In Trust: investigative report

Albert Bruno says he thought he had a sure thing. But then he and other investors lost millions.

The proposed wire transfer seemed designed to inspire confidence. The money would be deposited in a trust account at Toronto-Dominion Bank controlled by one of Canada's oldest and largest law firms, Cassels Brock & Blackwell LLP. Even so, Albert Bruno hesitated. The Chicago resident had built his fortune over many decades by operating grocery stores and furniture and appliance shops, manufacturing sheet metal and developing shopping malls. He decided to look into the deal more closely before committing his million dollars.

It was early 2002. Bruno, then in his late 60s, was preparing to invest in a joint venture. Though even today he is vague about how the underlying scheme was supposed to work, he understood that a trader named Robert Hryniak was pooling together millions of dollars from various clients. According to a letter to prospective investors, the joint venture's funds would be used to buy letters of credit, certificates of deposit, bank deposit notes and other instruments originating from the U.S. government, banks and other institutions whose short-term debt was rated highly by agencies such as Standard & Poor's and Moody's. The instruments would then be sold at a profit. Investors would get a cut of the proceeds for one year, and then recover their principal. Bruno says he learned that returns of up to 20% a month were possible; at that rate, he could better than triple his money in 12 months. And the beauty of it, Bruno says, was that the scheme's backers told him his principal couldn't be lost.

Bruno had been burned on investments before. What impressed him most about this scheme, though, was its link to Cassels Brock. “I wanted to see whether that was true, and what the law firm had to say,” Bruno says. “If the law firm is putting these documents together and holding the money and everything, it should be something that's legitimate.” So Bruno arranged to meet face-to-face in Toronto with the three individuals involved with the joint venture: Hryniak, an associate named Robert Cranston, and Gregory Peebles, a senior partner at Cassels Brock. After that meeting, Bruno wired his money.

The investment industry hinges on trust–investors regularly draw distinctions between upstart institutions versus established brands such as RBC, Merrill Lynch and Manulife Financial. Rightly or wrongly, recognized corporations are usually deemed less likely to offer vehicles that might collapse. Trust can be the glue that holds things together when investors become overwhelmed by rafts of legal documents and jargon-laden fine print–or when they don't truly understand what they're investing in. But if Bruno thought Cassels Brock's involvement ensured his investment's safety, he was sorely mistaken.

Peebles claims he said nothing to Bruno about the advisability, safety or likely return of the investment–in fact, Peebles insists he made no representations about it at all. And he remembers suggesting that Bruno seek independent legal advice and do his own homework. After all, Peebles was Hryniak's lawyer; Bruno hadn't paid him a cent.

In fact, Peebles would have been foolish to claim the joint venture was a surefire way to get rich. For beyond Cassels Brock's trust account lay a shadowy offshore realm–the joint venture's legal documentation (which Peebles handled) stated as much. By signing the paperwork, Bruno agreed to do business with companies incorporated in Panama and registered in St. Vincent and the Grenadines. He consented to have his money held at a Caribbean bank which, it turned out, had dubious credentials. He even agreed never to mention the proposed investment to anybody else.

One thing Bruno didn't consent to was getting ripped off. Bruno, who received not one penny from the joint venture and has lost all of his principal, now describes himself as a “textbook victim” of a common investment fraud. Last year, he launched a lawsuit against Hryniak, Peebles and Cassels Brock in the Ontario Superior Court of Justice. More than a dozen other investors have made similar claims about the joint venture in a second lawsuit. None of the allegations has been proven in court, and the defendants deny wrongdoing.

To get at the truth, you'd have to follow the money. And that's much easier said than done.

The trio who put the joint venture together–Gregory Peebles, Robert Hryniak and Robert Cranston–were strange bedfellows, indeed.

A corporate and commercial lawyer who had worked at Cassels Brock for nearly two decades, Peebles reached the upper echelons of his profession. He graduated from the University of Western Ontario's law school in 1981, and joined the firm in 1983, the same year he was called to the bar. He became a partner in 1988. According to a biography published by Cassels Brock, Peebles brushed shoulders with provincial premiers and deputy ministers, reviewed commercial leases, shareholder agreements, profit-sharing plans, and assisted with major transactions. In 2003, for example, he and three colleagues acted on behalf of a company that raised $300 million through a private placement. Peebles specialized in mergers and acquisitions.

Peebles wasn't merely a successful legal foot soldier. In 1992, he was selected to lead the firm as managing partner for a three-year term. That made him the 120-lawyer partnership's equivalent of a corporate chief executive–a position that commanded the respect and confidence of his colleagues. He also led the firm's business law department for five years, and was chairman of its finance committee. On the side, he found time to sit as a director on the boards of small mining companies.

Peebles' lifestyle seemed commensurate with his professional standing. He lived in a three-storey stone house situated among other multimillion-dollar homes in Toronto's prestigious Forest Hill enclave; it had five bedrooms and bathrooms, plenty of hardwood flooring, a two-car garage and gourmet kitchen. Last summer, that house sold for $2.27 million. Other neighbourhood residents have included gold and real estate baron Peter Munk and the Phelans, the family behind Cara Holdings, which controls Harvey's and Swiss Chalet. Upper Canada College, a prestigious private school for boys, is just minutes away.

