Concrete Equities, $118 million, 3700 investors and many broken dreams

Before Concrete Equities went into receivership in spring 2009, it used to be a major advertiser/sponsor of CBC Dragons’ Den and many people got to know about the company through those ads. Sadly, “More than 3,700 investors, most of whom are from Calgary, lost more than $100 million through investments with Concrete Equities.” It is sad that many people had to learn the lesson in such a hard way.

For the record.

From CBC News “Alleged Alta. securities breaches under review” (Monday Feb 14, 2011) (emphasis added),

“A hearing into a Calgary real estate investment firm’s alleged breaches of Alberta securities law got underway Monday.

Four former directors of Concrete Equities, which went into receivership in 2009, are accused of acting as dealers without being registered, not filing prospectus and making misrepresentations to investors. […]

More than 3,700 investors, most of whom are from Calgary, lost more than $100 million through investments with Concrete Equities.

From Calgary Herald “Concrete Equities under scrutiny at hearing – ASC to determine if now-defunct Calgary company misled investors” (Feb 15, 2011) (emphasis added),

Monday, lawyers for the ASC outlined the case they hope to prove, which includes investors who were promised returns of more than 600 per cent and told the investments were risk free, as well as those who weren’t told of marketing commissions of between seven and 10 per cent being paid to Concrete Equities.

“You will hear evidence in the course of this hearing that Concrete Equities Inc., in raising capital in Alberta, failed to disclose certain information to its investors in its offering memoranda, which the investors will say was information that they would wanted to have known when they made their investment,” ASC counsel Andrew Wilson told the panel of three hearing the case. […]

The ASC allegations involve David Jones, David Humeniuk, Varun Vinny Aurora and Vincenzo De Palma and six limited partnerships.

Neil Narfason, a senior vice-president at receiver Ernst & Young, told the hearing Concrete Equities – which raised $118 million from 3,700 investors – couldn’t list all its bank accounts and had accounting and bookkeeping standards that were below expectations.

“All the basic stuff was not there,” Narfason said, referring to ledgers, financial statements, tax returns and bank statements that were missing or incomplete. “It’s unusual for a company in that business not to have a handle on funds.”

Narfason also testified that while different limited partnerships were set up to deal with individual projects, Concrete Equities raised the funds and did the marketing.

In some cases, investors were putting their money into a limited partnership for a specific project, which was overseen by a general partnership owned by some of the four Concrete Equities directors.

Narfason cited one case in which the sales commission being paid increased to 10 per cent from seven per cent. He said the company never gave an answer “that made any sense to us” as to why that change was made.

In most investments, money invested in a certain project would stay within that limited partnership, he said. But in the Concrete Equities’ case money between a number of projects was co-mingled.

As well, more money would be raised than the building cost, with the difference considered “general partner profits” and returned to Concrete Equities, which would then lend some of it to other projects, Narfason said.

“Concrete Equities was taking money from various positive bank accounts and moving it to other entities as they needed cash,” he added.

In one case, where 1,314 investors put money into property in Mexico, some was used as a deposit and about $10 million was put into other Concrete Equities projects, Narfason said.

The Mexican property was never purchased, he added.

Also see “Former Concrete Equities executive argues role at ASC hearing“.

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