Investors battle receiver over recovered money

"If the settlement decision is approved, the matter will be closed," he said. "There will be no recourse for us against Garber. We will have to just forget about this $15-million that has been frozen, and victims will completely lose hope. "Our people have immense faith in Canadian judiciary that the law protects the innocent. That faith is going away."

The Globe and Mail
February 19, 2010

Investors battle receiver over recovered money
Plaintiffs seeking to regain money lost in fraud scheme hope to keep receiver from reaching settlement that would leave them with nothing
Kirk Makin

Nyaz Jethwani has come to accept losing $121,000 in a fraudulent tooth-whitening scam several years ago.

What the 78-year-old Toronto man cannot stomach is an attempt by a receiver, hired by thousands of Ismaili-Canadian investors bilked in the scheme, to deny them $15-million it managed to locate.

The receiver, A. Farber and Partners Inc., wants to end their class-action lawsuit with an unusual settlement that would see it pocket approximately $8-million in return for its work on the case. The other $7-million would go to a Swiss businessman who the plaintiffs believe received $54-million of the $77-million that disappeared in the scam.

Nothing would remain for the bilked investors.

In a written argument, Clifton Prophet, a lawyer representing the receiver, disputed whether the settlement ends the litigation. He argued that it "in no way disposes of any of the plaintiffs' claims in the Damji action," that they may find other ways to recover funds.

The case dates back to the early 2000s, when investors from the tight-knit Muslim community - which is 75,000-strong in Canada - entrusted their money to one of their own, Salim Damji. He claimed to own the rights to a tooth-whitening spray called Instant White that he was about to sell to Colgate-Palmolive, making a fortune for investors. But the pitch was bogus and the money disappeared. Mr. Damji later pleaded guilty to fraud and received a seven-year prison sentence.

But the case left distraught investors in a strange legal no-go zone. In fact, this is not the first time they have come up empty-handed in the course of their lawsuit. From 2002 until last April, the receiver recovered another $6.5-million. It took a portion as profit and spent the rest to pay accountants and lawyers and for other disbursements - with the investors getting nothing.

It remains unclear how the Swiss businessman, Maynard Hal Garber, came into possession of tens of millions of dollars of the investors' money. Mr. Jethwani said Mr. Garber claims to have won it in a series of wagers with Mr. Damji.

"Initially, our community members were very, very upset and suffered a lot," Mr. Jethwani said in an interview. "Some people had heart attacks. Some people died. Our community feels that if he has harmed us, God Almighty will do justice. We believe in destiny."

Last September, Mr. Justice James Spence of the Ontario Superior Court shocked the plaintiffs by approving the settlement.

The receiver's lawyer, Mr. Prophet, argued in the Ontario Court of Appeal this week that Judge Spence was right. He said that, under the law, the receiver is the main party to the lawsuit and can reach a settlement if it feels it's appropriate.

However, the investors are set against having their lawsuit wound up without their permission. Their lawyer, Maurice Neirinck, accused the receiver this week of hijacking their lawsuit and effectively fattening itself at their expense.

"If the approval is not overturned … it will end any right that any of the victims has against Mr. Garber," Mr. Neirinck said. "When the receiver signs the release, Mr. Garber will be free and clear. It would close out action to recover $54-million."

Mr. Jethwani said his community is disheartened by the bizarre turn its case has taken.

"If the settlement decision is approved, the matter will be closed," he said. "There will be no recourse for us against Garber. We will have to just forget about this $15-million that has been frozen, and victims will completely lose hope.

"Our people have immense faith in Canadian judiciary that the law protects the innocent. That faith is going away."

On Wednesday, the judges hearing the case - Chief Justice Warren Winkler, Mr. Justice James MacPherson and Madam Justice Eileen Gillese - scoffed at Mr. Prophet's suggestion that the investors can press ahead unaffected with their litigation, notwithstanding the Garber settlement.

They ruled that it was "inconceivable" that the investors' ability to litigate would not be seriously affected by the settlement, and that the full appeal will go ahead next month.

The settlement is the receiver's second unusual attempt to obtain money. Last July, it sought to give Mr. Damji several million dollars if he could find and produce a significant portion of the missing money.

But Madam Justice Nancy Spies of the Ontario Superior Court rejected the proposal, calling it an "offensive" suggestion.

***

'Trusting' community shocked by scam

Canada's 75,000-member Ismaili community was changed forever by a massive scam that wiped out $77-million of investors' money.

"We believe that ethical behaviour is of paramount importance," said Nyaz Jethwani, a 78-year-old community leader. "It was very, very shocking. People are skeptical now when somebody asks whether you will join them in this or that project."

A branch of Shia Islam, the Ismaili sect believes that Mohammed is the final Prophet and messenger of God to all humanity. They revere the Prophet's family and view it as divinely chosen to lead the Islamic community.

"We are a very closely knit community," Mr. Jethwani said. "It is a very, very trusting community."

Mr. Jethwani said that 80 per cent of the 5,000 people who lost money in a teeth-whitening scam operated by a member of their community, Salim Damji, had invested $10,000 or less.

The largest investor was an extended family from Western Canada who invested $1.5-million.

Kirk Makin

http://www.theglobeandmail.com/news/national/investors-battle-receiver-over-recovered-money/article1473829/


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