Peebles began performing legal work for Hryniak in the early 1990s, around the same time Hryniak ran an injection moulding company called Greenfield Plastics Inc., based in Mississauga, Ont. Hryniak's resumé indicates his 30-year career has taken him into fields as diverse as executive recruiting and management consulting, computer software and corporate finance, and it mentions bond trading to boot. On paper, he appears to be a corporate Renaissance man.

In court documents, Hryniak says he approached Peebles in late 2000 for help establishing an entity that would enable him to conduct what he describes as “basis trading,” or buying blocks of debt instruments and selling them at a profit. Eventually, Hryniak incorporated Tropos Financial, a Barbadian company; its mailing address was his Toronto residence, a large new home located in an upper-class neighbourhood.

Hryniak also established the joint venture through which he planned to attract capital. He says he wanted to raise US$10 million; prospective investors would provide the funds to Tropos via Cassels Brock's trust account. While some of his colleagues provided tax advice on the joint venture, Peebles and Hryniak both say in court documents that Peebles drafted the underlying legal documentation.

Cassels Brock, however, says those documents were provided by Hryniak, and that Peebles merely reviewed them. That's significant, because Mark Young, Cassels Brock's current managing partner, says he personally would have drafted the paperwork differently. “The standard template is probably a bit deficient from what I'd like to see, quite frankly,” he says. “For example, there isn't enough specificity on the question of who is to receive trust funds, [or in] the format of the direction for the release of the funds. That doesn't make it unusual, but if it were up to me, I would have liked to have seen that more clearly spelled out.” But if Hryniak wanted to follow the template, Young says, that was acceptable to Cassels Brock.

There was still the matter of raising money. In 2000, a mutual acquaintance introduced Hryniak to Cranston. According to Hryniak, Cranston claimed to have experience raising money, and suggested that one of his companies, Frontline Investments Inc., could act as an investment vehicle. According to court documents, Frontline was originally incorporated in Panama and later registered in St. Vincent and the Grenadines. The two men struck an arrangement: Cranston would, through Frontline, gather together investors, whose money Hryniak would then use to buy securities and make more.

So just who was Cranston? A resident of London, Ont., he had for some time lurked in the shadowy corners of offshore banking. Since 1998, he'd operated a company website, Global Privacy Management Trust (GPMT), which purported to be a consulting service that helped affluent business people and others protect their privacy and shield themselves from liability using offshore trusts.

For US$1,150, GPMT claimed it could set clients up with what it called “The Complete Belize Trust System.” For US$600, it would open an “Austrian sparbuch”–an account which, GPMT claimed, offered clients the utmost secrecy and could even be issued to a fictitious person. For US$250, one could obtain a “very impressive Press Pass” issued by “the American's Bulletin News Bureau,” an item which purportedly allowed individuals to attend “newsworthy events,” obtain free refreshments and parking, and be upgraded to first-class seats aboard aircraft. A further US$325 would buy a client a passport from the Republic of Zanzibar, Eastern Samoa, the Netherlands East Indies, the former Soviet Union, and other countries that no longer exist. Such a passport could prove useful, GPMT claimed, if the bearer were to be kidnapped by terrorists bent on hijacking and killing Americans.

GPMT warned prospective clients that not all offshore consultants were trustworthy. “Given the wrong set of circumstances, your whole life savings can disappear overnight,” its site cautioned.

In spite of GPMT's ostensible concern for its clients' financial security, its website apparently didn't sit well with the Ontario Securities Commission. In December 2000, the regulator slapped Cranston with a cease-trade order. It claimed that the site violated securities laws. According to the OSC, GPMT's newsletter promoted a “bank debenture trading program” that offered investment-grade fixed-income securities and promised a return of 12% or more a month. The OSC had several objections. One was that neither Cranston nor GPMT were registered to trade securities in Ontario. Furthermore, they were distributing securities without a prospectus, a formal document offering to sell investment vehicles to the public that regulators insist be drawn up.

The cease-trade order didn't stop Cranston from hooking up with Hryniak and Peebles. Cranston requested an adjournment of the proceedings, which OSC enforcement staff quickly granted. Things today remain adjourned sine die (a Latin term that means without any future meetings or hearings scheduled).

As for Cranston's company, Frontline, it's a bit mysterious. A letter received by Bruno identified two additional representatives for Frontline: Robert Fornelli of El Cajon, Calif., and Brian Hardcastle of Peterborough, Ont. When Canadian Business called the latter to ask him about the company, Hardcastle denied ever working for it. “I know about Frontline,” he said, “and that's all I'm prepared to say to you.” He then hung up. The call lasted 32 seconds.

Fornelli was more forthcoming. He says that Cranston formed the company for the sole purpose of investing in Tropos's joint venture. However, Fornelli says he purchased Frontline from Cranston on Nov. 9, 2001, at which point he immediately registered the company in St. Vincent and the Grenadines. “He sold the company to me, lock, stock and barrel,” Fornelli says, adding that Cranston would have no right to hold himself out as a representative of Frontline following the purchase.

Hryniak and Peebles both say they didn't know about Cranston's troubles with the OSC, nor that he'd sold Frontline. Bruno, too, knew little. Perhaps everyone should have taken a closer look: Cranston proved full of surprises.

