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Sunday, Oct. 11, 2009 | As his brother helpfully pointed out a few years ago, San Diego accountant Graham McMillan could have just let it go.
After all, he’d helped his elderly Canadian father recover the $50,000 he socked away in a suspicious investment scheme that promised 40 percent returns. He’d harangued those he thought were swindlers and alerted authorities in the U.S. and Canada. What more was there to do?
Now, McMillan is being hailed as a hero for helping to uncover an alleged scam that snared thousands of American and Canadian investors and may have robbed them of $400 million. It’s said to be the largest Ponzi scheme in Canadian history.
One Canadian newspaper called McMillan a “warrior accountant.” Another dubbed him a “Ponzi scheme saboteur.”
“If everybody did what Graham did, there would be a lot less fraud in this world,” said San Diego swindler-turned-scam-hunter Barry Minkow, who investigated part of the alleged scam earlier this decade.
“I know how hard my father has worked for his money,” McMillan said. “It really pissed me off that someone was out there that would steal (my parents’) life savings and scam them of their money at the 11th hour of their life.”
For now, the alleged Ponzi scheme appears to be dormant. The two Canadian men accused of being behind it, Gary Sorenson and Milowe Brost, stand accused of fraud and theft; the charges against them are making front-page news in Canada.
Canadian authorities, who have been tracking the men for years, allege they defrauded thousands of investors in a complicated scheme involving offshore companies and a supposed gold-refining operation in Honduras.
“When the scheme started going sour and attracting publicity, the so-called strategists instituted another scheme which charged bilked investors $750 toward a ‘Recovery’ committee which supposedly was funding efforts to get their money back. Those monies also disappeared,” the Calgary Herald reported.
The paper says the FBI, IRS and Securities and Exchange Commission are investigating Brost, who was previously banned from “operating in Alberta’s capital markets” because of alleged fraud.
McMillan, a financial controller for San Diego-based real estate company American Assets, says his 85-year-old father in Manitoba got roped into the scheme in 2005 after going to an investment seminar.
Investors would supposedly make money off a gold refinery, said McMillan, 51, a native of Canada. But a few things were unusual: the promised return of as much as 40 percent, the lack of paperwork, and the fact that McMillan’s father would become an “independent portfolio manager” and even get a fee for having that title.
“All people heard,” McMillan said, “were the buzzwords: ‘Incredibly secure,’ ’40 percent guaranteed,’ ‘tax free’ or at least ‘tax effective.’”
McMillan’s father, who’d made his living as a vegetable farmer, first told him about the investment deal in late 2005. McMillan warned his father to stay away, but his dad brushed off the advice and invested anyway.
McMillan then convinced his father that the scheme was a scam. But one of the people charged with soliciting and working with investors, known as a “structurist,” talked him into being a believer again. “They don’t call them conmen for nothing,” McMillan said.
McMillan got his father back on board and threatened to expose the scheme to authorities in the United States. At that point, the company returned his father’s $50,000 investment plus interest.
“Obviously they were hoping and convinced I would go away at that point,” he said. “In fact, I was already in the process of reporting them.”
The titles of posts on his site tell the story: “Merendon Mining a Hoax!”, “Follow the Money” and “IFFL’s Shonky Investments,” using a slang term from Australia, where McMillan used to live.
McMillan rebutted arguments made by the alleged scamsters, explained why the scheme wouldn’t work and declared parts of the scheme to be hoaxes. He even listed dozens of “People Behind the Ponzi,” complete with phone numbers and e-mail addresses.
“My role as I saw it was to do what I could to head them off at the pass and slow down any fundraising until they could actually get busted,” he said.
In Ponzi schemes, “people react to what others are doing rather than performing their own analysis,” said J. Edward Ketz, professor of accounting at Pennsylvania State University. “Either because of their incompetence or their laziness, few actually engage in their own, independent research.”
However, some of those who were scammed appear to have read McMillan’s website. It includes e-mails from several people who say they feared losing money, including a woman who says her father had $250,000 at risk. “Your website is making life tougher for these criminals,” wrote another e-mailer.
Minkow, the former swindler who co-founded San Diego’s Fraud Discovery Institute, has no doubt that McMillan’s website spread the word about the alleged scam. “Did it help others not get involved? You can bet your bottom dollar it did,” he said.
Others tried to debunk McMillan. One online poster responded to him by saying that a 40 percent return “is small change, and the wealthy expect double digit returns such as these.”
McMillan says that Brost declared during a 2008 conference call with investors that “These websites are 90 percent bullshit. … We have lawyers who are monitoring these sites and will act if they cross over that ‘invisible line.’”
McMillan refused to back down, a trait shared by those who have exposed Ponzi schemes throughout history, said Mitchell Zuckoff, a Boston University journalism professor and author of “Ponzi’s Scheme: The True Story of a Financial Legend,” about early 20th century con man Charles Ponzi, whose name is now forever associated with fraudulent investment scams.
Zuckoff pointed to fraud investigator Harry Markopolos, who tirelessly tried to get officials to crack down on notorious Ponzi scheme impresario Bernie Madoff, and the Boston newspaper editor who targeted Ponzi despite the risk that he’d lose his paper in a libel suit.
“They’re not afraid in the face of criticism or of public opinion that runs the other way to simply sit up and say what they think is obvious,” Zuckoff said. “We should be very grateful that they exist.”
Randy Dotinga is a San Diego-based freelance writer. Contact him directly at firstname.lastname@example.org and follow him on Twitter: twitter.com/rdotinga. And set the tone of the debate with a letter to the editor.