Hiltz & Associates Blog
Fraud, Embezzlement and Risk in the Dental Office
Dr. Joseph Radice had every reason to believe his money was in good hands.
The Woodbridge dentist had invested $617,000 of hard earned savings with a dental colleague he believed was a financial whiz who had made a killing on the New York and Toronto stock exchanges.
That dentist was Peter Sbaraglia, Oakville dentist the Ontario Securities Commission alleges was part of massive Ponzi scheme.
Today, Radice alleges he is one of at least 50 investors — many of them prominent dentists — looking for $50 million in lost funds. In allegations filed in court.
What Radice and investors did not know was that the Ontario Securities Commission (OSC) was actively investigating the scheme, even as they were being reassured that their money was safe and earning vast returns.
“If they are a protective government agency then, hey, (the OSC) should have stepped up,” Radice said in an interview. “What safeguards are in place to protect investors from unscrupulous people?”
Radice believes the OSC should have acted to freeze bank accounts and protect investor assets back in 2008.
The scheme exploded a year ago when its kingpin, Robert Mander, killed himself in his Flamborough just before a court hearing into the matter.
Today, as lawyers, receivers and investigators squabble over the case, questions are being raised over whether the OSC should have warned investors to back off the scheme. The judge who appointed a receiver to wind up the scheme’s assets last December remarked “it could very well be that the OSC could have acted more promptly.”
An OSC spokesperson told the Star the regulator did nothing wrong, saying that the receiver in its investigation did not “conclude the OSC failed to protect investors.”
The regulator has filed a series of allegations against Sbaraglia and his wife and summoned them to appear at a hearing March 31. The OSC has accused them of taking part in a fraudulent scheme and wants to ban them from trading securities. Sbaraglia declined an interview request from the Star. In his own statement to the OSC, Sbaraglia describes himself as a victim and criticizes the regulator for not warning him to beware of the Mander Ponzi scheme.
For Radice, it all started around the dentist chair at his Woodbridge practice in 2005.
When the veteran family dentist needed a dental anesthesiologist to help treat a patient, Radice called for Sbaraglia. Radice grew to trust him.
Over time, according to Radice, Sbaraglia boasted that he and his wife had great “prowess” in trading private and public securities in Toronto and New York. So much prowess, Radice recalled in a court action he started against his old dental colleague, that Sbaraglia was planning to leave his own practice and become a full time investor.
According to the OSC, Sbaraglia was, by 2006, hooked up with Robert Mander, the mastermind of a Ponzi scheme that would take at least $40 million from investors. A Ponzi scheme is a financial operation that pays returns to investors from money that new investors contribute.
Radice said he had no idea that Mander and Sbaraglia were working together.
The OSC, in a release last week, alleges both men participated in a “fraudulent scheme” through their company, C.O. Capital Growth. Radice would have liked to have known that years ago.
“When someone is under investigation you know what they should have done. They should have frozen the assets and stopped the whole process from tumbling and falling down,” said Radice.
“Maybe I should have educated myself. Sometimes you have to take responsibility for your actions. I really dropped the ball on this,” Radice said. He estimates 50 investors lost $50 million in the scheme, though the regulator has pegged the amount at $40 million.
Between November 2006 and August 2008, Radice said he invested $617,000 in six different contributions to Sbaraglia, who promised a 25 per cent return on the dentist’s investments. Radice acknowledges he made a mistake in trusting his former colleague who, he said, promised his money would continue to grow as long as he resisted the urge to withdraw it.
Other investors continued to invest in 2009, according to the receiver’s report on the case.
Radice, in a statement of claim filed in court in 2010, said he often dropped by Sbaraglia’s office to get a report on the investments. Radice said Sbaraglia typically told him they were doing well and “there was no possibility of him losing his money.”
According to the OSC, Sbaraglia and wife Mandy were on a spending spree by this time, racking up whopping credit card bills while dining at fine restaurants and using some of the investor money to support a dental hygiene business owned by Mandy, a periodontist.
The OSC alleges that up to $7 million was never properly invested and remained in the Sbaraglia’s accounts.
About $2 million was viewed as “profits” and used for personal expenses, the agency claims. About $2.4 million was lost making bad trades and $585,000 was used to buy open venture securities. Most of the remainder used for general business expenses.
Sbaraglia and his wife allegedly racked up a $383,000 VISA bill, for personal expenses including office renovations and restaurant bills. Investor money also went to pay rent for a dental hygiene company owned by his wife.
By July 2009, the OSC had called in Sbaraglia for an interview as part of their growing — but secret — probe into the Ponzi scheme.
The OSC, in its statement of allegations against Sbaraglia, said he misled them in his statements under oath by saying that the investor money was not at risk.
The Star tried to interview Sbaraglia and his wife but they declined.
“You have no idea how badly I want to tell you my side,” Sbaraglia said outside a hockey arena where he coaches a youth team. “It will take a week to tell you the story.”
In his November 2010 response to the OSC, Sbaraglia and his lawyers say they were dupes of a “malevolent career fraudster” (Mander) who convinced them to become investors. The Sbarablia’s say they in turn got friends and family to invest money. Even their 11-year-old daughter was convinced to invest $1,000 in the scheme.
Sbaraglia and his lawyers blame the OSC for conducting a “deficient” investigation into Mander.
In their response to the OSC, Sbaraglia said the regulator had evidence of “Mander’s fraud” as far back as 2008 and “ignored it.”
Sbaraglia, who shared lawyers with Mander, blames the lawyers for not alerting him to the scheme.
As a result, he says, he and his company continued to renew or enter into loan agreements with new investors . From October 2008 to July 2009, after the OSC investigation had begun, the company renewed or entered into new loan agreements worth at least $7.4 million. Interest rates on those agreements range from 8 to 25 per cent.
Sbaraglia’s former lawyers deny the allegations, and say that the Sbaraglias repeatedly advised “that they were well aware of the details of Mander’s business affairs, that they had no concerns about his integrity or wherewithal, and that all of the monies obtained from investors had been invested in a legitimate fashion.”
Last December, an Ontario judge put the Sparaglia’s assets into receivership, including their $2.9 million heritage home in Oakville. It was listed for sale recently.
One of the family members drawn into the scheme was dentist Mandy Sbaraglia’s brother, Rick McIntosh, the former head of the Toronto Police Association. McIntosh and his wife formed a company they called R.S. Capital Growth and invested about $1 million with the Sbaraglia’s.
McIntosh said the Sbaraglia’s have done nothing wrong.
“You’re barking up the wrong tree,” McIntosh said in an interview. “You’ll never find two more honest people than Peter and my sister.”
“I think the bigger story, honest to God, is how the system works,” McIntosh said. “How the civil system works in this kind of a system is just mindboggling. How does it make sense? It’s supposed to be in place to protect people.”