Scotia Plaza is one of Toronto's tallest office towers, and home to the headquarters of one of Canada's most venerated financial institutions, Scotiabank. The granite and Tennessee marble of its 130-foot-high atrium and its wood-panelled elevators are designed to impress. The building's unique geometric design maximizes the number of corner offices. Up on the 21st floor, Cassels Brock's reception area offers a commanding view of downtown Toronto, the heart of the nation's financial industry.

Albert Bruno wasn't the only joint venture investor to come to these rarefied corridors to meet Gregory Peebles. Nor was he the first. John Willock, a resident of St. Albert, Alta., claims that Robert Cranston set up a Panamanian company for him called Paradise Group Holdings Inc. in order to invest in the joint venture. That relationship eventually led him to a Cassels Brock boardroom as well. On June 14, 2001, Willock met with Peebles and Cranston at the law firm's offices.

Willock brought along his own accountant and lawyer, Stephen Pike, a corporate and commercial specialist now with Gowling Lafleur Henderson LLP in Toronto. Willock claims that Peebles spoke of a “legitimate and secure investment.” After the meeting, however, Willock says Pike expressed reservations. (Pike did not return calls from Canadian Business, and Willock declined to be interviewed for this story.) Yet despite Pike's misgivings, Willock invested $500,000 in the joint venture.

Another meeting convened the following week. Two longtime friends–Fred Mauldin, a construction contractor from Lancaster, Calif., and Dan Myers, a former Baptist pastor from La Quinta, Calif.–say they'd already learned of the joint venture from Cranston and Hardcastle at Frontline. Mauldin and Myers flew into Toronto from Los Angeles. The following morning, the two men drove their rental car through the city's unfamiliar streets, eventually locating Scotia Plaza. There, they met at Cassels Brock's offices with Cranston and Peebles–and this time, Robert Hryniak, the trader, also attended.

The encounter lasted more than two hours. Mauldin and Myers claim Hryniak told them that for two decades he'd worked for the world's largest trader, known only as “the Old Man.” According to this version of events, they were told that the Old Man was appointed during the administration of former U.S. president Richard Nixon as one of just five people given the right to buy treasury bills at rates cheaper than anyone else in the world. The Old Man apparently did brisk business, trading US$3 trillion a day– equivalent to about one-quarter of the annual GDP of the United States. Mauldin and Myers recall that while Hryniak said he'd left the Old Man's employ, he also claimed the two remained close, allowing Hryniak exclusive access to massively profitable investment opportunities. Hryniak's resumé, though, mentions nothing of the sort–and his lawyers say he disagrees with Myers and Mauldin's allegations. Neither Bruno nor Willock report hearing the “Old Man” story.

Myers claims that Peebles gave Hryniak a ringing endorsement. As well, the lawyer allegedly assured Myers and Mauldin that their investment would be secure in Cassels Brock's trust account. “We were listening very carefully to what Peebles had to say, because our impression of the legitimacy of the investment was largely determined by the support of Cassels Brock for Hryniak, and the fact they'd represented him for a long time,” Myers claims. “We left that meeting feeling very good.” After the session was finished, Myers and Mauldin took Cranston out for dinner at Far Niente, a nearby restaurant popular with the Bay Street crowd. They flew back to Los Angeles the next day.

Shortly after that, Cranston told Mauldin to wire funds to Cassels Brock's trust account. Mauldin sent US$1.2 million, US$75,000 of it his own money. Myers contributed US$125,000. The rest came from a sort of investment club of 11 other people the two men represented. Most members lived in California, and several, like Myers, were current or former clergymen. Many, including Mauldin, bet significant portions of their net worth on the joint venture. In an “investor profile” Mauldin sent to Cranston, he revealed that part of his contribution came from the sale of his personal residence.

Like moths to flame, more investors were drawn into the joint venture. In the latter half of 2001, Hryniak says in court documents, Frontline and four unidentified investors wired a total of US$10.2 million into Cassels Brock's trust account. Having reached his target in December of that year, Hryniak says he stopped accepting further subscriptions.

Bruno flew into Toronto's Pearson International Airport on the night of Feb. 21, 2002. Cranston arrived in a roadster to pick him up at the Ramada Hotel Toronto Airport the following morning. It was their first encounter; Bruno remembers Cranston as being six feet tall, perhaps 35 years old, and sporting a leather jacket. Cranston drove Bruno to Cassels Brock's offices.

Bruno recalls being escorted to a large boardroom dominated by a table surrounded by more than a dozen chairs. Cranston, Peebles and Bruno sat down to discuss the investment. Bruno expected Hryniak to be there as well, but was told the trader couldn't make it. Bruno wasn't particularly concerned: Peebles was a “presentable” man, he thought, and seemed to know what he was talking about.

The meeting lasted about 20 minutes. “We sat down at the table, and Peebles started explaining what he knew about Hryniak,” Bruno told Canadian Business . “He said he'd been representing Hryniak, and [Hryniak had] been producing a lot of money for people…. He said the money would go into his trust fund [and that] the principal could not be lost.”

Afterward, Bruno flew home to Chicago. Asked to describe his thinking at the time, he replied: “If this law firm is representing the client, and the money is going to the law firm and you can't lose the principal, I really don't have anything to lose.” About a week later, he went to his bank and wired US$1 million to Cassels Brock's trust account.

But wait–wasn't this after Hryniak claims he stopped accepting subscriptions?

