A Calgary trial is nearing conclusion on criminal charges against Gary Allen Sorenson (“Sorenson”) and Milowe Brost (“Brost”) relating to an alleged $300 million Ponzi scheme that operated between 1999 to 2008 with money from thousands of investors across the United States and Canada. The alleged scheme was orchestrated utilizing the sale of promissory notes issued by Syndicated Gold Depository, Inc. (“SGD”), an entity formed in 1999 by Sorenson and Brost. The two men were arrested in 2009 for what police called “the largest Ponzi-type scheme” in Canadian history.

Sorenson and Brost have already faced an injunctive action brought by the Securities and Exchange Commission (“SEC”) in U.S. District Court for the Western District of Washington, and proceedings brought by the Alberta Securities Commission (“ASC”). On November 12, 2010, the SEC announced  that it had obtained a default judgment, asset freeze, and permanent injunction against Sorenson, Brost and others.  Sorenson and Brost were permanently barred from serving as officers or directors of public companies with securities registered with the SEC.  They were ordered to disgorge over $210 million of ill-gotten gains and pay a civil penalty of $100 million.

In the SEC’s complaint  the scheme was described as follows:

  1. Investors were promised extraordinary annual returns, 18% to 100%, that were purportedly paid out of the revenues of profitable businesses.
  2. Investors were told their funds were fully collateralized and used for specific business purposes.
  3. Investors were told that the various companies that marketed the investment, performed due diligence, and conducted audits of companies which issued securities to investors were unrelated to each other and operating at arm’s length, which would provide security to their investment by serving as a system of checks and balances.

The SEC’s complaint alleged that Sorenson and Brost told investors that SGD was an independent company, which loaned funds to Merendon Mining Corp. (“Merendon”), a company which used the funds to purchase gold concentrate to process in its refinery in Honduras.  The investors were also told that their funds were secured by Merendon’s above-ground gold or cash deposits.  What the investors were not told was that Sorenson and Brost were the owners of SGD and that contrary to the representations, Merendon did not have sufficient above-ground gold, cash deposits or revenue from operations to pay interest owed to SGD under the loan agreement. As in all Ponzi schemes, the allegations are that new investors’ funds were used to pay obligations to existing investors. Over time the scheme expanded and eventually ended up using more than 80 entities to issue securities to investors and to disguise the movement of funds among more than 80 bank accounts, located in United States, Canada, Honduras, Ecuador, Peru, Venzuela, Panama, the Bahamas, Belize, Bermuda, Malaysia, and Portugal. Merendon is now bankrupt and its Chapter 7 trustee has secured a judgment against Borst and Sorenson in an effort to pursue assets in South America where Sorenson and Borst had various businesses funded by the scheme.

In a decision of the ASC released March 30, 2012, Sorenson, Brost and additional parties that were also involved in the scheme were found to have committed fraud and committed numerous breaches of Alberta’s  Securities Act. On September 27, 2012, the ASC released its sanctions decision  which permanently barred Borst and Sorenson from trading or purchasing securities in Alberta and ordered them to pay $3 million and $2 million in administrative penalties respectively.

According to evidence presented at the criminal trial underway in Calgary, more than 2,000 investors were defrauded  in the scheme. Brost and Sorenson each face two charges of theft and fraud in connection with their financial dealings between 1999 and 2008. Brost has an additional charge of money laundering in connection with the alleged Ponzi scheme.

We continue to follow this matter and we will provide a further update when the jury’s verdict is released.

* The author wishes to thank Ana Markaroff for her assistance.