Investors Scrutinizing the Regulators

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Fox Guarding the Hen House

Businessman allegedly claimed God sanctioned his venture
Man pressured other members of his church to invest in scam, securities commission alleges

David Baines

Saturday, May 06, 2006

John DeVries, a prominent member of the New Life Church in Kelowna, pressured church members into investing in an ill-fated business by claiming the investment had been endorsed by God, the B.C. Securities Commission has alleged.


In a notice of hearing released Friday, the commission said DeVries, 60, and an associate, Ernest Reed Grafke of Dallas, Texas, "represented to religiously devout individuals that an investment in Amber [DeVries' company] was sanctioned by God."

"This put unreasonable pressure on these individuals by exploiting their beliefs and the trust shared among them within their religious community."

The commission accused DeVries and Grafke of perpetrating a fraudulent scheme in which investors lost $10 million US. Of this amount, $2 million US was lost by B.C. residents.

The commission has also accused the Grafke and DeVries, along with his son David and two pastors at the New Life Church -- Ralph Bromley and Wesley Campbell -- of selling unregistered securities.

A panel will convene June 5 to set a date for a formal hearing. If found guilty, the respondents could be barred from acting as officers or directors of B.C. companies, stripped of their trading rights and fined up to $250,000 each.

The commission's notice of hearing was released two days after a public relations agent and a lawyer for DeVries, his son David and Grafke contacted The Vancouver Sun to provide their version of events before the commission made its formal allegations.

The lawyer, Carey Veinotte, portrayed his clients as victims of a massive Ponzi scheme perpetrated by Gregory Setser of Alta Loma, Calif.

During 2002 and 2003, Setser and several associates operated a company called IPIC International Inc., which purportedly bought and sold large quantities of merchandise and real estate.

Setser told prospective investors, many of them members of evangelical Christian groups, they could realize a 25-per-cent return within three to six months, which could be used to benefit Christian ministries.

But the U.S. Securities and Exchange Commission alleges that Setser invested little, if any, of the money. Rather he used it to pay earlier investors, and to support an extravagant lifestyle that included homes, a yacht and a helicopter.

Veinotte said DeVries, who now lives in the Turks and Caicos, set up Amber Enterprises Ltd., a Bahamian company, to participate in Setser's business, which he believed to be a viable business.

He said DeVries raised about $30 million from 600 investors around North America, including about 80 individuals or families connected to the New Life Church in Kelowna, for investment in Amber. Amber, in turn, invested the money in IPIC-related ventures.

He said IPIC began making payments to Amber, but those payments began to slow in the summer of 2003, prompting DeVries to obtain more security and press for repayment.

In November 2003, the SEC intervened and charged Setser with operating a giant Ponzi scheme. IPIC collapsed and, according to the B.C. commission, Amber investors lost $10 million US. (The Sun incorrectly reported Friday that B.C. investors lost $12.2 million Cdn.)

According to Veinotte, DeVries was one of the victims, losing $1.2 million. The commission, however, does not portray him as a victim. In its notice of hearing, it describes DeVries as "the guiding mind" behind the Amber promotion.

It says son David reviewed and approved all applications from potential investors, and Grafke was responsible for producing and disseminating information to potential investors.

For its services, the commission says, Amber collected fees and paid them to the three men. No amounts are mentioned.

The commission says many of the investors were members of the New Life Church, or contributors to a church charity called Hope for the Nations.

It alleges that Bromley and Campbell, who are pastors at New Life Church and officials of Hope for the Nations, used their positions to solicit investors and further the sale of the securities, which were not registered for sale.

Their lawyer, Stephen Jackson of Vancouver, said Friday that Bromley and Campbell personally invested in IPIC and then told other people about what appeared to be a good investment. He said they did not receive any remuneration.

"They never suspected that IPIC was fraudulent and they were not aware of the applicable securities laws. Even if they did know, they would never have viewed themselves as selling securities. They thought they were buying goods, not securities."

The board of elders at New Life Church issued a new release Friday stating that it is "extremely saddened" by the losses suffered by church members.

"As you can imagine, those who lost money, including those named in the BCSC notice of hearing, were devastated and embarrassed by the developments that came to light. . . . As the public can appreciate, those of our church members who suffered loss wish to put these things behind them and move on."

The commission further alleges that DeVries and Grafke, in promoting the Amber investments, falsely represented that:

Investors would be guaranteed higher returns than they could realize in the stock market.

Amber had conducted proper due diligence on the buyers and sellers involved in the IPIC investments.

Amber's business would expand from hundreds of millions of dollars to billions.

Amber was spending significant funds to comply with securities regulations and was compliant with securities laws and current in all filings.

The commission alleges that DeVries and Grafke failed to advise investors of certain critical facts on a timely basis, or at all, including the fact that countless products supposedly purchased by IPIC with investors' money had been stolen or had gone missing, and that IPIC owed Amber almost $60 million.

"By making deceitful statements to them and by failing to inform them of material facts, John DeVries and Grafke perpetrated a fraud against investors," the commission alleges.

The commission also accused DeVries and Grafke of engaging in unfair practices when they claimed that investments in Amber were sanctioned by God.

"John DeVries and Grafke exploited the common religious affiliation and beliefs among potential investors by making representations about investing in Amber that could not be objectively verified," it alleged.

Veinotte earlier told The Sun that his client did not know that IPIC was a pyramid-like Ponzi scheme. He said after IPIC collapsed, DeVries contributed $500,000 US to a trust account that the U.S. receiver established to reimburse those who lost money.

Mike Quilling, one of two Dallas lawyers overseeing the receivership, said Amber Enterprises, which is probably DeVries, gave him a cheque for $435,000 US.

"My impression is he's not a victim, he received more money back than he put in, and what he did is pay that money to me. He's one of the people who got off the merry-go-round," he said.