A court-appointed investigator investigating the Epic Alliance group of companies says the public may never fully know what happened to the hundreds of millions of dollars raised by the failed Saskatoon real estate venture.
“Based on EA Group’s unaudited books and records, total funds raised from investors was approximately $211.9 million,” Ernst and Young’s Peter Chisholm wrote in the 58-page report. .
“Due to incomplete books and records prior to 2019, the inspector was unable to draw conclusions regarding the use of investor funds during this time.”
On February 25, 2022, Justice Allisen Rothery of the Court of Queen’s Bench assigned Ernst and Young to review the Epic Alliance’s cases. Rothery unsealed the private report on Friday.
The report establishes that entrepreneurs Rochelle LaFlamme and Alisa Thompson created the Epic Alliance in August 2013 and led it until they told 121 investors in a video meeting on January 19, 2022 that there were no more left. silver.
“At the end of EA Group’s operations, only nominal cash and other assets remained,” Chisholm wrote.
The report details how the pair created an “ecosystem” of interdependent businesses that have purchased more than 700 homes, most of them in central Saskatoon neighborhoods.
This raises questions about how the pair lured investors into their scheme and how the company used fresh money to pay off existing bonds. He also questions how homes were valued and mortgages were obtained.
Saskatoon attorney Mike Russell represents the investors and made the request for the investigator.
“An important point here, a point of great concern, is that there are no files available for the inspector before 2019,” he said in an interview.
“So from 2013 to 2019 it’s a complete black box. We have no idea what happened during that time.”
The analysis of Epic’s operation focused on the period from 2019 to early 2022.
An epic story
LaFlamme and Thompson created the Epic Alliance in 2013. It quickly grew into a network of named and numbered companies, including Epic Alliance Real Estate, Epic Alliance Electrical, Epic Accounting and Bookkeeping, and Epic Holdings. It had 118 employees.
They created and operated three main businesses: a promissory note-based lending program, a “Fund-A-Flip” program, and a “Hassle Free Landlord Program”.
The company built a pool of capital by tricking people into giving Epic between $50,000 and $500,000 in exchange for a promissory note. The single-page notes, several examples of which were provided in the affidavits, were models of simplicity. They included the loan amount, the start and end of the term, and the interest rate.
The rate of return varied from 15 to 20%.
“You have a pool of unsecured funds that can be used for anything. There’s no specific purpose given to these funds when they’re loaned out,” Russell said.
The “Fund-A-Flip” program allowed investors to buy homes through Epic, make improvements and upgrades, and then sell for a profit. The company’s promotional materials suggested a 10% return on a one-year investment.
Finally, Russell said the “Hassle-Free Homeowners Program” had investors — mostly from out of province — buying homes Epic acquired through the Fund-a-Flip program. The investor took out the mortgage on the house, and Epic took responsibility for everything from finding tenants to maintaining the property.
It offered the investor a guaranteed rate of return of 15%.
The Ernst and Young report found that, from 2019 to 2022, much of the money from new investors went to fill gaps in past bonds. It showed that 82% of the company’s revenue came from investors and 18% came from the operations of its companies.
The promissory note program caught the attention of the Financial Consumer Affairs Authority of Saskatchewan (FCAA), which led to a cease trade order in October 2021.
The order said Epic gave information and advice on how to invest in securities, including real estate investments and promissory notes, without ever having registered as brokers or advisers.
Investigator Peter Chisholm wrote that the company ignored the trading ban.
“The Inspector reviewed signed promissory note agreements indicating that EA Group raised a total of $370,000 from four investors during the period of October 21, 2021 to October 29, 2021 (the period during which the OTC was in force).”
The report details the significant challenges the investigator faced from day one.
A search of the former Epic Alliance headquarters at 410 Avenue N in Saskatoon uncovered 84 boxes of bankers’ paper files. But it was what wasn’t there that turned out to be troubling.
“EA Group’s network infrastructure was located in a basement room at 410 Avenue N. The inspector identified an empty server rack where several servers containing EA Group’s network data should have been stored,” indicates the report.
“A drill was located on top of the server rack which appeared to have been used to remove the servers.”
A subsequent interview with an IT analyst hired by Epic revealed that the company hired the IT expert to take the three servers and “wipe [or erase] content from the servers, and to find a buyer for the servers,” the report said.
The main server still contained data at this point – around 260,000 documents – but “the server documents were very disorganized and lacked folder structures to help organize documents and files”.
“Server docs also appear to be incomplete.”
The road ahead
Russell said investors must now decide what, if anything, they can do to get some of their money back.
“This report would give investors an idea of the assets available to them, or it would say there are no assets, but at least give them some insight into what happened with these companies,” he said. he declared.
“I think he does an amazing job of the latter.”