News Release

Released: November 29, 1999 Contact: Michael Bernard
899-6500 or
(BC only) 1-800-373-6393

Vancouver – The British Columbia Securities Commission has found that Eron Mortgage Corporation and its related companies, along with its president Brian Slobogian and one of its vice presidents, Frank Biller, perpetrated a fraud on the public of British Columbia.

The commission also found that Eron, Slobogian and Biller made misrepresentations to Eron investors and distributed securities without being registered and without filing a prospectus as required by the Securities Act. The commission’s findings follow a 31-day hearing ending in September this year.

A decision regarding sanctions will be made after the parties are heard on that issue.

Between January 1993 and October 1997 Eron raised over $240 million from investors by brokering syndicated mortgages and issuing promissory notes. In a syndicated mortgage, a broker, such as Eron, raises funds for a single mortgage from a large number of investors. Each investor receives an interest in the mortgage.

Eron reached potential investors through an effective marketing program that included free seminars, television and print ads, bulk mailings and the distribution of promotional material.

Investors in Eron mortgages were to receive a registered interest in the mortgage, but sometimes Eron moved their investment to another mortgage without their knowledge or consent. Eron’s mortgage investors received a promise to pay from the borrower who granted the mortgage, not Eron, although in some cases Eron, Slobogian and Biller guaranteed repayment from the borrower. Investors in the promissory notes received only an unsecured promise to pay from Eron.

A large part of Eron’s business was financing real estate development projects in Canada and the United States. The evidence was that Eron “abandoned all the normal rules of lending” and that Eron did not follow accepted practice in managing its projects.

The commission said many of Eron’s loans were not paying interest and principal and that Eron raised funds from new investors to pay the interest and principal owed to
existing investors, without telling the investors what it was doing. Eron also did not spend investors’ money in the manner they were told it would be, the commission said.

Investor losses are expected to exceed $170 million among the more than 3,000 Eron investors, many of whose retirement funds have been lost. Others borrowed against their homes to invest and now face mortgage payments that they cannot meet.

The commission found that Slobogian, as Eron’s president and the person who directed the affairs of all the Eron companies, acted dishonestly and fraudulently.

The commission said that Eron portrayed Slobogian and Biller to investors as the two driving forces behind Eron’s success. It said that Biller invited investors to trust him and Eron, and that many invested based on that trust. The commission said, “By soliciting and creating this relationship of trust among Eron investors, and by persuading investors to invest in Eron, he took on responsibilities that he cannot escape now simply by saying that he relied on others, or that he was too inexperienced to have known better.”

The commission did not find that Biller had actual knowledge of all the wrongdoing at Eron. However, Biller was found to have knowingly made some false statements to investors and to that extent was found to have acted fraudulently. The commission also found that Biller ought reasonably to have known that he was participating in the fraud being perpetrated by Slobogian and the Eron companies.

In the Findings, the commission found that:

· Eron overstated the value of the properties in which it placed investors, and placed mortgages on the properties had a higher face value than what the properties were worth. Eron also raised funds for mortgages in amounts that exceeded the face value of the mortgages. In the case of one property appraised at less than $5 million, Eron told investors it was worth over $13.5 million, placed mortgages totalling $9.1 million on the property, and raised $16.1 million from investors for those mortgages.

· Eron told investors that the investments were low risk when in fact in many cases they were risky and in some cases were not viable.

· Eron promised investors rates of return as high as 24% per annum, knowing that those rates were not realistic.

· Eron promised investors repayment in as little as six months knowing that those terms were not achievable.

· Eron’s records were inadequate and incomplete; Eron had no meaningful project management records and no reliable records of how much money it had advanced to borrowers.

· Eron moved investors’ funds among Eron projects without their knowledge or consent, and misled investors about how their money was being spent. In the Eron investments reviewed in the commission’s findings, only $45 million of $92 million raised was spent as investors were told it would be.

· In one case, an Eron borrower spent, with Eron’s knowledge, $70,000 of investors’ money to repay a gambling debt in Las Vegas. In another case, Eron used $300,000 of investors’ money to pay the bail of a prospective borrower who had been arrested on charges of income tax evasion, and then funded his loan. Eron did not tell its investors about these expenditures.

Written submissions will be filed with the commission by mid-January and a hearing, if requested by the parties, will take place shortly thereafter.

The commission can make orders barring the respondents from the securities market in British Columbia, prohibiting them from acting as directors or officers of companies and requiring them to pay administrative penalties and costs of the hearing.

The British Columbia Securities Commission is the independent provincial government agency responsible for regulating trading in securities and exchange contracts within the province.

The Findings can be viewed on the commission’s Web site www.bcsc.bc.ca or obtained by contacting Communications Manager Michael Bernard at (604) 899-6524. BACKGROUNDER

Eron operated from January 1993 until October 1997, when the Financial Institutions Commission suspended Eron’s registration as a mortgage broker, froze its bank accounts and put it into receivership. In that period, Eron Mortgage Corporation and its related companies, Eron Investment Corporation, Capital Productions Inc. and Eron Financial Service Ltd. raised over $240 million from investors. PricewaterhouseCoopers Inc., Eron’s receiver, estimates that less than $72 million of this investment will be recovered.

The Executive Director of the British Columbia Securities Commission issued a notice of hearing and temporary orders in October 1997. The commission sat for 31 days in a hearing that began April 12, 1999 and ended September 13, 1999. The commission’s findings of fact and law were released November 29, 1999. The parties have the right to make further submissions in writing or at a hearing, or both, before the commission renders a decision with respect to any orders that ought to be issued in the public interest.

Brian Slobogian was president of Eron and owned or controlled all of the Eron companies and directed their affairs. He negotiated the loans with borrowers and managed the investors’ investments in the projects. Frank Biller, an Eron vice president, raised funds from investors.

The commission found that Slobogian and the Eron companies:

· distributed securities without being registered and without filing a prospectus;
· made misrepresentations to investors;
· promised investors returns of up to 24% per annum that they knew were not realistic;
· promised investors terms of repayment that they knew were not achievable;
· placed investors into mortgages with a lower priority than promised without the investors’ knowledge or consent;
· placed investors into mortgages with higher face values than promised without the investors’ knowledge or consent;
· raised funds from investors for mortgages with face values that they knew exceeded the amounts secured by those mortgages;
· told investors that their funds would be properly spent on the projects, and then spent those funds in other ways, without the investors’ knowledge or consent; and
· used the funds of subsequent investors to make interest or principal payments to existing investors without the knowledge of the investors.

The commission went on to find that Slobogian and the Eron companies contravened the Securities Act by perpetrating a fraud on persons in British Columbia, by making
misrepresentations with the intention of selling securities and by distributing securities without being registered and without filing a propectus.

The commission found that Biller · ought to have known of the fraud that Slobogian and the Eron companies were perpetrating;
· made misrepresentations to investors; and
· distributed securities without being registered and without filing a prospectus.

The commission went on to find that Biller breached the Securities Act by perpetrating a fraud on persons in British Columbia because he knowingly made untrue statements to investors and because he ought to have known that Slobogian and the Eron companies were perpetrating a fraud, by making misrepresentations with the intention of selling securities and by distributing securities without being registered and without filing a propectus.

Written submissions will be filed with the commission by mid-January and a hearing, if requested by the parties, will take place shortly thereafter.

The commission can make orders barring the respondents from the securities market in British Columbia, prohibiting them from acting as directors or officers of companies and requiring them to pay administrative penalties and the costs of the hearing.