Fake banker and disbarred Canadian attorney pleads guilty to $75 million ponzi scheme.

William Wise has little to smile about these days.

Canadian-born, self-admitted bankster says in Ex-Raleigh banker pleads guilty to Ponzi scheme:

William Wise, 62, pleaded guilty to 12 counts of mail fraud, three counts of wire fraud and one count each of money laundering, conspiracy to commit fraud and tax evasion. He will be sentenced in March, when he faces up to life in prison and millions of dollars in fines.

Wise operated Millennium Bank from a west Raleigh office. He billed it as a unit of a Swiss bank based on the Caribbean island of St. Vincent, but he admitted in federal court in San Francisco that it was merely a front for a Ponzi scheme. Millennium promised investors a 16 percent return on certificates of deposit, but Wise and co-defendant Jacqueline Hoegel used investors’ money to repay earlier investors and fund lavish lifestyles for themselves.

There is often a blond involved.

As we noted in our April 20th post: the other banks were 100% complicit.

Opportunity Knocks and Liars’ Loans: required reading to understand modern franchising

John Lorinc wrote the book on franchising from a franchisee’s investor viewpoint.

I’m glad to see it is still available to buy online and is in many Canadian libraries.

The hidden banking side is revealed in Chapter 4, The 90% Solution: Franchise Economics, some of which I excerpted in a WikidFranchise.org post.

What did the business press have to say about Lorinc’s work?:

1. National Post: Opportunity Knocks: The Truth about Canada’s Franchise Industry, is an impressively researched look at the myriad of franchises that mushroomed across the country in the past decade. An award-winning magazine journalist, Lorinc has produced an engaging account that charts both the spectacular successes of some franchisers and the utter failure of some franchisees. How franchises seduce those with the most to lose, Jennifer Lanthier, November 2, 1997
2. Globe and Mail: At its worst, Lorinc says, franchising is a haven for the unscrupulous who prey on the unwary – typically recent immigrants willing to labour long hours in dreary businesses, unaware that those operations have little chance of prospering – using them as pawns in a shadowy real estate game. Rather than reflecting an insatiable consumer demand, he inquires acidly, is it possible that all those new doughnut shops may reflect a quiet understanding between landlords and franchisors that the best way to fill fallow commercial property is to sell franchises to credulous investors? Franchise book of interest to anyone who pays taxes, Ann Finlayson, November 1, 1997

Finlayson strikes a cautionary note, specifically about the hinted at misuse of the Canada Small Business Financing program, CSBFP:

Does all this matter to you? Yes, it does. In 1993, in the wake of vigorous complaints by small-business owners that Canadian banks were reluctant to finance them, Ottawa raised the ceiling on loans guaranteed by the Small Business Loans Administration to $250,000 and its guarantee rate from 85 per cent to 90 per cent, sparking a bank lending rush to franchisees and shifting the risk of franchise investments onto taxpayers’ (your) shoulders.

The Risk: Only a fraction of the Liars’ Loans are ever claimed by the banks, thereby grossly understating Industry Canada’s default statistics (Franchised v. Non-Franchised loan performance). The franchisee thinks he signed a government-backed loan but it never gets registered as such. As their bankruptcy, loss of life savings, marital and family breakdown escalate over the life of their 12 to 18 month franchise career, the franchisee NEVER looks to Box 9 of the CSBFP loan application form (Projected Sales ) as the source of their trouble; where the lie is put into the “Liars’ Loan”. The proceeds of these engineered-to-fail loans is split upfront by the franchise banker with the bank, banker, franchisor and sales agent. If questioned, the bank shreds the paperwork and waits for the lawsuit.

And, seriously, how many of these Immigrants as prey losers could or would ever sue a Schedule 1 chartered bank?

• Only one I know of: a father and son PhD/B.Eng. team I worked with. The  Oudovikines (pronounced: ou-doe-VEE-kin), RCMP Commercial Crime Unit affidavit, Country Style, CIBC, lawsuit

The Return: Smashing quarterly earnings goals, record profits, high turnover in the small business division of each of the banks, and making franchise lending the most lucrative form of commercial lending in Canada. Private gain/public loss enabled by a criminogenic environment, moral hazard, regulatory capture…

Lorinc carefully mentions the “windfall profits” in this arrangement of churning:

What’s more, some banks and franchisors have put the SBLA program [predecessor government guaranteed loan program] to questionable use during foreclosure actions against franchisees, says one former owner who has been through the process. When a bank calls a loan against a non-performing franchisee, the 90% guarantee effectively relieves the bank’s receiver from trying to get the best possible value while disposing of the owner’s assets. With most of the loan covered by the Canadian taxpayer, the assets – fixtures, kitchen equipment, inventory, etc. – can be sold quickly at a deep discount, possibly below market value. This allows the franchisor too step in and buy back the property at better-than-firesale prices, thus generating a windfall profit when the store is later re-sold to another franchisee.