Hryniak maintains in court documents that he never received Bruno's money, nor did he authorize Peebles to hold a meeting with Bruno and Cranston. When Peebles and Cranston notified him that Bruno had contributed US$1 million, Hryniak says he told them he had no further investment opportunities and that the money should be returned to Bruno. Instead, Hryniak claims, Cassels Brock wired Bruno's money to Rhino Holdings, another of Cranston's companies. If all of that's true, then what were Peebles and Cranston up to? Cassels Brock, on the other hand, says it paid Bruno's money to Hryniak's company, Tropos Financial. In either case, something was very wrong.

After they had wired money, clients received a subscription agreement and a certificate of joint-venture interest. While Mauldin's and Bruno's documents were superficially similar, there were some notable differences. Mauldin's subscription agreement purported to be “in accordance with the Laws of the Republic of Panama,” while Bruno's hailed from St. Vincent and the Grenadines.

Their money was going south, too: Bruno's subscription agreement said that Frontline had an account at an institution called Diak Bank in St. Vincent and the Grenadines, to which his funds were to be deposited. According to its liquidator, the now-defunct Diak Bank was incorporated in Grenada in 1999 and began operating in 2000 with a capitalization of just US$100,000–one of many violations of the terms of its offshore banking licence. Somehow, among other problems, Diak managed to operate without an accounting system. In fact, its violation of banking conventions was matched only by the complacency of authorities. Even after the Grenadines ministry of finance announced its intent to revoke Diak's licence, the bank continued executing transactions. Ultimately, Diak folded in 2003. Mauldin's funds, meanwhile, were said to be going to the Bank of Butterfield in Bermuda. That was more promising: Butterfield Bank still exists, and claims to be that country's first bank, with a history dating from 1758.

The joint venture's subscription agreement claimed that the investment strove for “the preservation of capital” and that it would be made “on a non-capital depletion basis.” And if joint-venture partners wanted to pull out their money, they could get it back on a month's notice. Strictly speaking, such language falls short of guaranteeing safety of principal–Bruno and Mauldin were in effect banking on the creditworthiness of the joint venture's backers. Moreover, the subscription agreement, certificate of joint venture interest and other documents shed little light on how returns would be generated. Nevertheless, Bruno and Mauldin agreed that they had sufficient knowledge to make an informed decision about whether to invest. But did they really?

The biggest discrepancy was the letterhead on top of the joint-venture documents. Peebles claims that the documents he saw specified Tropos as the firm to which funds were to be wired. However, the documents signed by Mauldin and Bruno don't mention Hryniak or Tropos. Not once. Instead, they reference Frontline Investments and another company, Rhino Holdings.

On what basis could Cassels Brock send their money to Tropos? In retrospect, that is just one of many questions the documents left unanswered. But one thing is clear in hindsight: the stage was set for disaster.

After wiring their money, the joint venture's participants eagerly awaited returns on their investment. But exactly how would Robert Hryniak generate them?

The joint-venture documents provide some explanation. Fred Mauldin's confidentiality agreement called it a “Private Investment Strategy,” and spoke of specific instruments, such as “Private Investment Guarantees (PIGs)” and “Standby Letters of Credit,” which would be traded. Albert Bruno's document mentioned those instruments, but added to the mix other supposed transactions called “Dollar Rolls” and “Reverse Repurchase Agreements.” Still, after reading the documents, a lawyer not connected with the case told Canadian Business he couldn't say how the joint venture would generate returns.

Defendants in the lawsuits are adamant, at least, about what the joint venture was not. In court documents, Hryniak says he “expressly denies that he ever conducted a fraudulent offshore investment scheme, or anything of the sort.” Peebles, too, says the joint venture was “not a fraudulent investment scheme of any kind.” Cassels Brock concurs.

So why did Stephen Pike, Willock's lawyer, raise such a fuss?

Pike supplied Willock with a warning from the Ontario Securities Commission and the RCMP discussing what are generically known as “prime bank” and “high-yield investment” frauds. These scams first appeared in the early 1990s, waxed and waned along with the attention paid them by media, law enforcement and prosecutors, and have fleeced untold thousands of hapless investors along the way. Other organizations have issued similar warnings, the earliest being the U.S. Federal Reserve in 1993. While details vary between schemes, the various warnings identify a number of distinct characteristics of prime bank schemes:

– Supposed investments take the form of debentures, letters of credit, guarantees and similar instruments.

– Promoters use jargon such as “prime bank notes,” “prime bank debentures” and “roll-over programs.”

– Promised returns are enormous, as much as 20% a month.

– Risks are said to be low or entirely absent .

– Investors are sometimes told that trading cannot begin until a certain amount of money has been pooled together–say, US$10 million.

– Promoters tell prospective investors they are being permitted access to a secret trading regime, and may ask them to sign non-disclosure agreements.

– Money is sometimes filtered through offshore accounts in countries with favourable banking secrecy and taxation rules.

– Investors receive documents containing technical language in an attempt to confuse them.

– Little information is provided about how returns are generated.

– Once they've invested, participants get little or no return, and lose their principal.

Prosecuting the perpetrators of such schemes can be challenging. According to an article about prime bank scams by U.S. trial lawyers Joel Leising and Michael McGarry in the United States Attorneys' Bulletin in March 2002, the toughest thing is to prove fraudulent intent. “The most common defense,” they wrote, “is, 'I didn't know those trading programs didn't exist. I believed Mr. X when he told me they did.'”

