A judge has frozen the assets of a Chatham-Kent investment company amid a proposed $5-million lawsuit alleging its actions cost investors millions.
Among the allegations, not yet tested in court, is that Banknote Capital Inc., kept soliciting money from new investors when it allegedly could not get back money it put into another company, which a bankruptcy trustee found had been paying out old investors with new investors’ money.
That is what is often known as a Ponzi scheme, though the trustee’s report about the other company stopped short of calling it that, citing an ongoing investigation.
A Chatham-Kent woman bringing the legal action against Banknote Capital Inc. alleges some of the company’s financial woes are linked to investments it made with a Toronto-area cryptocurrency investor, who is now facing litigation and insolvency proceedings amid accusations he misused and lost more than $40 million in invested funds.
Ontario Superior Court Justice Duncan Grace last week granted an injunction freezing the assets of Banknote, saying investor fears that funds have been misused and lost are “apparent and justified.”
“It is abundantly clear from the materials filed to date that Banknote is in – perhaps has completed – a death spiral,” Grace wrote in the endorsement last Thursday.
“If the story is otherwise, Banknote . . . should provide it – with supporting documentation – quickly.”
The action was brought by Emily Hime, a self-described Banknote investor, who asked the court for a temporary, pre-trial injunction to freeze Banknote’s assets.
Banknote, its three directors — Ryan Rumble, Michael Dziedzic and Justin Foss — and several other unidentified defendants are named in the action.
The endorsement by Grace said the asset freeze was unopposed by both Dziedic and Foss.
Rumble, the third named director, did not appear in court Thursday, the endorsement said.
Hime is also seeking orders from the court compelling disclosure of information and financial documents from Banknote’s three directors and three banks.
The case returns to court at the end of May.
Besides the injunction, Hime is seeking $5 million in damages in a proposed class-action lawsuit against Banknote, its directors and several other unnamed defendants.
The action must be certified by a judge to proceed as a class-action lawsuit, a legal proceeding in which one person brings a lawsuit on behalf of a larger group of plaintiffs.
None of the allegations contained in the injunction motion or statement of claim has been tested in court.
Neither Banknote nor its directors has filed a statement of defence or response to the motion.
The lawyer for Dziedic and Foss said his clients are co-operating with the proceedings and intend to defend themselves against the action.
“Their position is that they’re as much victims as anyone else. They deny having done anything wrong. They don’t deny what happened, but they deny their involvement in it,” lawyer Matt Baer said Friday.
In an email Friday, Rumble wrote he has retained counsel and will not be self-represented.
Hime alleges some losses to Banknote’s investors were linked to a high-profile investment litigation case and bankruptcy involving Aiden Pleterski, a self-styled “Crypto King” from Whitby known for his lavish lifestyle and meteoric rise in the cryptocurrency world.
In a sworn affidavit from July 2022, related to a motion for an injunction against Pleterski and his company AP Private Equity, Rumble said Banknote had invested $3,910,500 with Pleterski between September 2021 and March 2022.
Rumble’s affidavit includes a series of single-page, standard-form contracts stipulating Banknote and Pleterski would split investment gains 70-30 and guaranteeing the principal would be repaid in installments of 25 per cent every two weeks if the investment was lost.
In the affidavit, Rumble claimed he made several unsuccessful attempts to withdraw funds held by Pleterski and his company in March and April 2022. The inability to withdraw funds put Banknote in a “financially precarious situation,” since up to half of the company’s total investments were held with Pleterski, the affidavit said.
An injunction freezing the assets of Pleterski and AP Private Equity was granted last summer. Both were declared bankrupt in August 2022 and the proceedings continue.
A March 2023 bankruptcy trustee report said less than 1.6 per cent of funds collected from investors in Pleterski’s chequing account were actually invested and there was banking evidence he used money from new investors to pay out older ones.
The asset freeze order against Banknote instructs Grant Thornton LLP, the accounting firm involved in the Pleterski and AP Private Equity bankruptcy proceedings, to hold all dividend payments to the Chatham company pending a further court order.
In the application for a freeze of Banknote’s assets, Hime also alleges Banknote misled investors about their expertise and did not exercise due diligence when investing funds with Pleterski.
Banknote Capital’s website describes itself as a “referral-only investment club” with a team of traders that has “perfected algorithms for unparalleled returns.”
Hime alleges Banknote continued to solicit funds from new investors, including about $1.12 million in May 2022, even after allegedly unsuccessful attempts to withdraw money from Pleterski.
Banknote began paying legal fees to pursue recovery from Pleterski and his company, but did not inform investors about the issue, Hime’s motion said.
Hime’s motion alleges Rumble made trips to Dubai in the summer of 2022 “ostensibly to find financing to repay class members’ principal.”
Hime’s lawyer, Norman Groot, who specializes in fraud recovery litigation, declined further comment because the case is before the court, but said they are continuing to trace and trying to preserve any money that went into Banknote Capital.
Hime said Monday she is encouraged by how quickly action has been taken by the courts and urged other potential Banknote clients to come forward.
“I couldn’t sit back and do nothing,” she said. “If anyone has knowledge or information that could assist this case, it would be very much appreciated if they came forward.”
This article was originally sourced from www.chathamdailynews.ca