Ponzi scheme “winners” face clawback

By James Langton | August 8, 2025 | Last updated on August 8, 2025
3 min read
Pyramid
Photo by Michael Dziedzic on Unsplash

The Supreme Court of British Columbia ruled that, while the so-called winners in a large Ponzi scheme didn’t know they were part of a fraud, they must return the money they received to the bankruptcy trustee that’s heading the insolvency proceedings.

Back in June, the court granted an application from PricewaterhouseCoopers Inc. (PwC) — which is serving as trustee in bankruptcy for the company at the heart of an alleged $300 million Ponzi scheme, My Mortgage Auction Corp. — that sought an order allowing it to clawback money from investors that benefited from the scheme, and dismissing the efforts of certain investors to adjourn the proceeding.

Now, the court has issued its reasons for that ruling, which found that PwC’s proposed approach to clawing back money from investors who received profits from the scheme is “sound” and that the relief it sought from the court is “appropriate, both on legal and equitable grounds.”

In its reasons, the court said that, while there is no allegation that any of the winners knew that they were participating in an illegal Ponzi scheme, the payments they received amounted to proceeds of the fraud, and that they were unjustly enriched, as a result.

“No investor here is a ‘winner’ in the true sense — each is a victim,” the court said. “Yet, there is a substantial disparity in terms of the outcomes faced by the investors — with some investors reaping ‘profits’ from the scheme, often only by blind luck in terms of the timing of the scheme’s collapse …”

According to PwC, there were 480 investors that profited from the scheme to the tune of $68.2 million, while another 1,229 investors lost a combined $149 million. Another 81 investors received about $3.1 million in the months immediately preceding the scheme’s collapse.

Hardly any money has been recovered from the perpetrator of the scheme, and anything that the trustee has secured has been used to finance the recovery efforts. According to the court, the trustee and the receiver have done about $4 million worth or work on the file so far, and less than $1 million of that bill has been paid.

And, while it’s expected that about $3 million will be recovered from forthcoming corporate tax refunds, the only other source of recovery for the estate is clawing back money from the winners to finance a distribution to harmed investors.

Ultimately, the court concluded that the evidence “overwhelmingly establishes” that the investment activity that took place amounted to a Ponzi scheme — that investors’ profits from the scheme represent “fraudulent conveyances,” that the payment of these profits are void and that the money must be returned to the trustee. 

For some investors, the fact that they now have to pay back their “false profits” is compounded by the fact that they’ve already paid, “hundreds of thousands (if not millions) of dollars,” in income tax on those profits.

Indeed, the court said that, “Given the scale of the scheme, there is no doubt that [the Canada Revenue Agency] received millions of dollars in tax revenue on the false profits,” that were paid out while the scheme was running, between 2018 and 2023.

However, since every investor’s tax situation is unique, and the tax issues are “complex,” the court said that there’s no way to resolve the tax issues on a global basis — such as allowing the winners to offset the taxes they paid against the money they are expected to return to the estate — at this point.

“… The issue is very preliminary at this stage and cannot be addressed substantively,” the court said.

After ruling that the investors must repay their profits, the court’s order gave the trustee 30 days to provide affected investors with a calculation of what it thinks each investor owes. Investors were given 30 days to dispute that calculation.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.