An Alberta businessman and his company have been permanently banned from the market and ordered by the Alberta Securities Commission to pay nearly $4 million for defrauding investors.
Allan Robert Magneson, 1111108 Alberta Ltd. (111 Alberta) and New Wave Innovations of Edmonton were found guilty of diverting $5.8 million in investments, for a new type of dental drill, for their personal use in August 11, 2021. the ASC issued its ruling Thursday morning in Calgary.
The ASC panel of Kari Horn, Steven Cohen and Tom Cotter said it was in the public interest to impose this level of financial penalty due to the “scale and seriousness of the fraud”. It is believed that the market bans would not be a sufficient sanction for the 83-year-old.
“It was important that the ruling be made for the protection of investors,” said Theresa Schroder, senior communications adviser for the ASC. “A lot of money is being lost and we are trying to stop it.”
Magneson and his number have been sentenced to pay the ASC $3.56 million as a result of the breach of security laws, as well as an administrative penalty of $300,000 and $70,000 for the costs of the investigation and hearing. If the $3.56 million is paid, there is a chance that a portion of it will return to investors.
Magneson’s representative, Brian Baresh, said in an email that they notified the Court of Appeals clerk on Thursday that they will file a sentencing appeal in the next few days.
“This matter will be dealt with on an expedited basis and will be vigorously fought at the Appellate level,” Baresh said.
Magneson raised approximately $7 million between 2011 and 2016 for New Wave Innovations to develop and market a low-decibel dental drill with air turbine technology that would not produce a high-pitched whistle. According to the ruling, there is no indication that NWI has ever gotten to the point of making or selling the drill commercially.
The Edmonton businessman told investors the funds would be used for research and development and, if asked, denied or indicated that only an insignificant portion would be used for his compensation.
The ASC found that most of the funds invested were paid to Magneson directly or through 111 Alberta as compensation or expense reimbursement ($2 million), repayment of loans he and 111 Alberta made to NWI prior to 2011 ($1.5 million ) and payment of shares sold to investors of their personal property ($2.3 million or $2 million during the relevant period). This equates to about 82 percent of total investments.
Magneson argued that he was entitled to the funds, but the ASC said that even if he did, he failed to disclose material facts and instead diverted $3.5 million of investor funds intended for corporate use to his personal use.
“It is one thing for investors to assume that Magneson was paid something for his work and expenses during the performance of the drill,” the ruling reads, but “it is entirely another thing for them to be informed that Magneson would be paid three quarters or more of the total funds invested.
According to ASC documents, Magneson raised $6.62 million for the sham between June 1, 2011 and December 31, 2016 by selling shares to some 168 investors, including 142 from Alberta. Two of the investors lost more than $3 million between them.
New Wave diverted $4,866,872 to 111 Alberta, of which $1.42 million went to pay off residential loans he and his wife had, $1.13 million to his daughters, $116,509 for vehicles for him and his family, $125,827 in personal credit cards, $111,811 for personal property taxes, $155,832 to insurance companies for Magneson and his family, $101,811 to pay utilities, $105,300 for Magneson and another $38,500 for his wife. New Wave paid an additional $227,700 directly to Magneson, accounted for an additional $169,680 in cash withdrawals, $150,340 in vehicles for Magneson and his family, and $121,226 in retail purchases for Magneson and his family.
“He clearly considered all funds invested in NWI to be his own, regardless of his needs, as illustrated by the fact that he arranged banking so that overdrafts on the 111 Alberta account for his personal expenses were automatically covered by the NWI account. ”, the ASC argued in the August 2021 ruling.
Only a few investors received relatively small amounts of share redemptions and secondary transfers.
Magneson was also issued a cease and desist order in 2019 for doing business in the state of Washington for selling at least $80,500 worth of NWI stock between 2005 and 2009 without registration with the state securities administrator. Magneson and New Wave were each fined $10,000 in this case and collectively $2,500 in liabilities.