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Pyramid Scheme Alert (PSA) provides current and historical news items that are of interest to our members and visitors. None of the reports or commentaries is intended to imply that any of the referenced companies have been charged or convicted as illegal pyramid schemes.

Are Ponzi and Pyramid Schemes Legal in Canada?

Canada: Land of Ponzis and Pyramid Selling Schemes

Read an in-depth Analysis by Canadian Attorney, Michael Webster, on the Pigeon King Scheme.

Global Incubator and Protector of Ponzi Schemes?
What's the Matter with Canada?

July, 2008

“Business opportunity” propositions, investment programs, multi-level marketing schemes and on-line scams such as “autosurfing” and “matrix” selling, and many others… An epidemic of pyramid and Ponzi schemes has spread through North America to many other parts of the world. All of them employ the “endless chain” trick with earlier investors getting later investors’ money. 90-99% of all participants will always lose under this fraudulent model.

Amidst these frauds, some patterns emerge. One of the most perplexing is the role of Canada as a place where many such scams begin and are seemingly protected by the Canadian government. Canada is becoming – alongside Nigeria and the state of Utah in the United States – a “global scam capital.”

A recent and tragic scam to come out of Canada is called Pigeon King International (PKI). It collapsed in June but only because of persistent consumer activism. It scammed investors for almost seven years and no action was ever taken against the scheme by Canadian authorities. Even after the collapse and most investors are now ruined, Canada’s government has not even acknowledged that a nationwide fraud has been perpetrated and had spread into the United States. Four US Attorneys General banned PKI from their states. Still Canada's government officially acts as if the scheme had been “legal.”

As many as 1,000 family farmers in the US and Canada invested in the PKI scam, many losing life savings and some may lose their farms. The estimated returns promised on their investments under contracts they signed with PKI were close to $1 billion. Many of the investments that farmers made were financed by reputable Canadian banks. Some of the farmers were members of Amish and Hutterite religious communities.

The scheme’s owner advertised the fraud in the Canadian media and proclaimed to the world that pigeons would be the economic salvation for family farmers. He disguised a classic financial pyramid as a “pigeon-breeding business”. The investors purchased “breeder” pigeons from the scheme. Rewards were transferred to earlier investors when the scheme purchased the pigeon offspring from the breeders. The scheme gained the funds to purchase the eventual offspring of earlier investors from the investments of later breeders who purchased grossly overpriced “breeder pigeons.”

The pigeon system, like all Ponzis and nearly all multi-level marketing scams, was a closed market. The scheme served as both seller and buyer. The projected returns to the breeders appeared very lucrative. As early investors received payments, they spread the word among friends and family.

In fact, there was no external market for the scheme to sell the resulting pigeon offspring. The number of farmer/breeders increased every month and the number of hapless pigeons multiplied exponentially. Collapse was inevitable. The majority of investors could never have received the promised payments.

Consumer activists, led b Dave Thornton of Crimebustersnow.com, warned the public and persistently notified Canadian authorities that the program was a sham – the prices, the promises, and the pigeon “futures.”. An ex-employee of PKI blew the whistle and sent a formal letter to numerous Canadian officials that a fraud was sweeping the country's family farms
The Iowa Attorney General banned the scheme from that state as it spread across the border from Canada to the USA. Later, three more states took action to defend their citizens from the Canadian virus.

Finally, a Canadian farming trade magazine, Better Farming Magazine. published by Robert Irwin, did an extensive investigation and published its findings. It showed the same blatant evidence of fraud as the consumer advocates and the whistle-blower had revealed. There was no market for the hundreds of thousands of pigeons that the farmers were breeding. The pigeons were merely a disguise for a Ponzi money transfer.

From August 2007 to June 2008, consumer watchdogs raised the alarm. Pyramid Scheme Alert put a warning to consumers on its website and published evidence of fraud in January, 2008.

During all this time the Competition Bureau in Canada, equivalent to the US Federal Trade Commission, took no action. That inaction not only allowed, but actually encouraged, more people to fall victim to the scam. It also allowed the scam to spread into the United States. Many victims believed that if Pigeon King International were not legitimate, surely the Canadian government would not allow it to operate.

Replying to the whistle blowing ex-employee, one official of the Competition Bureau wrote that it could only investigate pyramid schemes that met a technical definition of a “multi-level marketing” (MLM) company. It concluded that the pigeon scheme was not an MLM and therefore not covered under its governing laws. By setting PKI outside that definition it implied that a pyramid scheme in Canada that was not an MLM was, by definition, beyond the law!

The Canadian Competition Bureau referred the activists and whistle blowers to the Ontario Provincial Police. The police received few direct complaints from current participants and used that as evidence that the fraud was limited or perhaps non-existent.

Lack of complaints is a hallmark of pyramid schemes. All the current PKI scheme participants were already gaining or expecting to gain rewards from scheme. A complaint, even if they suspected the scheme was a sham that would collapse eventualy, might cause them to lose before the scam collapsed. For this reason pyramid scheme victims, once they have invested, typically remain silent. And, those not yet in the scheme have not been harmed and therefore have nothing to complain about.

Yet Canadain authorities continue to use “we received few complaints” as a reason for not investigating PKI and other pyamid scams and for not enforcing the law. Consequently, the pigeon scheme was able to continue recruiting investors. Without fear of government prosecution, it dismissed or threatened critics as “fear mongers.”

Despite the failure of Canada’s government, consumer action and some news media attention made a fatal impact on the scam. The number of new PKI investors declined. The Canadian pigeon scheme, consequently, was unable to continue making payments to earlier investors. In June, the scheme collapsed, declared bankruptcy and reneged on all contracts to purchase the pigeon offspring. The hundreds of thousands of pigeons sold and bred in the scheme are now a focus of animal cruelty regulators. Ruined farmers report that the pigeons are worth less than a dollar a piece in the legitimate marketplace.

The owner of PKI has not been charged by Canadian authorities.


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This page last updated on 7/26/08