West Vancouver promoter twice tried to tender 'fake' bonds to different branches of same bank

Second in a two-part series

West Vancouver stock promoter Sidney Fowlds has always had big ideas. Unfortunately, they have never amounted to much.

Through his Nevada-registered company, ParaFin Corp., which trades on the lowly Pink Sheets in the United States, the 70-year-old promoter has touted a variety of schemes that have fallen flat.

In 1999, for example, he secured the rights to 1-900-DEMOCRAT and 1-900-REPUBLICAN, which he wanted to license as political fundraising tools. He estimated the company could earn $2.5 million in licensing fees every month, or $30 million a year.

Alas, this scheme, like all his others, dialed a wrong number. During its 32 years in operation, ParaFin has generated less than $125,000 US in total revenues while amassing $53.5 million in losses.

To this day, Fowlds insists the 1-900 numbers were "one of the greatest fundraising ideas in the history of fundraising."

He also notes that -- apropos of nothing -- he was the first person to officially ski Whistler Mountain; one of his friends served as the commander of three space-shuttle missions; and his university thesis on newspaper design presaged USA Today's design by 10 years.

Despite his predilection for superlatives, it was still a surprise in January this year when ParaFin issued financial statements showing it had acquired $3.63 billion US of 10-year bearer bonds issued by Netherlandsbased ING Bank.

The 10-year bonds purportedly accrued interest at 5.5 per cent per year and were due to mature in June 2010.

Fowlds told me he "lucked into" the bonds while looking for financing for an oil venture in Paraguay. He said some Spanish financiers introduced him to a woman in Caracas, Venezuela, who in turn introduced him to a Panamanian lawyer, Richard Torres Utria, who acts as trustee for an estate that possessed the bonds. (The beneficial owner of that estate has never been publicly disclosed.)

Fowlds said there was some question whether the bonds were legitimate, so he consulted with several forensic experts who confirmed they were real.

Comforted by these opinions, he arranged for ParaFin to buy the bonds in January 2008 by issuing $3.63 billion US in preferred shares to the estate. When the bonds matured in June this year, ParaFin would cash them and use the proceeds to redeem the preferred shares. ParaFin would keep the interest, which Fowlds estimated at $1 billion US.

ParaFin gave Fowlds' private company, Rukos Security Services AG, one of the bonds as payment for his consulting services. It had a face value of one million euros and was redeemable at 1.55 million euros, or the equivalent of $2.25 million.

Fowlds didn't immediately tell ParaFin shareholders that the company had purchased the bonds, or that he had received one of them.

On April 21, 2008, Fowlds took his bond to the Lonsdale Avenue branch of HSBC Bank in North Vancouver. He asked a bank officer to forward it to HSBC Securities with instructions to sell it and use the proceeds to pay off a $1.5-million mortgage loan on his house at 2765 Skilift Place, West Vancouver.

But when HSBC officials called to confirm the bond's legitimacy, ING advised it was a counterfeit, one of about 250 "similarly forged" bonds the bank had encountered during the previous four years.

ING urged HSBC to destroy the bond, which it did, and to contact the police, but it is unclear that it did.

HSBC's lawyer, Sean Boyle, declined to discuss the matter with me.

Fowlds, meanwhile, was under mounting personal financial pressure. In January 2009, HSBC commenced foreclosure proceedings against his home.

In July this year, Fowlds responded by filing a lawsuit against HSBC and ING, alleging they had breached their duty to him by failing to liquidate the bond, and by wrongfully destroying it.

In its statement of defence, HSBC alleged that Fowlds had tendered the bonds not once, but twice.

The bank said that, in February 2008, he had gone to its West Vancouver branch and "attempted to pledge numerous bonds as security for a new loan from HSBC Bank."

The bank said it determined the bonds were bogus and advised Fowlds accordingly.

Despite this advice, Fowlds went to the North Vancouver branch in April 2008 and -- without telling anybody of his prior rejection -- tried to negotiate the sale of one of the bonds.

HSBC also noted in its statement of defence that in January this year, ParaFin filed unaudited financial statements which, for the first time, disclosed its purchase of $3.63 billion worth of ING bearer bonds.

Those statements included a note stating that "ING is disputing the corporation's right to own the said bonds and their validity."

The bank also noted that in April this year, the British Columbia Securities Commission slapped the company with a cease-trade order. The commission wants ParaFin to issue audited statements and provide more disclosure about the bond deal and other financial transactions.

"They are a bunch of f---ing morons," Fowlds says of BCSC enforcement staff. "You can tell them that for me."

I disagree completely. BCSC staff should intervene.

These bonds have been an international problem for years. In November 2009, for example, Bloomberg reported that Italian financial police had arrested three people for allegedly using 200 million euros in phoney ING bonds as collateral for loans. Police said the bonds were acquired from a criminal group based in Malaga, Spain.

Given the seriousness of this matter, I think RCMP should also be on the case, but as we often see in matters of potential investment fraud, there is no red serge in sight.

dbaines@vancouversun.com