The funds will be returned to Douglas Grozelle’s bankruptcy estate to repay investors who lost funds
An Ontario court has ordered investors who benefited from a multimillion-dollar Ponzi scheme to return $21.5 million in profits to the bankruptcy estate of Douglas Grozelle, the Burlington, Ontario man who ran the scheme for two years before it collapsed in 2022.
The Feb. 9 decision, which says the profits amount to roughly 85 percent of the losses suffered by other investors in the scheme, is one of only a handful of reported Ponzi scheme clawback rulings in Canada to date.
The recovered funds from the investors who profited will be used to compensate the victims who lost their investments as a result of the fraud.
“It may strike some ‘winners’ as unfair that they have to repay their ‘profits’ to fund others who lost out in the scheme,” Ontario Superior Court of Justice Judge Frederick Myers wrote in the ruling. “Some might not have known it was a fraudulent Ponzi scheme. Some might not have even had the sophistication to realize that when something seems too good to be true, it usually is.
“But all are just fortuitous,” Myers added. “They participated in a fraudulent scheme, often contracting for illegal interest rates, and all received payments that were intended by Mr. Grozelle to defraud, delay, and hinder his other creditors.”
Miller Thomson LLP partner David Ward says that Myers’ decision, when read alongside another bankruptcy ruling that the Supreme Court of British Columbia issued last year, provides “what amounts to a complete toolkit for unwinding [Ponzi schemes] and clawing back funds from net winners.”
Ward represents the trustee in Grozelle’s bankruptcy and cannot comment on the specifics of the case. However, he says Myers’ decision clarifies the “hallmarks” of a Ponzi scheme and “sets out the summary processes and evidentiary grounds upon which the schemes can be successfully challenged and unwound.”
Grozelle, who was once a member of the punk rock band Trunk, was among three people charged with fraud last year in connection with the Ponzi scheme. Along with Crystal Masterson, an Ontario lawyer, and Jon Williams, the former head of the Halton Regional Police fraud unit, Grozelle solicited investments to fund a business that made short-term bridge loans secured by real estate.
According to Myers’ ruling, Grozelle attracted investors by promising high returns. He used funds raised from later investors to repay earlier investors.
Myers highlighted the role of Halton Regional Police Force members in the scheme, writing that roughly 20 current and former members of the force are investors, with some of them using “the inherent authority of their positions to add credibility” to the scam.
After the scheme collapsed, Grozelle was put into receivership and then bankruptcy, leaving 116 creditors with about $24.5 million in unpaid loans. However, 120 other investors who had been involved earlier in the scheme profited when Grozelle repaid their loans with significant interest. This additional profit amounted to roughly $21.5 million.
The bankruptcy trustee asked the court to order this latter group – which the court refers to as “winners” – to repay the interest they earned to Grozelle’s estate so the funds could be used to compensate the first group of investors. The trustee did not ask the winners to repay their principal investments, but said there were three grounds for clawing back the interest: fraudulent conveyance, unjust preference, and unjust enrichment.
In his ruling, Myers cited a 2025 BC Supreme Court ruling in My Mortgage Auction Corp. (Re), a bankruptcy matter involving a BC mortgage broker. That decision by BC Supreme Court Justice Shelley Fitzpatrick described the “hallmarks” of a Ponzi scheme. These include the payment of purported returns to investors from funds contributed by new investors; the absence of a legitimate business or investment activity by the person running the scheme; promises of high returns with little risk; a focus on attracting new investments especially through close personal connections; and a significant flow or churn of funds in and out of the accounts of the person running the scheme.
Based on these criteria, Myers concluded that Grozelle was running a Ponzi scheme. While one lawyer argued that he could not reach such a conclusion because the trustee failed to prove that Grozelle “made misrepresentations of facts knowing them to be untrue which investors relied upon to their detriment,” Myers was unmoved.
“This argument is nothing more than semantics. A fraudulent Ponzi scheme is a title denoting a legal conclusion from a series of hallmarks that I have found to be present,” the judge wrote.
Myers rejected the trustee’s clawback request on the grounds of unjust preference and unjust enrichment. However, he agreed with the trustee that the interest paid to the winners of the Ponzi scheme qualified as “fraudulent conveyances” under the Fraudulent Conveyances Act, which states that “every conveyance of real property or personal property” is void if it is done with the intent to defraud.
Some of the winners argued that the court cannot conclude that Grozelle intended to commit fraud in every transaction he made. They told the court that every payment should be individually reviewed for proof, or “traditional badges,” of fraud.
Myers disagreed. Citing Fitzpatrick, who similarly rejected individualized review in My Mortgage Auction Corp. (Re), the judge said that “each payment in a fraudulent Ponzi scheme is necessarily made with the intention to defraud, hinder, or delay creditors.
“The badges of fraud are a red herring,” he added. “They are used as signposts when the intention of the payor is otherwise difficult to infer. That is not the case here.”
Some of the winners also argued that the trustee is required to file a statement of claim against each winner to recover their profits and that the winners are entitled to discovery. The winners cited another bankruptcy case where the court analyzed each transaction individually, but Myers noted that nothing in that case indicated that this is always required.
Myers added that Grozelle’s estate has no money, so requiring the trustee to bring 120 individual actions to recover the funds would be cost-prohibitive, involve “wasteful duplication and engender serious delays.”
Counsel for the other parties either declined to comment or did not respond to requests for comment.
