March 21, 2025 

March is Fraud Awareness Month. Our firm often reminds fraud victims that they cannot reasonably rely on Canada’s bankruptcy system for recovery or justice in fraud matters. In the Re Nicholson case recently released, a bankruptcy judge lifted a stay of proceeding to allow a group of investors to pursue judgment notwithstanding the bankruptcy process is designed to treat all claimants equally. Our case summary follows: 

Case Summary: 

Re Nicholson, 2025 ONSC 1069 
Judgment: February 18, 2025 
 

Richard Nicholson was a trusted financial advisor. He and his company, Nicholson Wealth and Risk Solutions Inc., operating as NWR Financial Group (NWR), recommended that the Plaintiffs invest in a hedge fund operating out of the US named Legacy Investors Group Inc. (“Legacy”).  

Nicholson represented to the Plaintiffs that he was the operations manager for the Canadian division of Legacy and that he had personally invested in Legacy. He guaranteed that the Plaintiffs would receive monthly interest payments in the amount of 5 or 6% for their investment. He also represented that Legacy had never lost any investor money and had been profitable for 18 years.  

Between August 2021 and October 2022, in reliance of Nicholson’s representations, the Plaintiffs sent Legacy a total of USD $670,000. The contractually agreed to interest of USD $345,000. Initially some of the Plaintiffs received monthly interest payments. The payments were sent directly from a bank account RBC close to Nicholson’s office and not from Legacy.  

The monthly interest payments eventually stopped. The Plaintiffs asked Nicholson to return their investment and the interest owed to them. Nicholson made promises to but did not do so. The Plaintiffs noticed that Nicholson posted pictures and videos of luxury purchases on social media websites including photographs of a $400,000 Lamborghini sports car and a $100,000 luxury watch.  

On May 31, 2022, a Statement of Claim was issued in Toronto.  A. Mareva Injunction and a Norwich Order was granted on an ex-parte basis because the Plaintiffs obtained evidence that Nicholson  was dissipating assets: Ahsan et al v. Nicholson et al, 2023 ONSC 3146.  Nicholson defended. An Examination for Discovery of Nicholson took place on February 24^th, 2023.  

On March 26, 2024, Nicholson made an Assignment into Bankruptcy. The victims sought an Order pursuant to section 69.4 of the Bankruptcy and Insolvency Act, (the “BIA”), lifting the automatic stay and declaring that the stay imposed by section 69.3 of the BIA no longer stayed the Fraud Action.  

The Trustee did not oppose the Motion, and the OSB did not intervene on the Motion. Nicholson opposed the Motion. Nicholson swore an affidavit dated September 27, 2024. 

Reasons Not to Lift a Bankruptcy Stay favouring a Rogue 

The bankruptcy judge stated the following principles and referred to the cases where a stay of a civil action was not lifted: 

• Section 69 of the BIA automatically stays all legal proceedings, including those for collection of debts, upon the filing of bankruptcy. This stay is essential to ensure the orderly distribution of assets under the supervision of the trustee and to maintain fairness among all creditors; 

• a stay emphasizes the importance of the bankruptcy process in distributing assets equitably: Kenwood Hills Inc., 2015 ONSC 4481; 

• a court will not lift the stay if the plaintiffs have not demonstrated that continuing the lawsuit would materially benefit them beyond what could be achieved through the bankruptcy process:  Portus Alternative Asset Management Inc., 2007 ONSC 5089; and 

• a court will uphold bankruptcy protections and not lift a stay unless creditors can demonstrate exceptional circumstances: Patterson v. Kingsway Financial Services Inc., 2006 ONCA 384. 

This often occurs in Ponzi cases where there are many creditors competing over the same pot to recover from. But in some cases this occurs, especially if the number of creditors is limited to the people named as plaintiffs in a civil action. 

Reasons to Lift the Bankruptcy Stay as it Applied to Nicholson 

In Nicholson’s case, the judge noted that he appeared to be operating a Ponzi scheme. The  judge quoted Giles v. Westminster Savings Credit Union, 2010 BCCA 282: the hallmarks a “Ponzi scheme” is the creation of a fund from advances made by investors for the purpose of investing, and then using that fund of investor monies to instead pay purported “returns” back to investors using their own money, instead of paying the investors from actual returns made from their investments. 

Nicholson’s position was that the Plaintiffs were advised of the risks of the form of investment recommended, and that the choice of investment was tailored by him to meet their investment needs as they requested. Nicholson asserted that returns were not “guaranteed”. 

The bankruptcy judge held: 

1. there were no “Know Your Client” forms typically obtained by investment advisors to document such knowing acceptance of investment risk appropriate to the investor Bankrupt that would support Nicholson’s position; 

2. Nicholson engaged transactions to obscure the source of money so that the Plaintiffs could participate in this restricted investment in “segregated funds and trust funds and things of that nature” despite not qualifying, presumably because they were too risky; 

3. the Plaintiffs were “new to investing” and that the investments were not appropriate. Nicholson recommended that they invested in a “private equity fund” in the United States that engaged in “pattern day traded funds as well as pre-existing businesses”, some of the riskiest types of investments; 

4. it was unclear as to whether the tax implications, and other US law implications of making these investments with Legacy in the United States, were ever explained by Nicholson; 

5. a beneficial ownership strategy was used by Nicholson for both tax and anti-money laundering purposes, and that there is no evidence that Nicholson explained to the Plaintiffs the possible grave tax and criminal implications of participating in these transactions;  

6. in social media posts made by Nicholson are 17 photographs, including of a Lamborghini Urus automobile, a Audemars Piquet watch, the façade of a restaurant called “Pastiche”, and a Mercedes automobile; and that 

7. the Trustee did not have the resources to fund the Plaintiffs’ litigation. He also noted that the claim could not be properly adjudicated in the summary proof of claim process under the BIA. 

For all of these reasons the bankruptcy judge issued a declaration lifting the automatic stay under the BIA. 

Our commentary: This decision is incredibly long considering the amount at issue. 

A motion to lift a bankruptcy stay in this case was supported by discovery evidence as Nicholson waited until discovery was complete before assigning himself into bankruptcy. Often rogues assign themselves into bankruptcy before a claim is issued or immediately after a claim is issued. If this were to occur, an order to lift a BIA stay can be requested with an urgent Mareva injunction motion. 

A curious comment of the judge was that despite Nicholson admitting to issuing promissory notes to the Plaintiffs , and his failure to make payment under the promissory notes, there is no specific claim in their fraud action under the provisions of the Bills of Exchange Act, RSC 1985, c B-4 per Bank of Montreal v. Abrahams, 2003 CanLII 37259 (ON CA).   

Inquiries: At Investigation Counsel, we only act for victims. We are Canada’s only boutique victim focused fraud recovery firm. We investigate and litigate fraud recovery cases each and every day.  

If you discover you are a victim of fraud, contact us to have your case assessed and a strategy for recovery mapped out before contacting police or alerting the fraudster. The Courts grant tracing and freezing orders much quicker through the civil process than the criminal process, and even if a criminal complaint is made, the police most often do not disclose their findings with victims. 

We also promote victim advocacy and academic discussion through various private and public professional associations and organizations. If you have an interest in the topics discussed herein, we welcome your inquiries. 

Investigation Counsel PC 

Norman Groot 

March 21, 2025