The Alberta Securities Commission.
The Alberta Securities Commission has ordered a Calgary man to repay more than $3 million for his operation of a fraudulent, decade-long investment scheme.Vernon Ray Fauth, the founder and sole director of Espoir Capital Corp., must pay a $2.6-million disgorgement in addition to a $400,000 administrative penalty, the regulator ruled. Fauth was also ordered to cover hearing costs of $250,000 and issued a number of permanent trading bans.An ASC panel previously determined Fauth misled investors while unlawfully selling investments in Espoir, which raised more than $15.5 million over a 10-year period. It heard investors in Espoir were told their funds — said to be invested in real estate and mortgages — were secure.“To the contrary, Espoir had only held a handful of small third-party mortgages in its earliest years. Its funds were primarily invested in and loaned to Fauth, members of the Fauth family . . . and other entities controlled by Fauth and his family, including Fauth Financial,” the ASC said in its decision.The ASC’s investigation found loans to Fauth and family members exceeded $2.1 million at one time.“For most (if not all) of Espoir’s existence, the value of its assets was nowhere near sufficient to secure its obligations to its investors. Many of the loans were never repaid to Espoir, and most of the investments ultimately lost all value,” the decision reads.By the end of 2014, Espoir owed investors more than $12.3 million, “and there is little to no prospect that it will ever be paid,” the decision states.At a sanction hearing, ASC staff said Fauth’s misconduct and the personal benefit he derived from his scheme required “significant sanctions.”“The impact on many investors — both financial and emotional — was devastating, especially for those who were retired or close to retirement, and those who lost their life savings,” the decision reads.Fauth’s lawyer told the sanction hearing that disgorgement could not be ordered as there are no funds remaining in Espoir. He suggested the ASC issue an administrative penalty between the $750,000 proposed by ASC staff and the maximum $3 million allowed.