Toronto (April 16, 2020) – In this week’s court case we look at the sentencing of serial fraudster David Holden by Ontario Superior Court Justice Michael Dambrot on February 7 of this year. Justice Dambrot sentenced Holden to 12 years in prison and ordered him to pay a $54-million fine for a long-running Ponzi scheme. Holden defrauded 65 investors in his companies Seaquest Corporation and Seaquest Capital Corporation out of about $54 million. The ‘incorrigible’ fraudsman used the money he received from his victims to repay earlier investors and for his personal benefit after already being convicted of two fraud-related offenses in the last 25 years.
Ontario Superior Court Justice Michael Dambrot sentenced David Holden to 12 years in prison for fraud and money laundering on February 7 of this year. The 57-year-old serial fraudster and owner of Seaquest Corporation and Seaquest Capital Corporation defrauded his investors out of more than $54 million during a Ponzi scheme running for 8 years.
The long-running, sophisticated investment scheme
Holden was an electrician and later insurance agent before he started working in the financial industry in the early 2000s. On March 30, 2005, he incorporated Sequest Corporation, a special purpose brokerage company, with which he started to solicit funds from investors. Initially, he convinced friends and family to invest in his ‘discretionary pool’, as he described it.
He told his investors that ‘he was in the business of purchasing, selling, and investing in companies, mostly in the United States. The investments were made from a pool of investor money,’ the court heard.
However, the funds Holden received were used to repay earlier investors and to pay the operating costs of his company. In 2009, Holden added Seaquest Capital Corporation in order to raise capital to fund investments.
‘Mr. Holden engineered numerous transactions with investors in which he solicited their funds with promises of exceptionally high rates of interest on the basis of representations about the nature of each investment, what would be done with the funds, and about the security for each investment,’ stated Justice Dambrot in his reasons for judgment.
While conducting this classic Ponzi scheme, Holden never followed up on his promise to invest the money he received from his victims. Furthermore, the Seaquest companies only made minimal revenue other than the continual raising of new funds.
‘Throughout the period of the alleged fraud, [Holden’s companies] regularly made interest payments to their investors, and made some payouts of principal amounts as well. Some of these payments were quite large. But, as I have indicated, [the investment companies] were not generating the revenue needed to cover these payments. As a result, the continued existence of [the Seaquest companies] depended entirely on Mr. Holden’s ability to persuade existing investors to ‘roll over’ large investments instead of cashing out, and to solicit new investments from either new or existing investors,’ explained Justice Dambrot.
65 victims fell for Holden’s Ponzi scheme
The judge described the effect of Holden’s scheme on the victims as ‘catastrophic and devastating.’ The fraudsman lured a total of 65 victims between 2005 and 2012 to invest in his sophisticated fraud scheme. Some of the investors were wealthy, many were not. Notwithstanding the above, they all described that their financial endeavor with Holden left them with ‘serious and lasting financial consequences’, ‘feelings of betrayal and violation of trust by Holden’, as well as ‘shame’ and ‘anger’, which all resulted in ‘stress’ that caused ‘physical and mental health effects’.
One of his victims was Mr. Variyski. He met Holden at the home of an acquaintance who was a Seaquest investor in 2010. After Holden pitched his business model to Mr. Variyski, he was concerned about how secure the investment would be. But the fraudster charmed his victim’s issues away and claimed that ‘he was lending money to companies in trouble but that had a value of at least three times the loan. In the worst-case scenario, he could sell the company and recover the money invested, and so the investment was low risk. An investor would be paid an interest rate of 12-20 percent.’
A month later, Variyski invested $250,000 with Seaquest Capital Cooperation (SCC). The term of the investment was one year, and the interest rate was 12¾ percent monthly.
The court heard further that ‘Mr. Variyski received an unsecured debenture from SCC for the amount of his investment, a document entitled Confidential Offering Memorandum which enumerated the risk factors associated with the investment, a subscription agreement for his investment, and a cheque post-dated to December 16, 2011, for the repayment of the amount of his principal investment upon maturity.’
Variyski received interest payments on his investment throughout the first eight months. He was told that his money would be used for a commercial loan to a project in which three coal power stations were being converted to gas. After August 2011, Veriyski has not received any further interest payments and did ultimately not receive the return of his principal investment.
In 2015, when charges were laid, Insp. Gairy of the RCMP GTA Financial Crime Section pointed out ‘that the higher the expected rate of return usually means a higher risk of fraud’ and advised investors to do their due diligence.
Bankruptcy and the end of the overarching investment scheme
In the fall of 2011, both Seaquest cooperations declared bankruptcy resulting from the demand of a large investor, Brian Tucker, who asked for the return of his investments. The court documents say, that Tucker became ‘suspicious and demanded to see documentation confirming that his money was being used as promised.’ Ultimately, Holden’s inability to compensate for the shortfall caused by Tucker’s demands brought the scheme to an end.
‘It was a sophisticated, large-scale fraud of long duration with many victims. The offender was the architect of the scheme and directed its execution. The harm done to the victims was catastrophic and devastating,’ summarized Justice Dambrot. The judge determined that Holden personally benefitted from the long-running Ponzi scheme by the amount of $4,888,374. Money that Holden used for net payments to their bank accounts, payments to his wife and ex-wife, and payments on an Aston Martin.
‘The fact that Mr. Holden was enriched to this extent makes it clear that this was not a desperate scheme to defraud investors to save a failing company. It was a fraud perpetrated for purposes of personal gain.’
‘There is little hope that whatever sentence I impose will deter the offender’
On February 7 of this year, Justice Michael Dambrot imposed a 12-year sentence for Holden’s fraud charge in the Ontario Superior Court of Justice. He gave him additionally 8-years in prison, to be served concurrently for the money laundering offense.
Judge Dambrot argued that ‘[g]iven his history and his age, there is little hope that whatever sentence I impose will deter the offender, meaningfully contribute to his rehabilitation, or provide or awaken in him a sense of responsibility or an acknowledgment of the harm he has done.’
Furthermore, he ordered Holden to pay about $54.2 million as a fine in lieu of forfeiture. Holden was given ten years to pay the fine after he served his prison sentence or he will be facing another five years in prison.
The ‘incorrigible’ serial fraudster
Judge Dambrot called Holden ‘incorrigible’ regarding his history of fraud-related convictions and his inability to take responsibility for his actions. Already 1995, Holden plead guilty to 46 security offenses. The scheme involved sales of promissory notes and debentures of investors with a total loss of about $800 thousand. Holden faced imprisonment for 90 days and was put on probation for two years.
In 2000, Holden was convicted of three counts of fraud over $5,000 for misuse of investor funds. Back then, he was sentenced to six years in prison for defrauding 350 victims out of a total of $4.3 million.
‘Nothing has changed. He takes no responsibility for his actions. He blames his inadequate supervision of his business and his placing his trust in employees for the losses suffered by those he defrauded. But it is Mr. Holden who breached the trust placed in him by his investors. He used monies entrusted to him by investors for specified unauthorized purposes, particularly operating expenses, funding the ongoing Ponzi scheme and self-enrichment,’ ruled Judge Dambrot and concluded, ‘Mr. Holden is incorrigible. He is polite, personable and cordial, characteristics that are not generally found in recidivist criminals. But they are the stock in trade of the fraudsman.’