In the mid-1990s, Magellan aggressively sought the very Canadian investors who now have become its harshest critics.
Magellan paid 12 percent commissions to financial planners who sold interests in dozens of real estate projects to Canadian clients. Most investors lived in the provinces of Alberta and British Columbia in western Canada.
In all, about 6,000 Canadians are thought to have invested about $100 million in Magellan deals. (All dollar figures in this article pertain to American, not Canadian dollars.)
Canadian law obligates financial-planning firms to perform "due diligence" on investments prior to selling them to clients. Magellan paid for "due diligence" junkets to Phoenix. Planners stayed at the finest hotels and enjoyed expensive meals and guided tours of Phoenix, according to the April 1999 issue of Vancouver Magazine. (The junkets were also confirmed to New Times by other sources.)
The Schroeders wonder just how diligently the vacationing financial planners checked out Magellan.
The Schroeders did not know, for instance, that one of Magellan's owners, Les Litwin, had been sued in the mid-1980s in British Columbia in connection with a real estate scandal unrelated to Magellan. According to the Vancouver Sun and Vancouver Magazine, a British Columbia judge ruled that Litwin had fabricated sales figures to obtain a loan. (Zorro's got the judge's ruling posted on the Web site, of course.)
Linda Schroeder says if she'd known Litwin's history, she and her husband never would have paid $20,000 for an interest in Silverwood and Cross Creek Limited Partnership, a Magellan project that involved two California properties.
As "limited partners" in the Silverwood-Cross Creek partnership, the Schroeders entrusted their money to Magellan, the "general partner," which managed the partnership and its property.
The Schroeders' financial planner told them they would reap at least an 8 percent return on their investment and would recoup their entire investment plus a nice profit, in two years.
But so far, the Schroeders say they've recovered only $2,373 of their $20,000 investment.
Linda Schroeder says communiqués from Magellan about the partnership's finances have been "vague and unclear."
"This has been very difficult for us. All of our money is tied up, and we have a huge mortgage to pay," she says.
The Schroeders don't know where to turn for help.
Magellan is in Phoenix.
The Schroeders live in Canada
The properties are in California.
And Vantage Securities, which employed the financial planner who sold the Schroeders the Magellan investment, is bankrupt.
"I would never invest in a limited partnership again," says Linda Schroeder.
"I am very leery about investing now.
"It's really a scary thing. What a lesson we've learned the hard way."
Complaining of inexplicably puny returns and unusually high management fees, some investors sought the protection and help of regulators.
In 1996, the Arizona Attorney General initiated a criminal probe of Magellan. The AG issued a search warrant alleging that Magellan principals might be guilty of fraud and tax-law violations. (The search warrant is posted on the dissident Web site.) A grand jury was convened, but no one was indicted in connection with Magellan. Three years later, the criminal probe seems to have gone nowhere. Now the AG's office, which won't comment on the case, says in letters to investors that it hopes to settle the matter "civilly."
Irate Canadian investors figure the AG has ignored them because they aren't Arizona taxpayers.
After hearing of the proposed civil resolution, Alberta investor Colleen Diederichs fired a letter back to the AG's office on June 25.
"The idea of negotiating a 'civil resolution' to this matter is tantamount to a slap on the wrist . . . ," she wrote, expressing fears that any fines levied on Magellan by the AG would be paid with investor money.
". . . I wonder why you don't fine us directly for gullibility," Diederichs concluded.
"The AG is slower than the Second Coming," complains British Columbia resident Bud Sawatzky, who invested $200,000 in Magellan projects in the mid-1990s.
Sawatzky, a retired director of aircraft sales for a Canadian airline, claims he's recovered only $65,000 of his $200,000.
When asked to comment on the AG's investigation, Resnick writes in the October 22 letter: "Magellan has been cooperating with the AG's office for three years. The last time they requested information was more than one year ago."
"For whatever reason it [the AG's investigation] came to a grinding halt," says Dave Linder, executive director of the Alberta Securities Commission. "The only thing that would drive this thing forward in my view would be the State of Arizona saying, 'Canadian investors are so important to us,' assuming they have the case, of course, 'that we feel we want to pursue this matter.'"