Les Henderson, an Azilda, Ont., resident who operates a website called Crimes of Persuasion, has spent nearly a decade warning consumers about scams. He claims that prime bank schemes are often wrapped up with arcane conspiracy theories. “The publication of the book The Creature From Jekyll Island in 1994 by G. Edward Griffin continues to fuel new investor interest in prime bank notes,” his website states. The book's title is a reference to the birthplace of the U.S. Federal Reserve, an institution Griffin despises. His 600-page tome argues that the Fed is “an instrument of totalitarianism” and a “cartel operating against the public interest,” which encourages war and should be abolished. The back cover includes an endorsement from country musician Willie Nelson. According to Henderson, “the book, which promoters of prime bank notes urge skeptics to read, describes a labyrinth of secret transactions that enable the Federal Reserve system, governments and international banks to control the U.S. and world economies.”

You probably won't find Jekyll Island at your local Chapters–but it so happens that Cranston's GPMT offered it for sale at US$28.

Another document that sometimes pops up in prime bank frauds was produced by none other than the Federal Reserve itself. It published an article entitled “Anatomy of the Medium-Term Note Market” in an official Fed bulletin in 1993. Nearly a decade later, in 2002, the Fed complained:

“Since the publication of this article…many illicit scams purport to involve the trading of 'medium-term notes' (often referred to as 'MTNs') rather than 'prime bank' financial instruments. Apparently, wrongdoers involved with illegal financial instrument scams try to convince their victims that the Federal Reserve Bulletin article proves the existence of a market where MTNs can be traded for enormous profits. No such market exists.”

In efforts to establish the legitimacy of Tropos's trading activities, Hryniak's lawyer, Don Jack of Lerners LLP, provided Canadian Business a copy of “Anatomy of the Medium-Term Note Market.” “We have a Federal Reserve bulletin demonstrating…that these sorts of transactions are common, and are regular, and indeed there's a market in them, and so forth,” Jack explained. “It's not some fly-by-night nonsense that's been dreamed up in a bar someplace.”

Perhaps. But if Pike was right, then the joint-venture investors' money was already in jeopardy.

From the outset, nothing went as expected for the joint venture's investors.

Fred Mauldin claims that about a month after he wired his group's money to Cassels Brock, he received a fax from Peebles' assistant acknowledging receipt of US$2 million. Mauldin sent a message clarifying the lesser amount he'd actually sent.

In a memo dated in July 2001, Robert Cranston informed Mauldin that the joint venture's first disbursement was expected late the next month. That didn't happen. In October 2001, Cranston sent another memo containing bad news: Robert Hryniak's progress had been slowed because the U.S. government began scrutinizing wire transfers closely in the wake of the Sept. 11 terrorist attacks that year. However, Cranston added that Hryniak had just visited Europe and was making progress. Disbursements would soon follow, he promised.

Mauldin eventually received two wire transfers in February 2002, totalling slightly less than US$10,000. They would be the last. In explaining why returns were not forthcoming, Cranston relayed all sorts of bad news. An intermediary bank in New York held up a wire transfer, he told Albert Bruno. Tax considerations were complicating matters, he informed Mauldin. Once, he even suggested that Hryniak's conservative nature was at fault. “The trader is very thorough,” he wrote. “Once trading commences in June, our patience will yield tremendous financial rewards.”

Cranston often finished his updates to investors with reassurances. “Our reward for patience is just around the corner,” he wrote in one missive. “We sincerely thank you for keeping the faith and look forward to a long prosperous relationship.”

Some joint-venture partners, however, became jittery. Mauldin claims he spoke with Hryniak more than 100 times, and that Hryniak repeatedly told him the investment was safe and secure, and that patience would be rewarded.

It wasn't.

Meanwhile, after a few months without result, Bruno started phoning Hryniak and Gregory Peebles, the lawyer, regularly. “Nobody would give me any answers, and Peebles was trying to get away from answering my calls,” Bruno alleges. “He would say, 'Hryniak was supposed to be the one handling this.' I thought, 'There's something strange going on here. Where did my funds go?'”

Finally, after more than a year of waiting, Bruno lost his patience. In May 2003, he called Cranston and exercised his right to demand his money back. “I hoped that my funds were still with the law firm and would be released,” Bruno says.

They weren't.

Frontline sent Bruno a letter informing him that he would get his money back within a month. Soon after, though, Bruno learned that Cranston no longer had anything to do with the company; Cranston had supposedly sold it to an associate, Robert Fornelli, way back in November 2001. When Cranston relayed the news to Bruno a year and a half after the fact, Bruno was displeased. Says Bruno: “I said, 'Well, that's awful nice that you walk away from everything you've been talking about, Cranston.'” (Mauldin's group learned even later, via a letter in July 2003, that Frontline was “under new management.”)

Cranston's days in offshore banking were numbered. In November 2003, the RCMP arrested him in London, Ont. He and three associates were alleged to have perpetrated an offshore investment fraud that cost 15 Ontario residents approximately US$300,000. Police claimed that using London as a base, the group had enticed victims to invest in a company called Island Holdings Corp. that was designed to gather funds for pooled offshore investment opportunities. “Victims were promised an overly attractive monthly return on their investment,” the RCMP alleged. “To date, victims have received either no return or very little return and no refunds.”

