Americans lost life savings in $170 million US Grenada offshore bank fraud

Last Updated: Tuesday, August 28, 2007 | 7:46 PM ET

CBC News

A Canadian whose share of the loot included millions of dollars and part ownership of a yacht is one of four people facing prison time in a $170 million US scam involving high-yield deposits in a bogus Caribbean bank.

The four were sentenced to terms ranging from 18 months to more than eight years Monday in U.S. District Court in Portland, Ore., where some of the thousands of victims live.

According to court documents, some people believed they could earn as much as 50 per cent a year on money entrusted to the First International Bank of Grenada and supposedly guaranteed by something called the International Deposit Insurance Corporation.

Some lost their life savings or retirement funds, federal prosecutors said in a sentencing memorandum.

It was a classic Ponzi scheme, the biggest yet seen in the Oregon judicial district, and Grenadian officials helped to make it possible, the prosecutors said.

The Canadian, Laurent (Larry) Barnabe, was sentenced to six years in prison after pleading guilty to two counts of money laundering, meaning concealment of the criminal origin of funds. He was ordered to pay restitution of more than $26 million US to the victims.

He already had a record of securities violations in Ontario and Quebec and was barred from receiving investments from the public as a condition of his probation in a 1995 Ontario case, the prosecutors said.

Facing a class-action lawsuit on behalf of Canadian investors, he left for the Caribbean in the late 1990s and was thought to be untraceable, Radio-Canada reported Monday.

"The bank was, quite simply, a massive Ponzi scheme, defrauding thousands of investors of more than $170 million.— U.S. prosecutors

He took up residence on the island of St. Kitts and got into the hotel business before joining the bank scheme in Grenada, the network said.

He later began travelling to Las Vegas, where he was arrested.

The other people imprisoned, all from Portland, were:

• Robert Skirving, 59, whom prosecutors said took the most money from the scheme, and who was sentenced to eight years, one month in prison and ordered to pay restitution of $32 million.
• Douglas Ferguson,74, who was sentenced to four years, four months and ordered to pay restitution of $26 million.
• Rita Regale, 54, who was sentenced to 18 months and ordered to pay $26 million in restitution.

It is not clear how much of the restitution money U.S. officials will be able to collect. The court ordered Barnabe to forfeit an unspecified sum held in an offshore account, an FBI statement said.

Prosecutors said Barnabe was the bank's acting chief operating officer in 1998 and 1999 and was paid two per cent a month — every month over the full term — of the amount of every certificate of deposit it sold.

In 2000, he and a colleague named David Springer bought a 35-foot Carver 350 Mariner yacht from a Miami dealer, using $350,000 of bank funds, the sentencing memorandum said.

They called it Offshore Funs.

The vessel had such features as a swim platform, air conditioning, video and stereo equipment, a high-capacity ice maker and decorator sheets, but the fun was short-lived, the prosecutors said in the memorandum.

It was used just once, for a lesson Springer took to learn how to drive it, before being resold for $200,000, they said.

Ponzi: The man and the scheme

Ponzi schemes are named for Charles Ponzi, an Italian immigrant and onetime Montreal resident who was the toast of Boston before his pioneering effort collapsed in 1920.

The idea was to promise high yields on illusory investments while paying interest to early investors with money invested by those who came later. Such a scheme requires a constantly increasing supply of investors and must eventually collapse.

The Grenada bank was "a massive Ponzi scheme, defrauding thousands of investors of more than $170 million," the prosecutors said.

"Over the several years of its existence, the bank never earned any investment income and never acquired any assets of meaningful value," they said.

"In short, it took in depositors’ money and purported to pay them 'interest' at huge rates of return, when in fact those payments were made with either their own money or with money obtained from subsequent depositors.

"In this way, the bank appeared to be profitable enough to attract new depositors; but in fact, it collapsed as do all such schemes."

Meanwhile, there was no hope of protection from the so-called International Deposit Insurance Corporation.

"For most of the conspiracy, it was little more than a fax machine in the back room of a law office in the impoverished Caribbean nation of Dominica.…The IDIC did nothing to monitor its so-called member banks, and had no plans or capability to take over those banks or bail out their depositors," the prosecutors said.

A former Dale Carnegie instructor

While most of of the defendants had little education beyond high school, Barnabe had taken courses toward an MBA and taught Dale Carnegie classes (known for the slogan "Win friends and influence people") before going into the securities business and eventually moving to Grenada, the prosecutors said.

"He brought his business acumen to the bank, helping it grow."

Also letting it grow were Grenadian officials who were "either corrupted or held at a distance, which prevented them from performing their jobs," the prosecutors said in the sentencing memorandum.

Grenada's chief regulator of offshore banks at the time, Michael Creft, testified in the case.

Although Creft was suspicious of the bank, he solicited money from it, ostensibly for Prime Minister Keith Mitchell's re-election campaign, and got an initial contribution of 100,000 Eastern Caribbean dollars (about $40,000), the prosecutors said.

He delivered half the money in cash to the the prime minister, they said.

After Mitchell was re-elected, Creft told the FBI and a reporter that the bank was operating within the law, which he admitted under questioning was not true, the prosecutors said.