An important work that, depressingly, is as relevant in 2012 as it was in 1995.

______

Disclosure: My lol pecuniary interest here and here. Cross posted on FranchiseFool.com.

Business brokers/sales agents used almost 100% in Liars’ Loans

The broker disarms and then steers the unsophisticated potential franchisee to the dirty franchise banker’s branch office.

It mentions Subway specifically but any Canadian mom-and-pop coffee, deli or donut tradename will do. Spot on for the United States and fundamentally accurate for Canada and any other country.

• Nice touch mentioning the veterans’ franchise program scams (VetFran) though.
• As a RCAF brat, I like that.

For more details on how franchising welcomes home military veterans, see Little Caesars: Ist U.S. discount program Imported for Canadian military veterans, January 2009 post on FranchiseFool.com.

Cross posted from FranchiseFool.com.

Record profits for Canadian banks.

Today’s Ottawa Citizen reports in Royal, TD bank report higher profits, bump up dividends:

Royal Bank said it is raising its dividend as the bank says earnings increased 73 per cent in the third quarter, marking its highest quarterly profit ever.

The bank says its quarterly dividend will increase by five per cent to 60 cents per share. The bank had already boosted its dividend earlier this year, by six per cent in the first quarter.

Good year for all the banks overall:

Canadian banking net income was a record $1.127 billion, up $239 million compared with last year.

That would be a year-to-year increase of 26.9 per cent. Not bad.

I was told on Bay Street that franchise lending was the most lucrative form of commercial lending, bar none. When I asked if it was so because the banks’ liar loans were redeemed the loan guarantee program, he just smiled. 

TD Canada Trust, alone of the Big 6, take on all Iranian-Canadians

What the hell are they  thinking?

Links:

• TD Bank closing customer accounts as part of Iran sanctions, National Post, July 6, 2012
• TD Bank discriminates against Iranians, says family, The Province, July 11, 2012
• Iranian-Canadians fume as TD closes accounts, CBC News, July 11, 2012
• Iranian-Canadians furious over closure of TD Bank accounts, Toronto Star, July 12, 2012
• Still no word from TD Bank, say Iranian-Canadian customers affected by sanctions policy, Ottawa Citizen, August, 16, 2012
• Iranian-Canadians protest in front of TD Bank, Toronto Star, August 25, 2012
• Condemn TD Bank in their Treatment of clients with Iranian Background, Facebook page

Which bank is this? I want to find where that bank is. I’m serious. What bank is it that the government underwrites the loan?

Mr. Neil Davies’ testimony and answers to an all-party Legislative Assembly of Ontario, Canada standing committee investigating the franchise industry.

Hansard transcript:

I have a background in the restaurant business. I found a beautiful restaurant, not far from here, in downtown Toronto, five-day week, 15-year lease, and it was represented to me that it had high sales, as it certainly had very high expenses. I was shown cash register tapes, which showed me the sales. Fine. I purchased the restaurant, and immediately it appeared to me that I had been defrauded.

At the end of the summer, when the season changed-I purchased this restaurant in the winter-I knew for certain I had been defrauded. There was no uptake in sales. Having been relieved of most of my money, I could not afford to litigate this case, costing about $100,000 to $200,000. So I went to law school. I learned some law, litigation. I went on an on-line law library and I’m prosecuting the three parties involved myself.

This case is about one year old. Until recently, it went better than expected. I often had the sympathy of the courts. After fierce resistance by the other parties, I got hold of those cash register tapes that they had shown me. I discovered that the figures on these tapes differed by almost $400,000 from the figures on the tapes that I was shown and the figures that their agent had given me and figures that the franchisor had given to me.

[...]

So we have in Ontario a group of men who are carrying on a racket. They have an engaging, smart, ruthless agent who befriends and entices business people, mostly immigrants, into signing franchise contracts based on fraudulent misrepresentations and an accountant who arranges business loans and remains silent to all this. I’ve garnered evidence from part of the bank’s file that I recently obtained that the banks don’t care because the loans are 75% guaranteed by the government.

[...]

Mr O’Toole [Mr. John O'Toole MPP, Durham 1995 - present]: Which bank is this? I want to find where that bank is. I’m serious. What bank is it that the government underwrites the loan? I’m not sure of that.

