The investment scheme was the brainchild of Gregory Setser, a pastor from California. In 1999, he and several others set up International Product Investment Corp. to buy bulk goods from overseas suppliers and sell them to major retailers such as Home Depot and Costco. Investors were promised returns of 25%-50% within three to six months, which they could donate to charity.

Setser and his colleagues pitched their scheme through evangeli-cal churches in the U.S. and Canada. One person who liked the idea was DeVries, an influential member of the NLC in Kelowna. DeVries set up a Bahamian-registered company called Amber Enterprises Ltd. , through which he solicited investments in IPIC. In all, he raised US$30 million from 440 investors, including C$5.8 million from 80 investors in B.C. Most were Christian evangelicals and some were members of the NLC.

The scheme initially appeared to work. Money flowed back to Amber, which, in turn, forwarded about US$1.5 million of profits to charitable organizations on behalf of investors. But in the summer of 2003, payments began to slow. DeVries became suspicious and halted further investments.

The U.S. Securities and Ex-change Commission and the FBI conducted an investigation and found no evidence of an import business. They said Setser used the money to finance a luxurious lifestyle, including a 33-metre yacht, a private aircraft, a helicopter and numerous exotic homes.

In November 2003, the SEC raided IPIC’s office and charged Setser and several others with fraud and operating a Ponzi scheme. The company collapsed and a receiver was appointed. When the dust settled, investors had collectively lost US$160 million. Setser and several others were subsequently convicted of fraud and are to be sentenced shortly.

In May 2006, BCSC executive director Brenda Leong issued a notice of hearing alleging that DeVries, Grafke and the two pastors at the NLC, Bromley and Campbell, had sold or facilitated the sale of Amber securities, which had not been registered for sale in B.C.

Leong alleged De-Vries was the “guiding mind” behind the promotion, and that Grafke helped produce and distribute promotional material. She also alleged the two men made misleading statements about IPIC and the returns it would produce.

She further alleged that DeVries and Grafke had engaged in unfair practices by telling church members that investments in Amber had been sanctioned by God: “De-Vries and Grafke exploited the com-mon religious affiliation and beliefs among potential investors by making representations about investing in Amber that could not be objectively verified.”

This was a key component of the BCSC’s case. The commission has been waging an educational campaign to combat so-called “affinity fraud,” in which promoters use their membership in an organization — often a church group — to gain the trust of other members. This was the first time it had been cited as an unfair practice.

In the settlement agreement, all four admitted they had sold unregistered securities, but otherwise denied any wrongdoing. They said they had no idea Setser was running a Ponzi scheme and insisted they were victims.

DeVries noted that he and his family lost C$1.1 million in the scheme, and he had contributed US $430,000 to a trust set up by the receiver to compensate Amber investors. He also had undertaken not to file any personal claims with the receiver.

But Leong still wasn’t satisfied. “We were very firm that we expected restitution to be made in this case,” she says.

Under the settlement agreement, DeVries and Grafke agreed to pay C$500,000 to victims through the B.C. Civil Forfeiture Act, which came into effect last April. The act enables the province to seize property, goods or cash deemed by a civil court judge — on a balance of probabilities rather than the criminal standard of beyond reasonable doubt — to have been gained illegally or used in the commission of an illegal act. It is the first time the BCSC has used the act.

@page_break@DeVries and Grafke have agreed to pay the money to B.C. Supreme Court in two instalments: $300,000 on Feb. 28 and $200,000 on April 28. The court will then forward it to the B.C. Civil Forfeiture Office for distribution to victims.

DeVries also has agreed to a 17-year suspension from the B.C. securities market; Grafke, to a 15-year suspension. Bromley and Campbell have agreed to five- and two-year suspensions, respectively. Bromley also has agreed to pay $9,000 restitution.

As far as the religious aspect is concerned, DeVries and Grafke admitted only that “IPIC, through Amber, was able to expand the Ponzi scheme into the B.C. evangelical community, causing significant losses to the investors.”

There was no reference to using religious affiliation or invoking God to exploit investors. “This was a novel allegation and one that has not ever been tested,” says Leong.

“Had the negotiations fallen apart, we were quite prepared to go to a hearing and present evidence on all the allegations,” she continues. “But in the interests of the restitution order, we agreed to the settlement as you see it.” IE