At the time, police estimated that there were more than 70 victims across North America, who'd collectively lost about US$3 million. Many of them were middle-age or older and had lost their entire savings, the RCMP claimed. Some were widows. The alleged scheme described by the Mounties was unrelated to the joint venture Cranston was involved in with Peebles and Hryniak. Cranston's criminal trial is ongoing.

Meanwhile, some within Mauldin's group grew restless and wanted to sue or go to police. Mauldin, however, continued to give the trader the benefit of the doubt. “He believed Hryniak was a victim of circumstance,” says Myers, his longtime friend. “You'd have to know Mauldin to appreciate what I'm saying. He's a very trusting individual, almost to a fault. You have to hit him with a freight train of evidence before he would ever believe anything negative about anybody.” At long last, however, the group claims in court documents that its members asked Hryniak to return their money in early 2004.

Neither Bruno nor Mauldin got their money back. And nobody was prepared for Hryniak's story about what happened to it.

According to Robert Hryniak, Tropos Financial received US$10.2 million from Cassels Brock's trust account. It deposited that money with New Savings Bank AD, a puny, short-lived institution hailing from Montenegro.

Why Hryniak would entrust millions of dollars of other people's money to this particular institution is not immediately apparent. Let's just say it was no Chase Manhattan. Internet archives show that NSB operated a website in 2001, which claimed the bank was formed through a relationship with Predrag Bibic, a man who supposedly helped draft Montenegro's banking secrecy laws. High yields were promised, and safety of capital was assured. NSB also claimed to provide clients with services “not available with traditional banking experiences.”

The Internet is home to many chat rooms and forums in which enthusiasts debate the legitimacy of particular offshore schemes, institutions and people. According to one chat room post, NSB was established in 2000, and its owners and personnel included two men: Jack and Jay Pribble. In 2001, a chat room participant calling himself “Yeti Man 48” claimed the name Jack Pribble rang a bell. He posted a 1997 decision from the United States District Court for the Central District of Illinois concerning a man with the same name. That Jack Pribble, it turned out, had been an Illinois banker with a history of loan fraud. Was this the same guy? Yeti Man said he wasn't certain.

NSB's website claimed that while other jurisdictions tightened the screws on offshore banking, Montenegro would remain a stronghold of secrecy well into the future. That's not how things turned out, however. Pressured by developed nations concerned about terrorist financing and money laundering, Montenegro's government issued an edict demanding that all unlicensed institutions remove the word “bank” from their names as of July 2002. Going forward, any party in Montenegro accepting deposits, granting loans and engaging in other banking activities were required to be licensed by the Central Bank of Montenegro, a newly formed institution. Hundreds of banks instantly ceased to exist; NSB was among them.

During the first half of 2002, Hryniak says in court documents, NSB began behaving strangely. Having received no satisfactory explanation for the bank's irregular actions, Hryniak claims that he asked NSB to send the money back to Cassels Brock's trust account. It was then, he claims, that he learned some disturbing news: Jay Pribble (not Jack Pribble) had closed NSB's commercial accounts at Reitumu Banka (a Latvian bank) and made off with the money.

Hryniak wrote an alarming letter to Tropos's clients, including Frontline, but not to individuals like Fred Mauldin. Dated July 25, 2002, it claimed that Pribble stole the joint venture's money.

Robert Cranston sent Albert Bruno two versions of Hryniak's letter in June 2003, nearly one year after Hryniak had supposedly typed it. Only one was signed. Tropos's corporate logos on the top of the letters didn't match. One had a paragraph that began “On a more positive front…,” while the other did not. However, both letters contained some encouraging news:

We have acted quickly in having [Jay Pribble] tracked. Our sources were able to find enough footprints to determine his whereabouts. As of today we know where he is and he is under close surveillance. We are having the capital tracked and are confident that investor funds will be found and recovered in the near future.

Through his lawyer, Hryniak told Canadian Business he notified U.S. authorities of Jay Pribble's theft, and was able to find him living in Florida. The stolen funds were traced to the Bank of Nevis, he adds, in the renowned Caribbean tax haven. According to documents filed in court by Cassels Brock, Peebles told the firm he first learned of the incident in July 2002, and that he notified the Financial Services Commission of Ontario, the Attorney General of Ontario, and the FBI. In any case, the money was not recovered. Says Hryniak: “The difficulty and expense of recovering the funds ultimately proved prohibitive.”

The story of Pribble's theft has an air of plausibility. The 2001 annual report of Rietumu Banka shows that as of the end of that year, New Savings Bank AD had 3.8 million Latvian lats (about $7.6 million today) on deposit. Rietumu's annual report the following year does not mention NSB, as if NSB's money had left. Rietumu did not respond to questions from Canadian Business about the incident. The Central Bank of Montenegro could shed no light on NSB, and the country's finance ministry did not respond to this magazine's inquiries.

Bruno and Mauldin both claim they were in regular contact with either Hryniak or his lawyer, Gregory Peebles. And yet, both report that nobody mentioned the trouble with Pribble until well after the banker allegedly stole the joint venture's money. “We've never been given a copy of a wire transfer showing the money going to [NSB],” says Xavier Navarrete, a lawyer now representing Bruno, Willock and Mauldin's group.

