Regina vs. Carnie
Argosy and the Backward Horse
This $24 million fraud case was the largest ever mortgage fraud case in Canada, catching 1,600 investors who had placed their funds into syndicated mortgages with Argosy Financial Group of Canada Ltd. Argosy started in 1975 and in 1980 it was placed into receivership. Most of the investors were from the province of Ontario with the real estate projects located in Ontario, Alberta and Florida. John David Carnie, the President of the company eventually pled guilty and received a 6 ½ year sentence.
It was fun to piece this case together, while at the same time, your sixth sense agonizes over many questions, one being why did management buy a piece of property for an apartment that was located beside a chemical plant and next to the main train railyard in some faraway small town in the province of Alberta.
Big cases are big puzzle games with volumes of documents. The challenge is to make paper talk. This is the fun of being a forensic accountant. Figure it out!
The formula was simpler than it sounds: Argosy acquires the above property in Alberta, obtains a syndicated mortgage from investors in Ontario for more than the cost and applies the excess mortgage proceeds to pay the interest on outstanding mortgages in its portfolio.
But Carnie had two problems! No exit strategy and a lot of pride. Human nature is anxious to show success and stupidity. For example, Carnie proceeded to take some excess mortgage proceeds and buy a racehorse in the United Kingdom. But there was one problem: in the UK, the horses run clockwise unlike North American where it is counter-clockwise.
If you were really smart, would you not develop an exit strategy? This is another example of the ‘low class’ fraudster; they think their scam will go on forever and they spend everything.