Three men who lost money investing with Ponzi schemer Greg Martel have filed a class action lawsuit against the Royal Bank of Canada, the British Columbia Financial Services Authority (BCFSA), Martel and the company through which he ran his multimillion-dollar financial fraud.
Representative plaintiffs Dustin Frank Renz, David Cumby and Andy Todd Wilson allege in a notice of civil claim filed in B.C. Supreme Court that both the Royal Bank and the BCFSA are liable for losses suffered by 1,229 investors who lost money to Martel because the two entities, despite having clear regulatory duties, failed to detect or prevent Martel’s misconduct.
“These failures — by the bank responsible for processing the majority of investor funds, and the regulator responsible for supervising the mortgage broker— enabled the [Ponzi] scheme to persist unchecked for years, resulting in massive and avoidable investor losses,” reads the claim.
According to Meldon Ellis, the lawyer representing the three men, Wilson’s net losses to Martel amounted to $100,000, Renz’s $38,000, and Cumby’s $20,800.
“The plaintiffs allege that the scheme could not have resulted in such extensive losses without the involvement — and badge of credibility — provided by a major bank and a licensed regulator,” said Ellis in an email to CBC.
None of the allegations have been tested in court, and the defendants have not yet filed responses.
CBC reached out to RBC and BCFSA for comment on the class action. RBC said it was unable to comment on the lawsuit while it is before the court.
BCFSA told CBC that after receiving complaints about Martel in 2017 and 2021, it “conducted investigations and determined, based on the evidence, that there was no misconduct within BCFSA’s jurisdiction under the Mortgage Brokers Act.”
If certified, the class action will automatically include the other 1,226 investors who, like the representative plaintiffs, were also “net losers” in the Ponzi — in other words, all the investors who received less money back than they put in.
Martel disappeared as his company, My Mortgage Auction Corp. (MMAC), was collapsing in 2023, and his whereabouts remain unknown. Authorities in Canada and the U.S. have issued warrants for Martel’s arrest related to contempt of court, but Martel has not been criminally charged, and an investigation by the B.C. Securities Commission is ongoing.
Last year, court receivership and bankruptcy proceedings heard that the bridge loans Martel was peddling never existed, and that — in classic Ponzi fashion — early investors in his scheme had been paid off with money put in by investors who joined later.
All told, Martel was found to have taken in $301 million and paid out $210 million in the scheme. The remaining $91 million was diverted to pay for his lavish lifestyle, to his failed car-share business, and to losses he suffered trading options, according to analysis by court-appointed receiver and bankruptcy trustee PricewaterhouseCoopers.
According to court documents, the three representative plaintiffs were introduced to MMAC in 2022 and 2023, in what would have been a short time before Martel’s financial house of cards started collapsing.
The three men invested in bridge loans advertised on the MMAC online portal that promised interest of between nine and 14 per cent over terms of four months or less.
The men were directed to wire their funds to the MMAC account at the Royal Bank branch at 3541 Blanshard St. in Victoria. That was the last they saw of their money.
The claim says that RBC, as a reporting entity under the Proceeds of Crime and Terrorist Financing Act, was required to establish internal controls, verify client identities, monitor account activity and report suspicious transactions.
The lawsuit alleges there were multiple red flags with Martel and MMAC, including “high-volume investor deposits inconsistent with a mortgage brokerage business, circular fund flows characteristic of round-tripping, and account activity inconsistent with the provision of legitimate mortgage lending services.”
According to online references, “round-tripping” involves financial transactions with little or no economic value that can artificially manipulate an entity’s financial records.
Regarding the BCFSA, the claim alleges that the agency conducted only “superficial investigations” in 2017 and 2021 when it received complaints about Martel.
“These complaints raised concerns which, if properly investigated, could have exposed the ongoing fraudulent scheme,” reads the claim.
The BCFSA is a Crown provincial agency responsible for regulating and overseeing the financial services sector, including mortgage brokers.
The lawsuit is seeking to be certified as a class action and is seeking general and specific damages.
