In the landmark decision of My Mortgage Auction Corp. (Re), 2025 BCSC 1520, the Supreme Court of British Columbia addressed the complex legal issues arising from a massive Ponzi scheme orchestrated by Gregory Martel through My Mortgage Auction Corp. (“MMAC”). The Court’s ruling, delivered by Madam Justice Fitzpatrick, approved the trustee’s application to claw back millions in “false profits” and preferential payments made to certain investors. This decision not only provides a path forward for defrauded investors but also sets a precedent for how courts may balance competing interests in insolvency proceedings arising from fraud.
MMAC, a mortgage brokerage founded by Gregory Martel, operated under the guise of funding short-term bridge loans for real estate developers. From 2018 to 2023, over 1,700 investors contributed more than $300 million to MMAC, lured by promises of high returns and secured investments. However, investigations by PricewaterhouseCoopers Inc. (PwC), acting as Receiver and later Trustee, revealed that no bridge loans ever existed. Instead, MMAC functioned as a classic Ponzi scheme, using new investor funds to pay earlier investors and finance Martel’s lavish lifestyle. The scheme unraveled in early 2023, leading to MMAC’s receivership and eventual bankruptcy. PwC’s forensic analysis uncovered that while $301 million was invested, only $210 million was returned. Over $68 million was paid to “Net Winners” (investors who received more than their principal) and $3.1 million was paid to “Preference Recipients” within three months of bankruptcy.
Justice Fitzpatrick found that MMAC was structurally insolvent from the beginning. The Court accepted PwC’s conclusion that MMAC never had sufficient assets to meet its obligations and was operating a Ponzi scheme from inception. By September 2022, MMAC’s liabilities exceeded $226 million, and by early 2023, it was unable to meet over $60 million in overdue investor repayments. The Court adopted the principle – well-established in Canadian and U.S. jurisprudence – that Ponzi schemes are inherently insolvent, as they rely on a continuous influx of new investor funds to survive. This finding was critical in establishing the legal foundation for clawback claims under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) and the Fraudulent Conveyance Act, R.S.B.C. 1996, c. 163 (“FCA”).
The Court held that payments made to Net Winners (those who received more than their original investment) were fraudulent conveyances under the FCA. These payments were made with the intent to delay, hinder, or defraud MMAC’s creditors and were therefore void. Justice Fitzpatrick emphasized that the excess payments were not legitimate returns but were sourced from the investments of later victims. Even though the recipients were not complicit in the fraud, they had no legal entitlement to retain funds that were effectively stolen from others. The Court rejected arguments that good faith or lack of knowledge shielded recipients from liability, noting that the fraudulent intent of MMAC was sufficient to void the transfers.
In addition to fraudulent conveyance, the Court found that Net Winners were unjustly enriched. The three-part test for unjust enrichment was satisfied: (i) Net Winners received funds in excess of their investment; (ii) the estate, and by extension, other investors, suffered losses; and (iii) there was no valid legal basis for the enrichment, as the investment agreements were founded on fraud. Justice Fitzpatrick rejected the notion that contractual agreements with MMAC provided a juristic reason, emphasizing that contracts based on fraudulent schemes cannot justify retention of ill-gotten gains. Public policy and equity demanded that Net Winners return the excess funds to the estate.
The Court also found that the excess payments constituted “money had and received,” a common law remedy that applies when it would be unjust for a person to retain money. Justice Fitzpatrick concluded that allowing Net Winners to keep profits derived from a fraudulent scheme would be unconscionable, especially given the severe losses suffered by other investors. Arguments of hardship or reliance on the funds were dismissed. The Court noted that such defenses are unavailable in the context of Ponzi schemes, where equity requires that all investors be treated fairly and proportionately.
The Court addressed payments made to 81 investors within three months of MMAC’s bankruptcy, totaling over $3.1 million. These “Preference Payments” were found to be void under section 95(1)(a) of the BIA, which prohibits preferential treatment of certain creditors shortly before bankruptcy. Justice Fitzpatrick applied the statutory presumption that such payments were made with a view to giving a preference and found no evidence to rebut that presumption. The Preference Recipients were deemed creditors at the time of payment, and the payments had the effect of disadvantaging other investors who received nothing. As a result, these recipients must return the funds to the estate. The Court emphasized that the Trustee’s proposed two-phase process would allow recipients to dispute the amounts and classifications, but the underlying liability was now established.
Justice Fitzpatrick also endorsed the Trustee’s use of a summary application model under the BIA. Rather than requiring the Trustee to commence hundreds of individual actions against Net Winners and Preference Recipients, the Court found that a collective, two-phase process was both procedurally sound and substantively fair. This approach aligns with the “single proceeding model” in Canadian insolvency law, which promotes efficiency, expediency, and equitable outcomes for all stakeholders. The Court rejected arguments that individual litigation was necessary, noting that such a process would be prohibitively expensive and delay justice for the majority of defrauded investors.
This decision carries significant implications:
Justice Fitzpatrick’s decision in My Mortgage Auction Corp. (Re) is a masterclass in balancing legal principles with equitable outcomes. It reinforces the role of trustees and courts in navigating the aftermath of financial fraud and provides a roadmap for future insolvency proceedings involving Ponzi schemes. For law firms advising clients affected by investment fraud, whether as victims or inadvertent beneficiaries, this case underscores the importance of early legal guidance, transparency, and cooperation with trustees. It also highlights the power of collective proceedings to deliver justice efficiently and fairly.
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