Offering 6% annual returns, the limited partnerships in office buildings and other properties promoted by Calgary-based Platinum Equities never seemed too good to be true. They sounded like solid, income-yielding investments to some 2,200 investors, including Larry, 67, who asked that his last name not be used. The retiree felt that, with his decades of experience as a mechanical contractor, he understood real estate.
“The [Platinum] presentation was no big mystery,” he says. “Here’s a building, here’s a mortgage, here’s tenants, tenants pay rent, rent pays mortgage, there’s money left over.” The promised return “was not fantastic. But I said, ‘Hey, that’s OK. Six per cent over the long haul and a mortgage paydown and building appreciation. I’m pretty comfortable doing that.’”
He’s not comfortable now. On Sept. 10, Larry joined 500 disgruntled Platinum investors at a Calgary church hall where many signed on to a $160-million class-action lawsuit against Platinum. The investors allege Platinum’s deals in some 20 projects in Western Canada went bad not because of market conditions but corruption.
A statement of claim filed by law firm McGuigan Nelson LLP alleges, in essence, that Platinum CEO Shariff Chandran and his sister Chitra Chandran, a director, colluded with Calgary businessman Riaz Mamdani to drive Platinum properties into bankruptcy. At the time of writing, none of the defendants had filed a statement of defence.
Mamdani is the CEO of Strategic Group, which claims to be the largest private landlord in Calgary. A company spokesperson denied the accusations levelled at him, saying, “We are victims of this fraud similar to the limited partners.”
Companies under the Strategic umbrella owned mortgages on every property Platinum acquired, according to the plaintiffs’ statement. Platinum sold investors $25,000 or $50,000 partnership units in those holdings as exempt securities, without a prospectus.
Platinum proved a shoddy manager. Buildings began losing tenants and revenue. In time, Mamdani foreclosed on loans Strategic entities made to Platinum and bought back buildings at much-reduced prices, say the plaintiffs. Many lost their entire investment.
If this sounds familiar, it is. Earlier this year the Alberta Securities Commission sanctioned four principals for offences related to the 2009 collapse of Calgary-based Concrete Equities. One of them, Dave Humeniuk, was fined $3.3 million, the heaviest individual penalty ever levied by the ASC. According to the Platinum plaintiffs, Humeniuk also sold Platinum securities and is named as a defendant in that lawsuit. Strategic Group was also involved, though never implicated, in the Concrete affair, and ended up with two of Concrete’s buildings.
And there have been still more, unrelated property investment debacles in Alberta since the market correction in 2008. Real estate accounts for about 8% of all deals done through the exempt market, says ASC chairman and CEO Bill Rice. “Obviously, we are seeing a disproportionate number of problems arise in that one industry.”
On Sept. 12, the ASC issued a notice of hearing against Shariff and Chitra Chandran and another Platinum employee alleging that between 2005 and 2010 they illegally sold securities and made misleading statements regarding their safety and profitability. Kevin McGuigan, lawyer for Platinum’s investors, hopes publicity surrounding the case will serve as a warning to others. But removing the rot from Calgary’s property market is far from done.