Ontario lawyer suspended during probe of alleged $25M Ponzi scheme involving police officer
The Law Society of Ontario has suspended the licence of a Burlington lawyer while it probes allegations that she participated in a Ponzi scheme that saw $25 million deposited into her trust account.
Crystal Diane Masterson, 40, informed the society this past March that she had been charged with fraud over $5,000.
“The charge stems from the lawyer’s involvement in an apparent Ponzi scheme, which allegedly resulted in millions of dollars of losses,” said the recent decision suspending Masterson’s licence to practice, which notes two co-accused were also charged.
Masterson’s interlocutory suspension was ordered in a decision from the Law Society Tribunal, dated Sept. 10.
“The evidence before us shows that there are serious concerns about the lawyer’s integrity and trustworthiness,” said the panel.
Masterson was called to the bar in 2013, said the decision, which notes she primarily works in real estate law.
She “first learned of the purported investments underlying the Ponzi scheme from a friend of hers, now a co-accused, who she understood was a mortgage broker,” said the decision. “She was told the investments involved unsecured loans for private bridge financing for real estate transactions, and equipment financing for companies. The loans were secured by a ‘wealthy businessman’ — now also a co-accused — who had purportedly vetted all the borrowers and could cover any loans which defaulted.”
Ontario Provincial Police charged Halton Regional Police Sgt. Jon Williams this past spring in relation to the fraud. The 18-year veteran of the force was suspended with pay this past March. That’s still the case, a spokesman for the force confirmed Monday.
Douglas Grozelle, reportedly a former member of the punk band Trunk, is also charged with fraud in the Ponzi scheme.
“Grozelle allegedly induced investors to contribute capital by promising extraordinary returns,” according to Insolvency Insider Canada. “However, none of the investments, save for one, resulted in any legitimate returns or income.”
Some of the scheme’s “top net winners (numbers 1, 2, 6 and 7 respectively) include Halton Regional Police officers,” said the publication. “Over a dozen other officers (some net losers) invested in the scheme, including a former fraud detective who was the top net loser.”
Masterson “did no due diligence with respect to the purported investments and relied on her friend’s assurances that he had personally vetted the investments,” said the decision from the Law Society Tribunal.
In April 2022, Masterson “tested the purported investment by investing $175,000 of her own money, together with her then-husband. The initial loan was paid out in full with $17,500 in interest in 21 days,” said the decision.
“After this test, the lawyer approached friends and family members, most of whom were also clients, to invest money in the alleged Ponzi scheme.”
According to the decision, “it appears the investment funds flowed through” Masterson’s trust account.
“This was unrelated to the provision of legal services. When the lawyer received funds from investors to her trust account, she would immediately disburse them to her co-accused’s company. It appears there were approximately 15 individuals, most of whom were clients in addition to being friends and family members, whose funds flowed through her trust account.”
Masterson “claims she relied on information from her co-accused that the loans were urgent in nature and the funds had to be transferred the same day, thereby necessitating the use of her trust account,” said the decision, which notes she has paid back some, but not all of those who invested through her trust account.
“She indicated she paid back those who were closest to her. It appears nine individuals or groups of individuals are still owed a total of approximately $9 million. Between April and December 2022, approximately $25 million was deposited into the lawyer’s trust account in relation to the investment scheme.”
Masterson said she “began having concerns about the investment scheme in September or October 2022, when payments from her co-accused started coming in late,” said the decision, which notes she didn’t “suspect the investment scheme was fraudulent until January 2023 when one of her co-accused retained counsel who then sent her a letter promising a payment of $5.9 million by December 30, 2022, which did not materialize.”
After the loans defaulted in November 2022, Masterson “was approached by one of the investors who wanted to raise capital to buy out all purported investments,” said the decision.
“This investor indicated he had a friend who could potentially invest to ‘buy out the loan portfolio.’”
Masterson “made a brochure to be used in a presentation to try to convince the investor’s friend to buy out the loans,” said the decision.
According to the brochure Masterson made, “in over three years of operation, the pooled fund has experienced zero defaults on its loans,” said the decision, which notes it included a statement about being “verified with sworn attestation by lawyer in good standing with the Law Society of Ontario.”
By the time she had created the brochure, “the loans had gone into default, which is inconsistent with the information (Masterson) included in the brochure,” said the decision.
Records provided by Masterson “with respect to her trust account suggest that, in November 2022, (she) used new funds obtained from investors to pay off earlier investors in the alleged Ponzi scheme,” said the decision.
Masterson is named in “at least three ongoing civil matters which name (her) as a defendant, and which claim damages for losses suffered because of investments made to the alleged Ponzi scheme,” it said.
They allege Masterson “solicited funds from clients for short-term loans while she was acting as their lawyer and trusted advisor; assured clients that the various private loans were vetted by her or individuals she trusted; deposited client investment funds in her trust account; allowed others to misrepresent the investments in the brochure such as by claiming” that she’d verified them.
The brochure she made indicated the lenders had been through a “thorough investigation,” said the decision, noting that “allowed her co-accused to hold themselves out as reliable, law-abiding lenders by using her status as licensed and in good standing with the Law Society.”
One person suing Masterson “swore an affidavit containing text messages exchanged with (her) in October 2022” where Masterson “appeared to indicate” that “the scheme had had ‘zero defaults’ in four years and hundreds of millions of dollars invested,” said the decision.
The texts confirm Masterson was “paid a ‘finder’s fee’ which does not come out of the potential return for the investor,” said the decision, which notes Masterson “has not disclosed to the Law Society that she was paid a finder’s fee for recruiting investors into the Ponzi scheme, including in her two interviews.”
The decision notes the investigation into Masterson’s actions is at an early stage.
“While the lawyer seems to be co-operating, she has failed to provide many key documents,” it said, noting that some documents Masterson provided “have contained inaccurate information, hampering” the Law Society’s ability to investigate allegations against her.
The tribunal found it had “reasonable grounds to believe that there is a significant risk of harm to members of the public, or to the public interest in the administration of justice” if it didn’t suspend Masterson.
“In our view, there is risk of harm under both branches, given the evidence tending to demonstrate a lack of integrity and trustworthiness on” Masterson’s part, said the decision.
“Specifically, the evidence provides reasonable grounds to believe that (she) may have may have engaged in criminal conduct; may have knowingly participated in, facilitated or otherwise failed to prevent dishonesty, fraud, crime or illegal conduct; and may have used trust accounts for purposes not related to the provision of legal services.”
If the allegations against Masterson “are established, she would face a substantial penalty — either a lengthy suspension or possibly revocation of her licence,” said the decision.
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