An Alberta businessman and his company have been permanently banned from the marketplace and ordered to pay almost $4 million by the Alberta Securities Commission 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 — to his own personal use on Aug. 11, 2021. The ASC delivered its ruling on Thursday morning in Calgary.
The ASC panel of Kari Horn, Steven Cohen and Tom Cotter said it was in the public’s interest to levy this level of financial penalty due to the “magnitude and seriousness of fraud.” It is believed the market bans would not be penalty enough for the 83 year old.
“It was important that the ruling was made for the protection of investors,” said Theresa Schroder, senior advisor of communications for the ASC. “There’s a lot of money lost and we’re trying to stop it.”
Magneson and his numbered company have been ordered to pay the ASC $3.56 million as a result of non-compliance with 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 potential a portion of it could make its way back to investors.
Magneson’s representative, Brian Baresh, said in an email that they gave notice on Thursday to the Court of Appeal registrar they will be filing a sentence appeal in the next few days.
“This matter will be pursued expeditiously and fought vigorously at the Appellate level,” said Baresh.
Magneson raised approximately $7 million between 2011 and 2016 for New Wave Innovations to develop and market a low-decibel dental drill with air-bearing turbine technology that would not produce a high-pitched whine. According to the ruling, there is no indication NWI ever reached the point of manufacturing or selling the drill commercially.
The Edmonton businessman told investors that funds would be used for research and development and, if asked, he denied or indicated only an insignificant portion would be used for his compensation.
The ASC found the majority of invested funds were paid to Magneson either directly or through 111 Alberta as compensation or reimbursement for expenses ($2 million), repayment of loans he and 111 Alberta made to NWI prior to 2011 ($1.5 million) and payment for shares he sold to investors from his personal holdings ($2.3 million or $2 million through the relevant period). This works out to about 82 per cent of total investments.
Magneson argued he was entitled to the funds, but the ASC said even if he was, he failed to disclose important 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 being paid something for his work and expenses during the drill’s development,” read the ruling, but “it is another thing entirely for them to be advised 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 drill between June 1, 2011 and Dec. 31, 2016 by selling shares to about 168 investors, including 142 Albertans. 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 towards repayment of residential loans held by himself and his wife, $1.13 million to his daughters, $116,509 for vehicles for himself and his family, $125,827 on personal credit cards, $111,811 for personal property taxes, $155,832 to insurance companies for Magneson and his family, $101,811 to pay for utilities, $105,300 to Magneson and another $38,500 to his wife. New Wave directly paid an additional $227,700 to Magneson, accounted for another $169,680 in cash withdrawals, $150,340 for 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 for the taking regardless of its needs, as illustrated by the fact that he arranged the banking so that overdrafts in 111 Alberta’s account from his personal spending were automatically covered by NWI’s account,” the ASC argued in the August 2021 ruling.
Only a few investors received relatively small amounts from share redemptions and secondary transfers.
Magneson was also issued a cease and desist order in 2019 for operating in Washington State for selling at least $80,500 worth of NWI stock between 2005 and 2009 without a registration with the state’s securities administrator. Magneson and New Wave were fined $10,000 each in this case and jointly $2,500 in liabilities.