After the joint venture's implosion, everyone went his separate way. Albert Bruno considered his options. Fred Mauldin's group didn't know what to do. Robert Cranston stood trial on criminal charges. Gregory Peebles got a new job.

Peebles served as a director for various mining interests–the kind of experience Cassels Brock boasts on its website. In 2002, he became a director of a small upstart Toronto-based mining company called OntZinc Corp., for which Cassels Brock performed legal services. The company's founder was Clifford Frame, an industry veteran who was CEO of Curragh Resources in 1992 when its Westray coal mine in Nova Scotia exploded, killing 26 men. A subsequent inquiry found that Westray was “an accident waiting to happen,” and faulted Westray and Curragh management for arrogance and dangerous practices at the mine. After OntZinc attempted to restart operations at an idle open-pit mine near Halifax in early 2004, Nova Scotian politicians made it clear Frame wasn't welcome back in the province.

In April 2004, Frame resigned from OntZinc for undisclosed reasons and Peebles became CEO. It was a lucrative gig, with a $500,000 annual salary and a bonus that could equal that amount if his fellow directors deemed appropriate. Peebles soon bought out Frame's stake in the company, obtaining some 20 million shares to become OntZinc's largest shareholder.

For a time, Peebles remained at Cassels Brock. But the firm apparently didn't approve of his moonlighting. It later complained that his performance deteriorated, and viewed his extracurricular activities as a breach of his partnership obligations. “When specifically asked whether he had accepted employment with OntZinc as its chief executive officer,” Cassels Brock claims in one court document, “Peebles denied that he had, even though, to his knowledge, this answer was untrue.”

Peebles resigned from Cassels Brock, effective Sept. 1, 2004. His departure may have been less than cordial; the firm's executive committee reduced his portion of the firm's net annual profits to just under $222,000–the amount he'd already drawn prior to leaving. Following standard procedure, the firm removed all mention of Peebles from its website, including mentions of his work on specific transactions.

It wasn't long before Peebles ran into problems at OntZinc, too. Toward the end of 2004, OntZinc issued a prospectus in an attempt to raise more than $300 million to purchase another company. Among other things, the prospectus revealed that during a private placement months earlier, Peebles bought 10 million company shares at 5¢ apiece.

The timing was bad; the OSC was then in the midst of its ongoing crusade against insider trading. According to OntZinc, when the regulator learned of Peebles' purchase, it became concerned that he may have traded with the benefit of information not in the public domain. Without admitting wrongdoing, Peebles returned the offending shares to OntZinc. He and OntZinc's board also came to a “mutual decision” that Peebles should resign all his positions with the company. He received a $500,000 golden handshake on his way out the door.

In four months, he'd gone from two high-paying jobs to none.

While Gregory Peebles rocketed through his eventful but brief tenure at OntZinc, Albert Bruno fumed. And while he was doing that, he got a call from Bonnie Brokaw. A former court stenographer from Illinois, she'd invested–and lost–US$150,000 in the joint venture. The two contacted a small Toronto law firm, Heydary Garfin Hamilton LP, during the summer of 2004, and began applying legal thumbscrews to Peebles and his employer, Cassels Brock. According to Bruno, Brokaw was so determined to recover her funds that she travelled to Toronto during that summer and visited Hryniak's house.

Bruno says that Brokaw convinced him to meet her in Toronto in October 2004 for another go. The two headed to Cassels Brock unannounced, in an attempt to catch Peebles unawares. However, Peebles had left for OntZinc more than a month earlier–and wouldn't be returning. The disgruntled duo then hailed a taxi and went straight to OntZinc's offices and confronted Peebles. Recalls Bruno: “He was surprised to see me with Bonnie. He had met Bonnie before, I guess…. Peebles took me aside and said, 'I don't know what you're doing with her. She's a crazy lady.' I said, 'Well, you owe her money, you owe me money. Where'd the money go?'”

Bruno claims that Peebles told him to put that question to Cassels Brock. Instead, Bruno went to the law offices of Heydary Garfin Hamilton in Toronto to commence legal action.

Heydary Garfin Hamilton made some initial progress. In negotiations, Peebles agreed to compensate Brokaw for her losses. In December 2004, he paid her $155,000. That deal probably included a non-disclosure agreement; after that, Brokaw stopped returning Bruno's calls.

Things looked up for Bruno, too. That same month, during a discussion with Bruno's counsel, Peebles acknowledged legal liability for his losses and admitted he'd handled Bruno's funds negligently. Peebles later confirmed that in writing. In return, Heydary Garfin Hamilton gave him two months to come up with Bruno's US$1 million.

Peebles never came up with the dough. After the deadline passed, Bruno had Heydary Garfin Hamilton file a lawsuit against Peebles, Hryniak and Cassels Brock in the Ontario Superior Court of Justice in March 2005. The law firm also issued a press release announcing the lawsuit, which attracted a smattering of media coverage.

When Dan Myers (a member of Mauldin's investment club) found mention of Bruno's suit on the Internet, he called up the Chicago resident and had a chat. Armed with information from Bruno, Myers was finally able to persuade his friend Mauldin that they, too, should take legal action. They approached Heydary Garfin Hamilton and launched their own lawsuit on behalf of their investment club last November. John Willock filed notice that he intended to commence a class-action suit soon after, but has since abandoned the effort. According to Xavier Navarrete, a partner at Heydary Garfin Hamilton who has done much of the legwork on the lawsuits, Willock has since decided to launch an individual lawsuit. All told, Heydary now represents 14 clients suing to recover funds lost in the joint venture. (Cranston, whose trial on RCMP charges continues in Hamilton, is not listed as a defendant.) Navarrete says more litigation may follow.

