The dramatic collapse of a Saskatoon-based real estate company gives the industry something to say as investors wonder where their money went.
He is also the subject of two high-profile investigations.
The implosion of Epic Alliance Inc. – which went out of business in January – has left questions hanging over the fate of investors across the country (and their dollars), as well as that of more than 500 residential properties in Saskatoon and North Battleford, Saskatchewan.
The once successful property owner and management company was established in 2013 and managed real estate investment properties. Its business was based on three main businesses: a “Fund-A-Flip” program, in which real estate was purchased and/or improved by the Epic Alliance, financed by loans from individual titleholders; a loan program based on promissory notes; and a “Hassle-Free Landlords Program,” through which he managed homes for out-of-province investors.
What do you get when you combine Hard Work + Innovation? 🤔
Epic Alliance Inc., of course! 💪👷♀️#investwithintegrity #immovable #investor #owner #profit #passive income #cash flow #property investment #hassle free #realestateinvestors #invest #monthly payment #Income pic.twitter.com/5MFtjtvDIS
— Epic Alliance Inc. (@epicalliancesk) February 13, 2021
While a corporate website is now defunct, on its Instagram page, Epic Alliance co-founders Rochelle Laflamme and Alisa Thompson describe themselves as “a dynamic duo passionate about creating double-digit returns on investments. passive real estate”. In social media promotional materials, the company urged investors to invest their money in affordable housing and receive a return on investment of 15% to 20% with an annual return of around 10%.
In a Zoom video with investors and real estate partners on January 19, however, Laflamme and Thompson announced that the company was bankrupt and “everything is gone.”
But the company’s woes began months before.
On October 21, the Financial and Consumer Affairs Authority of Saskatchewan (FCAA) issued a temporary cease trade order against Epic Alliance for not being registered with the FCAA. In order to legally trade, sell or advise on securities and derivatives, it is necessary for companies and individuals to be registered to do so. The financial regulator issued the trade order against Laflamme and Thompson, along with nine affiliates, ordering that all trading in securities and derivatives must cease until November 5, 2021 inclusive.
This ban on commercial operations was valid until November 19, 2021 inclusive.
“The FCAA f—-d us”
During a hearing in November, Epic Alliance expressed through statements and letters of support that the order was having a negative impact on business. It was eventually lifted. However, the FCAA was, and still is, fascinated by an ongoing investigation into the Epic Alliance and its business practices.
“The FCAA af—-d us,” was essentially the only reasoning investors got from Laflamme and Thompson on the January Zoom call.
“With the FCAA trade prohibition order, Epic Alliance suspended payments on investment products because they were unable to obtain new funds. Investors were therefore worried. Between November and January, however, they were able to raise additional capital and make payments again, so those investors thought everything was fine,” Saskatoon attorney Mike Russell told STOREYS. “Then came the sudden video announcing the bankruptcy.”
In a separate investigation from the FCAA, Russell is representing 120 investors from across Canada who have now collectively exceeded $10 million after receiving promissory notes from Epic Alliance. These individuals each invested between $50,000 and $500,000. A Court of Queen’s Bench judge appointed accounting firm Ernst & Young to investigate the missing funds.
Each of the investors represented by Russell contributed to a holdback fund to fund Ernst and Young’s appointment. “Under the order, Ernst and Young have 60 days to investigate all entities and individuals before he returns to court,” Russell said. “We will decide what to do next, if anything, once we receive this report.”
The conclusions will be presented to the court at the end of April.
Russell acknowledges that things were seemingly going smoothly until the FDCC took action and subsequently sounded alarm bells among investors. “For eight years, everything went according to plan. Investors were consistently getting their 15% to 20% interest returns; Epic Alliance has always paid,” says Russell. “They were attracting many new investors and building a portfolio of approximately $126 million of real estate in Saskatchewan. Even though it was a risky investment, they managed to pull it off.
It’s also unclear whether or not Laflamme and Thompson knew they were doing something unethical. “I can only speculate to what extent they knew or didn’t know they were breaking the law,” Russell says. “It’s very specific,” he adds of the act.
According to an executive order from Queen’s Bench, however, Epic Alliance had signed an undertaking to the FCAA on September 22, 2021, agreeing to no longer transact in securities, while continuing to trade and advise on securities without registration. “These contraventions were confirmed by sworn evidence from the investors which had been solicited by the respondents during the period the recognizance was in effect,” it read.
Lack of registration aside, it appears the pair were running a very risky business that some might say was venturing into Ponzi scheme territory.
“The effect of the FDCC’s decision has likely affected their ability to borrow new capital and therefore may not be able to pay new investors,” says Russell. “In the evidence we have, former employees explain that new capital would be borrowed or obtained to repay maturing investments. So if you think about it that way, obviously the mechanisms that had to be employed to make this all work couldn’t work once there was no new capital.
So, on behalf of investors, Russell is trying to find out exactly what went wrong and says the inspectors’ report will help draw the final conclusion and reveal if there are any assets investors can seek out to recoup their losses. .
“A lot of people who had invested in properties in Saskatoon through mortgages or otherwise got their keys back. A lot of them were able to get transfers from those houses,” Russell acknowledges. “On the one hand, it’s progress, but on the other hand, there are problems that go along with it, including the fact that there are no tenants in many of these houses, there are has broken pipes, no appliances, utilities have been turned off.
Additionally, many owners of these properties live out of province and relied on the Epic Alliance to manage them.
As for Epic Alliance, according to fiat, on February 2, 2022, Thompson filed documents with the Corporate Branch dissolving Epic Alliance Real Estate Inc., Epic Alliance Fund-a-Flip Program Inc., EA Properties Inc., Epic Alliance Hassle-Free Landlord Program Inc. and Epic Holdings Ltd. It also says that Thomson and Laflamme sold assets online from Epic Alliance headquarters for cash only.
But investors have been in the dark since January’s infamous video about the financial condition of security holders and the status of their investments, according to fiat. Hence the Ernst and Young survey.
As for vacant homes, the Saskatchewan Realtors Association (SRA) tells STOREYS that its economist is monitoring the Saskatoon and North Battleford markets to determine if there is a spike in new listings coming into the market. However, the organization said it had yet to see a flood of properties enter the market and did not expect that to happen.
“Some of the properties are already occupied by tenants, as we understand from Epic Alliance statements made to stakeholders,” the SRA representatives say. “Investors/owners of these properties may face legal issues for a period of time, which will also impact when they ultimately choose to sell their properties. Investors will have new and unexpected responsibilities as owners, and we empathize with them as they navigate their new reality.
While some may indeed be occupied by tenants, the reality is that many are vacant – an impossible reality to ignore on the affordable housing front; one that does the city’s most economically vulnerable no favors.
The FCAA investigation is still ongoing, but a statement of the allegations will be made public when available, followed by a public hearing.
In the meantime, it’s important to note that none of the allegations against Epic Alliance have been proven in court. STOREYS has contacted Epic Alliance for an interview and has not heard back as of press time.