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Law society probes Kelowna lawyer’s alleged involvement in Ponzi scheme

Tuesday, March 30th, 2010 | 8:30 am

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A car races by Doug Welder's Leon Avenue office on Monday. (Photo Joe Fries)

By Joe Fries

A Kelowna lawyer has been found guilty of professional misconduct by the Law Society of B.C. over his failure to answer its questions about his alleged involvement in a Ponzi scheme.

Two other allegations against Doug Welder were thrown out at the conclusion of an inquiry earlier this month, the details of which were posted online late last week.

The society began its investigation nearly three years ago after a complaint from another lawyer. The probe focused on an allegation that Welder improperly allowed $299,900 in investors’ funds to be deposited into his trust account and then disbursed to the company that perpetrated the Ponzi scheme, despite a temporary order from the B.C. Securities Commission barring such activity.

Staff from the law society, which regulates the province’s legal profession, showed up at Welder’s office in May 2007 and spent 13 days combing through his practice’s financial documents. Welder provided details on two trust accounts and one general account.

One of the investigators came to believe Welder had other business accounts that he was hiding, a belief that was not substantiated and formed the basis of the two allegations that were eventually dismissed. The inquiry report noted, however, that Welder had ample opportunity to clear that up, but did not do so until he testified at the inquiry.

Those unresolved questions about other accounts led to correspondence between the lawyer and society staff members, who sought clarification on a number of issues, as set out in a letter dated April 17, 2009.

The inquiry found while Welder “did provide some evidence indicating he thought he had answered the questions in prior correspondence,” he did not provide “any answer at all” to the questions in that letter. That formed the basis of the finding of professional misconduct.

The inquiry also chided Welder for his “less than exemplary behaviour,” saying he “played a cat and mouse” game with the investigators. It found Welder “demonstrated that his intention was to provide the minimum amount of information and co-operation,” which then “led to an air of suspicion and distrust.”

On his behalf, Welder, who was called to the bar in 1981, told the inquiry he viewed the numerous follow-up requests as “a constant harassment.”

He did not return a call for comment Monday and is still practising.

Welder has been found guilty of professional misconduct three times before because of trouble with tax remittance, and earned fines and suspensions of two months and three months, respectively. The penalty in this case will be decided at a later date.

The Ponzi scheme at the heart of the matter was operated by three men, two of whom were from Abbotsford, and cost 89 B.C. investors $13 million, according to the BCSC.

It operated between April 2004 and November 2006 through a U.S.-based company called International Fiduciary Corp. Investors were promised a monthly return of six per cent, which as it turned out did not come from the company’s “asset growth program,” but from new investors.

The BCSC put the brakes on the scheme in November 2006 when it issued a temporary order shutting down the activities of, and investment in, IFC.

By 2007, the three men behind the scheme were being hit heavily by regulators and courts in both Canada and the U.S. and ordered to pay back their ill-gotten gains, although the BCSC suggested the company would “fall far short of any meaningful repayment of the investors’ principal.”

Another B.C. lawyer, Sandy McCandless, was found guilty in January of professional misconduct by the society for his greater involvement in the same scheme. It’s McCandless who is said to have transferred the $299,900 to Welder for IFC.

Both Welder and McCandless are named in a class-action lawsuit brought by victims of IFC who are trying to recover money from a special fund held by the law society to cover losses from lawyer fraud.

joe@kelowna.com

250-575-4303

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