Bank refused to redeem 'counterfeit' bond tendered by 70-year-old West Vancouver stock broker-turned-promoter

On April 21, 2008, 70-year-old West Vancouver stock promoter Sidney Fowlds walked into the Lonsdale Avenue branch of HSBC Bank in North Vancouver with a one-millioneurodollar bond, according to documents filed in British Columbia Supreme Court.

The bond, purportedly issued by Netherlands-based ING Bank, bore interest at 5.5 per cent per year and was due to mature in June this year at 1.55 million euros, or about Cdn$2.25 million.

This was fortuitous timing. Fowlds had borrowed a large amount of money from HSBC against his home at 2765 Skilift Place in West Vancouver. With accrued interest, that loan was approaching $1.5 million.

He asked the bank officer, David Taylor, to forward the bond to HSBC Securities with instructions to sell it and use the proceeds to pay off his loan.

It all sounded simple and straightforward, but there was one wrinkle: When the bank tried to verify the bond's authenticity, ING said it was a phoney.

"ING can immediately inform you that the 'bond' is false," Nathalie Etchebarne, the bank's coordinator of investigations said in an e-mail to HSBC on May 7, 2008.

She noted, among other things, that the bond number had been stamped on (never the case with a genuine bond); the bond contained many spelling errors ( "Amsterdam" was spelled "Amsterdan"); and bonds of this type were never issued in bearer form (as this one was).

Etchebarne also noted that during the last four years, ING "has been confronted with about 250 of similarly forged items" and had issued public warnings about them.

"As this involves an apparent attempted fraud with counterfeit bonds, we kindly ask you to answer the following questions: Who is the owner of this 'bond' and/or who presented this forgery to you? ... Are you familiar with the person presenting this document? In what kind of business does the person presenting this 'bond' operate?"

It is not clear whether the bank responded, but here's what we know of Fowlds.

According to his official biography, he attended UBC from 1958 to 1963, majoring in economics and political science. Although not stated, he never earned a degree.

His biography also states that in 1967, he "became an investment dealer and worked in all departments of the securities industry, including the floor of the Toronto and Montreal stock exchanges."

Not stated is that he was never registered as a dealer in either Ontario or Quebec. He worked briefly as a broker for a small brokerage firm in Vancouver before quitting to work as a promoter.

As a promoter, he claims to have been instrumental in developing, in the 1970s, a successful copper/gold/silver property at Jordan River on Vancouver Island. I have been unable to verify that claim due to the passage of time.

Since then, his main business endeavour has been as president and controlling shareholder of ParaFin Corp., which trades on the Pink Sheets, a loosely regulated U.S. over-the-counter market.

Since its inception in 1978, ParaFin has gone through many name changes and an eclectic array of business projects, ranging from 1-900 fund-raising numbers to ergonomic work stations, to oil and gas projects in the United States and Paraguay.

Many of these deals have been non-arm's-length transactions, which have resulted in the issuance of millions of shares to Fowlds for assets that have proven to be of little or no value.

During its entire 32-year lifetime, ParaFin has generated only US$123,531 in revenues. Meanwhile, it has paid out US$34 million in cash and stock for "consulting and management fees," much of it to Fowlds.

This has afforded him a comfortable lifestyle, which includes a longtime membership at the Capilano Golf & Country Club, a house currently listed for $1.95 million and extensive world travel.

The company hasn't fared as well. Its cumulative losses now exceed US$53.5 million. Due to the steady issuance of new shares, there are now more than one billion shares outstanding, which has seriously diluted the interests of longer-term shareholders. The stock is now trading at one-tenth of a cent.

For the last several years, Fowlds has been trying to develop a six-million-acre oil concession in Paraguay, but financing has proved elusive.

During an interview this week, he said a group of Spanish financiers offered to buy a 20-per-cent interest in the venture for $400 million (Fowlds's deals characteristically have a lot of zeros behind them), then backed out.

There was a silver lining, however. The financiers introduced him to a woman in Caracas, Venezuela, who referred him to Richard Torres Utria, a Panamanian lawyer who acted as trustee for an estate that had access to 2,400 bonds purportedly issued by ING Bank, with a face value of US$3.63 billion.

In a court affidavit, Fowlds said Torres warned him to expect difficulties when the time came to redeem the bonds. "I told him that I believe I may be able to redeem the bearer bonds," Fowlds recalled.

Fowlds said that, during the next two years, he consulted with various legal and forensic experts, and satisfied himself that the bonds were authentic, so in January 2008 he agreed to acquire them on ParaFin's behalf.

To pay for the bonds, ParaFin agreed to issue preferred shares equal to the face value of the bonds. If and when ParaFin redeemed the bonds, proceeds would be used to redeem the shares and the company could keep the interest, which, according to Fowlds, could amount to $1 billion.

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

This was the bond that Fowlds -- hoping to extinguish his mortgage loan -- presented to HSBC Bank on April 21, 2008.

NEXT: Instead of redeeming Fowlds's bond, HSBC seizes it. Fowlds, insisting it is legitimate, sues the bank. In its statement of defence, HSBC reveals that Fowlds had tried, two months earlier, to redeem the bond at another branch and had been told it was a counterfeit.

Read David Baines' blog at www.vancouversun.com/baines