Failed Saskatoon real estate company was using 'new money to pay old money': lawyer

A Saskatoon lawyer says he didn't know what he would find when he first started looking into a real estate company that went belly up in January — but he quickly became "concerned."

Mike Russell first heard of Epic Alliance Real Estate Inc. in October when the Financial Consumer Affairs Authority of Saskatchewan (FCAA) issued a temporary cease trade order.

Looking into the company, Russell had a hard time imagining how the promises and programs offered by Epic Alliance worked together and made any sort of sense – financial or otherwise.

“I immediately became concerned,” Russell said.

“It appeared to me as though this was a business model that if the ability to borrow new money was fettered, that it would cause this model to fail.”

Epic Alliance was founded in 2013 by Rochelle Laflamme and Alisa Thompson. It quickly evolved into various other companies such as Epic Alliance Electrical, Epic Accounting and Bookkeeping, Epic Alliance Real Estate, Epic Holdings and EA Properties Inc. It had 118 employees at the time of its demise.

Russell said the company functioned through three main avenues: a loan program based on promissory notes, which offered interest rates as high as 20 per cent in return for loans, a "Fund-A-Flip" program and its "Hassle-Free Landlord Program."

Under the landlord program, the investor would take out the mortgage on the home and Epic would take the responsibility for everything else, promising the investor a 15 per cent guaranteed rate of return.

Epic's "fund-a-flip" program, where investors could buy homes through Epic — which would oversee improvements and upgrades — and then sell for a profit, often advertised a 10 per cent return on a one-year investment.

The overlapping programs helped Epic amass more than 500 properties in Saskatoon totalling $126 million in value, according to the company's own promotion material.

Russell’s claims are outlined in a series of affidavits and court filings.

“The evidence suggests that … they were using new money to pay old money and that's a problem for an investment. Investment products should generate returns on (their) own, not by acquiring new money,” Russell said.

These realizations led Russell to host a Zoom call for a few interested investors hoping to find what they could do to learn where their money had gone. More than 100 people joined.

Russell represented 120 investors in a successful bid to have accounting firm Ernst and Young appointed to investigate what happened to the estimated $10 million to $20 million.

Russell said he's also troubled by how the investors were informed their money was gone.

Laflamme and Thompson spent 16 minutes on a Zoom call on Jan. 19 using swears and plain language to say, “there is nothing left," without offering an explanation or apology, other than “the FCAA f***ed us.”

“I think it's audacious. I think it's extraordinary. I've never seen anything like it nor have my colleagues that I'm working with,” Russell said.

“A video like this, with wild statements, expletives and placing the blame on the securities regulator is extraordinary.”

Attempts by CTV News to contact Laflamme and Thompson have been unsuccessful.

 

Not only are some investors missing hundreds of thousands dollars – or even millions, they’re now responsible for the properties they never intended to care for.

Many of these properties are in Saskatoon’s core neighbourhood many in a state of disrepair, according to Russell.

“They became suddenly hassle landlords, not hassle-free landlords,” he said.

“Now they've got missing appliances, broken pipes, property tax arrears, unpaid utilities,” Russell said.

Findings from Ernst and Young are to be revealed in court at the end of April.