Lament over Lydia: Small investors in a supposed diamond mine may just be left hanging
Scott Deveau, National Post
Published: Saturday, February 10, 2007
canada.com
The first sign that a seemingly lucrative diamond mine north of Peterborough, Ont., was in trouble was when one of its founders, the charasmatic Emilia von Anhalt, who liked to be referred to as Princess, lost her cool.
It happened during a shareholders meeting about five years ago at a countryside resort near Oshawa, where those with claims on the burgeoning Lydia Diamond Exploration of Canada Ltd. project would get updates and discuss their plans for when the money started rolling in.
"People from all walks of life attended. Doctors, dentists, housewives, working-class people," said Judy VanDriel, a Bowmanville crossing guard and first-time investor who jumped at the chance to get in on the bottom floor of a potentially lucrative venture.
Jan Sullivan, 75, of Whitby, Ont., bought shares in Lydia Diamond Exploration from the von Anhalts' psychic, Fran Harvie.
Mrs. von Anhalt and her husband, Jurgen, who also called himself a Prince because of what they said was their noble lineage from the former German principality of Saxony, would sometimes bring diamond samples apparently taken from the mine.
This particular Sunday, however, was different. During the meeting one of the more elderly shareholders stood up to say that someone from her family had asked the Ontario Securities Commision to investigate the fledgling mine.
Princess Emilia exploded in a flurry of expletives.
Shareholders had hoped the OSC's investigation would conclude yesterday with the sentencing of the von Anhalts, who were convicted last month on, cumulatively, 92 counts of violating the Ontario Securities Act. But Mr. Justice J.C. Moore deferred his decision to March 19.
Ms. von Anhalt, who is believed to be living in Monaco, was not represented at the hearing. But David Milosevic, lawyer for her now-ex husband, was in attendance.
He said Mr. von Anhalt is working in Miami as a "healer" and jet artist, in which he splatters paint blown by airplane engines on to canvas, and could not attend because it would violate his visa application.
The von Anhalts are accused by the OSC of living lavishly off investors' money. They were also accused yesterday of exploiting their personal relationships and giving shareholders misleading information about the future of the company.
During the 10 years the von Anhalts were at the helm of Lydia Diamond, the pair took no salary and often mixed their personal expenses with those of the business.
"It's clear that there was a lot of that going on," Mr. Milosevic said.
But he alleges the Prince was in it for a lot less than the Princess, and that a victory for Mr. von Anhalt now would simply be to avoid jail time.
But even when their sentencing is set, thousands will still be wondering whether their shares in the mine are worth anything. Indeed, the bizarre tale of Lydia Diamond serves a harsh warning for first-time investors that all that glitters is not gold -- or, in this case, diamonds.
Lydia Diamond was founded by the von Anhalts in the mid- 1990s. The von Anhalts had settled in Indian River near Peterborough, after meeting and marrying in the Bahamas. They shortly began prospecting for gold at Wolf Lake, Ont.
According to OSC filings, the couple spent a lot of time in the first few year travelling the world and even more time courting investors. Their efforts were made easier after Ms. von Anhalt claimed she found a nine-carat diamond on the property in 1996. That shifted the focus from gold to diamonds.
"Besides, [we] just liked the word 'diamond,' " Ms. von Anhalt testified to the OSC in 2002.
The couple also employed a local psychic, Fran Harvie, to sell shares in the mine. On one occasion, Ms. Harvie used her supposed powers to locate diamonds on the property, but the von Anhalts denied that they followed her advice.
Ms. Harvie collected nearly $1-million from 341 investors in Lydia Diamond by the end of 2000, earning nearly $95,000 in commissions. In doing so, she also helped push the number of shareholders far beyond the legal limit of 50 investors allowed for a private company.
In November, 2002, the von Anhalts and Ms. Harvie were ordered by an OSC panel to cease trading securities for 12 years, subject to certain conditions, and to resign as directors and officers of any companies.
In all, forensic investigators estimate that more than $1.8- million was collected from more than 300 investors between 1996 and 2000. OSC investigators estimate there are now as many as 2,600 shareholders in the mine.
It was Ms. Harvie who sold Ms. VanDriel and her friends Debbie Allin and Jan Sullivan, a 75-year-old pensioner, their shares in Lydia Diamond. None had ever invested in anything on the scale of Lydia Diamond before, but were told the company was about to go public and that shares in the mine would likely open at about $10 a share, a sizeable gain from the $1 or $2 a share they had paid. They eventually got certificates from Lydia Diamond confirming their stake.
Ms. Harvie has refused to comment on her role in the sale of Lydia Diamond shares.
The three women say that since that final shareholders meeting when Ms. von Anhalt first heard about the OSC investigation, Lydia Diamond's board has not returned their calls and all correspondence with the company has ceased. "You can't get an answer out of anyone," Ms. Sullivan said.
But the scandal didn't stop there. The OSC brought more charges against the von Anhalts last year after it was alleged that both were continuing to sell shares despite the OSC order and were talking up the company to potential investors. The OSC convicted Ms. Von Anhalt
Judy VanDriel of Bowmanville, Ont., worries about the value of her 650 shares.
The OSC has named Mrs. von Anhalt on 65 counts and Mr. von Anhalt on 27 counts of contravening the securities act last month. It is now pushing for jail time for the pair.
Ms. VanDriel says she doesn't care what happens to the von Anhalts; all she wants to know is whether her 650 shares are worth anything.
"All I've ever wanted is for someone to look me in the eyes and say, 'You know what that paper you have is worth? Dust,'? she said.
Glen Dalzell, who currently sits on Lydia Diamond's board, says he draws a distinction between the shares in violation of the act and those that may eventually be recognized by the company.
After the sentencing, the Lydia Diamond board will ask the OSC to determine whether the von Anhalts will be allowed to retain voting rights for their nearly 80% stake in Lydia Diamond, after which it will determine whether there is any point in further exploration. Mr. Dalzell said the only asset Lydia Diamond has left is the mineral rights on the property.
If that's the case, it may be difficult for shareholders to get their money back from the company or the von Anhalts themselves.
"It's hard for individuals to get a claim against people behind a company," said securities lawyer Jay Swartz with Davies Ward Phillips & Vineberg LLP. "There may be grounds for a suit, but the question is whether it would be worth it and if there's a possibility of collecting."
scdeveau@nationalpost.com
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