Manitoba investors, 2 charities, out over $1M after being misled into investing in Bolivian bank

Manitoba investors, including two charities, are out more than $1 million after they were misled into investing in a Bolivian bank, according to a recent Manitoba Securities Commission decision.

The decision, released Jan.4, says the investors were individuals and two charities:Youth for Christ'sPortage la Prairie branch and Back to the Bible. The investors agreed to invest in a Bolivian mortgage lender, Mutual Guapay, that was facing liquidity problems in 2005, according to the decision.

YFC Portage la Prairieand Back to the Bible bought into the Bolivian deal, which was touted as safe and profitable, to the tune of $120,000and $250,000respectively. The private citizens invested about $772,000.

They were told they were putting up money to be held in trust to fulfillBolivian bank laws which require a certain amount of money to be held in reserve.

At the centre of the misrepresentations to investors is Jack Neufeld of the The Jack Neufeld Family Charitable Foundation, according to a Manitoba Securities Commission decision that found that Neufeld and the foundationviolated several sections of the Securities Act including:

• Making material misrepresentations to investors.
• Acting contrary to the public interest.
• Trading in securities without being registered and without a prospectus.

One of those individual investorstestified to theMSCpanel thatNeufeldtold her husband he wouldn't leavethe man with this debt, and Neufeld said he would repay it.

The principal and the interest should have been returned to YFC Portage la Prairie,which runs programs for teens, within three years,according to Neufeld's accounts in court documents. Butaccording to the charity's testimony,ithasn't seen a cent.

Back to the Bible's terms were three years for the first half of the $250k it invested and 10 years for the second half, according to promissory notes cited in court documents.

Trust in Christian circles

Neufeldtravelled in some of the same Christian circles as his victims, and that's how he gained their trust, according to the decision.

YFC Portage la Prairie's executive director at the time, Brian Rushton, was told by an acquaintance that Neufeld's Foundation was a Christian organization looking to do missionary work in Bolivia and that the Neufeld Foundation was looking to purchase a bank in Bolivia.

Neufeld told Rushton that in return for a $100,000 US investment, Neufeld's foundation would guarantee the principal and pay a rate of return of 10 per cent per year for three years, after which the cash would be returned to YFC Portage la Prairie plus shares in the Bolivian bank, which would provide an ongoing revenue stream to the charity, according to MSC documents.

"[I]t was a trust relationship with the foundation. You know, a Christian foundationwith a Christian charity, we work with I work with those different relationships all the time. There was no reason to doubt what was being promised or what was being said, and so we were acting as gentlemen," testified Rushton at the MSC hearing.

So on June 28, 2005, YFC Portage la Prairie wired $123,200 to Neufeld's foundation's account.

Less than a year later, the Mutual Guapay called its letter of credit, which meant the million dollars of investors' money that was being held in trust was sent to the Bolivian bank.

"Neufeld represented to the Manitoba investors that the letter of credit was not supposed to have been called without notice to him or the right of a veto on the part of the foundation. However, the letter of credit is clear on its face that there was no notice requirement, or any other conditions attached to the calling of the monies by the Mutual Guapay," reads the MSC decision.

'Misleading' information: MSC

Over the next few years, Neufeld sent investors a series of letters and emailswhich provided "misleading and incorrect information" and "withheld relevant information," the MSC decision said.

Excerpts from a June 2008 letter to YFC Portage la Prairie by Neufeld entered into evidence include:

• Neufeld claiming the $1 million letter of credit had "disappeared."
• Neufeld saying his foundation had met with the "President of Bolivia" and the "Chairman of the Congress of the Government in power at the time" and they had "pledged to support the initiative of the foundation .... and support the process of converting the Mutual Guapay into a private bank."
• Neufeldsaying his foundation discovered "serious internal corruption."He went on to say these issues were dealt with to the satisfaction of Bolivia'ssuperintendent ofbanks, adding "we finally were approved to absorb the Mutual Guapay and we had all the funding in place to capitalize the bank."
• Neufeld saying the foundation hadstrong support from the Canadian Embassy to Bolivia.

Neufeld did not call any witnesses or enter any documentary evidence to support these claims, according to the decision.

The investors did not receive the same information from Neufeld, reads the MSC document.

For instance, a 2007 letter to Back to the Bible from Neufeld stated the promoters of the Bolivian deal "demanded that the foundation fund a secret $6,000,000 illegal payment (corrupt greasing the palm)."

Neufeld wrote the refusal to pay the "blackmail" resulted in a delay of the deal and prompted the Bolivian group to resort to "acts of manipulation, intimidation, various tactics, death threats as well as other maneuvers, including pressure through a network of the Masons positioned in high place[s] of Bolivian society," according to a letter quotedin the decision.

Neufeldproduced no evidence to support these statements at the hearing, according to the decision.

Ask to transfer investments

Starting in 2007, Neufeld tried to convince both YFC Portage la Prairie and Back to the Bible to transfer their investments to a new entity.

"In support of these requests, Neufeld and the foundation provided documentation including future projected financial statements, that purported to show that the Manitoba investors could make significant profits if they agreed to transfer their investments from the foundation to another entity," reads the decision.

Both YFC Portage la Prairie and Back to the Bible refused to transfer their investments.

"The panel found the testimony of Neufeld to be unreliable and implausible. In addition to theevidentiary findings made previously, the panel notes that Neufeld contradicted his own testimony during his direct examination at points in the hearing and contradicted thedocumentary evidence," reads the decision.

MSC started its probe in October 2010, "when a representative of one of the Manitoba investors provided documents that founded allegations to be investigated."

When asked why it took so long to come to a decision, Chris Besko, director and general counsel for MSC, saidcases of this nature are very complicated and they take time to investigate.

"We want to make sure that when we investigate that we are getting the whole story not just one side of a story," said Besko.

'A different era': CEO

Steve Biggerstaff, COO of The Good News Broadcasting Association of Canada whichproduces the Back to the Bible broadcastsays his charity never recovered the money.

He does not know how his predecessors got involved in the Bolivian deal, but he says there is no way an investment like this could ever happen again.

"That was in a different era of the organization, and in the era that's taken place since then with the new board of directors and executives, this type of investment just doesn't take place," said Biggerstaff.

Current director of YFC Portage la PrairieArt Schroeder said he would not be the right person to talk to about this since he was not the executive director "when the Jack Neufeld incident occurred."

A spokesperson for Neufeld's lawyer said "we're unable to actually comment on any ongoing client matters at this time."

No date has been set for the sanctions hearing which will determine whether Neufeld and his foundation will be fined, required to compensate investors or pay the costs of the investigation.