Navarrete's theory is that Peebles and Hryniak never intended to invest the funds they received from Bruno and Mauldin; rather, he alleges that one or both of them were “masterminds” behind a prime bank fraud. “What's common is that it's only a week or two after that meeting [at Cassels Brock] that the money is wired,” Navarrete claims. “If Cassels Brock had not been involved, [the plaintiffs] probably would have stuck to the old adage: If it sounds too good to be true, it is.”

That millions of dollars went missing is not disputed. Nobody is eager to accept responsibility for its disappearance, however. Hryniak, Peebles and Cassels Brock each deny Bruno's allegations–and generally argue that if something foul did indeed occur, perhaps one of their co-defendants is responsible. Defendants have yet to respond to Mauldin's and Myers' allegations, but both Cassels Brock and Hryniak say they dispute them.

Peebles emerged from the joint venture's ruins better than some. He remains in good standing with the Law Society of Upper Canada, and is free to practise in Ontario. For a time, he worked out of the offices of a company called Clearview Investment Solutions, but the Law Society now says he is listed as “not working.”

In court filings, Peebles denies participating in any conspiracy with Hryniak or Cranston. He says he conducted appropriate due diligence into the scheme, and that Bruno should have done the same but didn't. And that signed admission of responsibility for Bruno's losses? He claims he never made it. Alternatively, if he did, he says Bruno coerced him into doing so, and that he didn't understand the legal consequences, so it's not binding. Peebles is suing Cassels Brock seeking partnership profits and other moneys he claims his former employer owes him.

Canadian Business contacted Peebles in early January to request an interview about his role in the joint venture. “I wasn't involved in that with those guys,” he replied. Peebles suggested the magazine call his lawyer. A voice mail left with Paul Pape, Peebles' lawyer, received no response.

Hryniak maintains that the elusive offshore banker, Jay Pribble, stole the money–and that Tropos had no dealings whatsoever with Bruno. Tropos, Hryniak insists, was a legitimate trading company. He's suing Peebles and Cassels Brock for indemnity and costs.

As for Cassels Brock, the firm argues that it cannot be held responsible for losses suffered by people who were not its clients. If Peebles did anything wrong–which the firm denies–then Cassels Brock says it cannot be held responsible for his actions. And in the event that Peebles' conduct caused damages, then Cassels Brock says Peebles should pay. If anything, the law firm views itself as a victim: it's suing Peebles for $1 million for breach of his responsibilities to the firm. It alleges that by denying his employment at OntZinc, Peebles acted in a “deceitful and highhanded” manner.

Notwithstanding the outstanding legal disputes between Peebles and Cassels Brock, Mark Young, the firm's managing partner, says, “We stand behind Greg and the legal work he did for Hryniak and Tropos.” He adds: “They had transactions that were closing. We were asked to act as an escrow agent for funds between the subscription and the closing date, and to release the funds at the end. And we did all of those things.” Cassels Brock's mere involvement in the transaction, Young says, does not make the firm responsible for any subsequent losses. “I feel badly for anybody who may have actually lost money,” Young adds. “I feel badly for anybody who invested in Bre-X, too. But law firms are not guarantors for investment decisions that other people make.” As for the Mauldin group's lawsuit, Young says, “Without letting too many cats out of the bag, I know we will be making exactly the same response: that the moneys came in and were paid out to Tropos in accordance with the instructions.”

So what happened to the money? The mess of facts and allegations in the lawsuits relating to this matter hasn't as yet produced a satisfactory answer. This much is clear: somebody got wealthy at other people's expense.

Albert Bruno and Fred Mauldin's investing club had one key thing in common: both were previously lured into what they now describe as fraudulent schemes. Today, Dan Myers admits that he and others in his group held inflated opinions of their sophistication as investors when they wired their money to Cassels Brock. If there's a lesson for investors in all of this, it's this: if you don't understand an investment and the relationships between the various parties associated with it, don't invest. Admits Myers: “We didn't have what we thought we had with Cassels Brock.”

Bruno is stoic about losing US$1 million. He's resolved to manage his own money from now on. “Fortunately, I earn a lot of money and I'm in a lot of businesses,” he says. “I'm probably worth US$12 million to US$15 million. It's not going to make me jump off a building, let me tell you that.” When you lose money, he says, the only thing you can do is earn it back.

Earning it back may not be an option for others, particularly members of Mauldin's investment club. Many of them are past retirement age–one is over 90–and have lost a significant chunk of their life savings. Myers reports that he no longer has enough money for vacations, dining out, recreational interests or prescription drugs. He sold his second car, and his house may follow in early 2007. At 73, Mauldin now lives in a 39-foot recreational vehicle. Others were forced to turn to social security, government welfare and food stamps, he reports. Though he remains close with some members of the investment group, relationships with others have been strained.

In an interview with Canadian Business, Myers said: “It is not incorrect to say that every investor in this group has had his or her lifestyle dramatically changed. It also would not be incorrect to say”–he paused, inhaled sharply–“that every investor in this group, including myself, was pretty stupid.”