Mr Davies: This is why we have such an explosion of franchises like Second Cup, for example, and Coffee Time Donuts, because the government is underwriting them. When one gets a small business loan, it’s supposed to be based on the equipment in these restaurants. So far so good. But in the event of default, the government guarantees 75% of the loan. So the banks don’t care.

The proof of this is in information I got from the Royal Bank file. They wouldn’t release the whole file, because they’re nervous. But I was astounded to discover that the financial statement, which is based on the whole loan, was entirely suspicious. When I investigated the statement, I could not authenticate it. In other words, it’s my inference that the statement is forged.

The statement is immediately suspicious to any experienced businessman, never mind a loans officer. This statement wasn’t signed, it can’t be authenticated, you cannot trace its authors and it has a disclaimer on it saying that the figures come from the vendor, the franchisor. No bank would normally give out a loan under such circumstances. They always want an accountant, preferably a CA, to verify the figures. The only reason they’re doing it is that they can hardly lose. They have a lien on the equipment of the restaurant and the government is guaranteeing 75%. It’s a no-lose situation.

Mr O’Toole: The bank wasn’t related to-excuse the humour here-Minister Stewart, was it? It was the business development bank, I guess, which would be federal, right?

Mr Davies: This was not through the business development bank. I got my loan through the Royal Bank. One can get them through any bank. The federal government is the entity that guarantees the loan.

[...]

Mr Chudleigh [Mr. Ted Chudleigh MPP, Halton 1995 - present]: Thanks for coming, Mr Davies. Very briefly, in your presentation I think you said that when you purchased your franchise, you did so from an agent or a broker?

Mr Davies: I did. The vendor and the broker were in very close collusion.

Mr Chudleigh: But the broker was the person you actually signed the deal with, or he arranged-

Mr Davies: Initially, the broker. Of course, the contract was with the franchisor.

Mr Chudleigh: OK. Thank you very much.
Standing Committee on Regulations and Private Bills, Legislative Assembly of Ontario, Canada, March 6, 2000 – Bill 33: Arthur Wishart Act (Franchise Disclosure), 2000, Starting after 13:40 pm.

Tony Martin MPP asks franchise bankers for information

Tony Martin is the best friend that Canadian franchisees’ have ever had in an elected official.

When he was a member of provincial parliament, I worked with him as an industry resource person from 1998 to 2001, pushing for Ontario’s first franchise law.

This is what he had to say about how helpful the banks were in preparing for the Standing Committee on Regulations and Private Bills four days of public hearings. This  led to the Ontario Arthur Wishart (Franchise Disclosure) Act, 2000.

Hansard transcript:

It’s also obvious to us from inquiries that we made to banks, that happen to be another of the major partners in this piece of work that’s going on, that banks tend to be, at the end of the day, one of the institutions that gain very generously from some of the dealings between franchisors and franchisees in that most franchisees have to go at some point to the bank for a loan to top up or even, in some instances, to get the money in the first place in order to enter into the agreement that franchisees want to enter into so they can participate in this business. Banks, at the end of the day, also happen to be one of those players when it comes to a default or a bankruptcy or a failure of a franchise system, so where in many instances the franchisee ends up in some pretty dire straits at the end of the day, it’s normally the franchisor and the bank who do everything in their power, with the power and resources they have, to make sure that their interests are protected.

We went to the banks as well to see if we could get some information on this, what statistics there are as to how many franchisees went under and failed and what impact that had on them, and that information wasn’t forthcoming either. They either didn’t have it or they weren’t willing to share that information with us. I suggest to you that certainly in my experience banks have information on everything. There isn’t a thing I do in my life that my bank doesn’t know about. In conversation with those institutions as a person trying to get a loan to buy a car or whatever, I soon find out to what degree of detail they have information on record about me, so I find it strange, in a circumstance where you have significantly more at stake and significantly more generous financial dealings and relationships than perhaps I would enter into, that there isn’t that kind of information available.

I will be sharing with the committee as well today some information that was gathered from the banks, some of the questions we asked, and then some of the answers we got, which were primarily: “We don’t have any answers. We don’t keep those kinds of statistics, and that kind of detailed and specific information isn’t readily available.” That makes it difficult for us to do this job and to make the case we need to make here that in fact there are some problems in the industry of a significant financial nature. I’ll be circulating that to you all in a little while as well, so that you can have that at your disposal.

Standing Committee on Regulations and Private Bills, Legislative Assembly of Ontario, Canada, March 6, 2000 – Bill 33: Arthur Wishart Act (Franchise Disclosure), 2000, just after 9:50 am.