OmniArch Capital Corporation and its directors, Jay Modi, Arti Modi, and Rajeev Singh have caught much attention in Alberta as the case of The Alberta Securities Commission (ASC) brought serious allegations against the company and its leaders for misleading investors and misusing millions of dollars in investment funds. In recent years, the financial markets have seen numerous cases of corporate mismanagement and investor fraud. This case underscores the critical importance of transparency and ethical behaviour in the financial industry and serves as a stark reminder of the severe consequences for those who violate securities laws.
OmniArch Capital Corporation: The Rise and Fall
OmniArch Capital Corporation, established in Calgary, Alberta, on November 20, 2009, by Jay Modi, Arti Modi, and Rajeev Singh, was marketed as a promising investment firm specialising in Residential Mortgage-Backed Securities (RMBS) in the United States. RMBS are asset-backed securities that derive value from a pool of underlying residential mortgages. OmniArch’s stated goal was to pool investment funds to invest indirectly in downgraded and discounted RMBS.
Between 2010 and 2016, OmniArch Capital raised approximately $127 million from investors, portraying itself as a reliable firm with the expertise to manage these investments. The funds were raised through nine Offering Memorandum (OMs), all signed by Jay Modi, Arti Modi, and Rajeev Singh, each containing a statement asserting that the “Offering Memorandum does not contain any misrepresentations.” OmniArch issued three classes of bonds—A, B, and C—with different terms, all offering 10 percent annual interest.
However, cracks began to appear in OmniArch’s facade when allegations emerged of misappropriated funds and misleading investor disclosures. On April 11, 2019, the Alberta Securities Commission (ASC) issued a Notice of Hearing against OmniArch Capital Corporation, Jay Rasik Modi, Arti Rajeev Modi, and Rajeev Jagdish Singh. The allegations centred on the diversion of around $10 million in investor funds to companies owned and controlled by OmniArch’s directors, triggering an extensive investigation into the company and its leadership.
Allegations and Deceptive Practices
The ASC alleged that the directors—Jay Modi, Arti Modi, and Rajeev Singh—either knew or should have known that the funds intended to purchase securities on behalf of investors were instead being diverted to related entities controlled by them. This constituted a severe breach of trust, as investors believed their money was being used to purchase and manage RMBS, not to benefit the directors’ personal business interests.
OmniArch’s Offering Memorandum, dated January 24, 2014, and May 9, 2014, claimed that net proceeds from the offerings and excess cash flows would be used to acquire downgraded and discounted RMBS bonds. Contrary to these claims, between December 31, 2014, and June 10, 2016, Jay Modi and Arti Modi directed OmniArch to transfer funds to entities they owned or controlled, such as 982 Media, 1611385 Alberta Ltd., OmniArch Capital Group, and OmniArch Ventures. These transfers, known as Related Party Loans (RPLs), were made on terms more favourable than those provided to OmniArch investors—featuring a lower interest rate of 6 percent compared to the 10 percent on bonds and longer terms of 10 years instead of 5.
Moreover, the ASC’s Notice of Hearing disclosed that OmniArch misled investors about its expertise and capability in managing securities. This included exaggerating the professional experience of Jay Modi and the company’s fund managers, which created a false sense of security among investors regarding the firm’s ability to safeguard their investments and generate returns. The company also failed to properly disclose dividends and distributions amounting to over $1 million that were paid to a company controlled by Rajeev Singh, an inactive director and spouse of Arti Modi.
OmniArch’s Offering Memorandum dated January 24, 2014, May 9, 2014, and August 26, 2013, contained inaccuracies concerning the firm’s fund managers, Jay Modi’s experience, and the compensation received by Singh. These misleading statements played a significant role in deceiving investors about the true state of OmniArch’s business operations.
Legal Proceedings and the ASC Settlement
Following the allegations, the ASC initiated legal action against the company and its directors. On May 19, 2017, the ASC issued an order that cease-traded OmniArch Capital, barring the company from any further securities trading activities. Additionally, Jay Modi, Arti Modi, and Rajeev Singh were prohibited from serving as officers or directors of any related entity, including LendingArch Financial Inc.
The legal proceedings continued with a hearing date set for May 22, 2019. However, on May 13, 2020, the ASC concluded a Settlement Agreement and Undertaking with Jay Modi, Arti Modi, Rajeev Singh, and other involved parties. In this settlement, the respondents admitted to breaching Alberta securities laws by making misleading statements and failing to provide all the required facts to investors. They acknowledged that these misrepresentations could reasonably be expected to have a significant effect on the market price or value of the investments.
A crucial revelation from the settlement agreement was that investors were not informed about OmniArch’s practice of making loans to related parties. Moreover, the company’s promotional materials misrepresented the experience and capabilities of Jay Modi and the fund managers, misleading investors into believing their funds were being managed by seasoned professionals when this was not the case.
Financial Penalties and Restrictions
As part of the settlement, the respondents agreed to pay the ASC a total of $795,000 in penalties. Additionally, strict prohibitions were imposed on the individual respondents:
- Jay Modi: Prohibited from trading in or purchasing securities, acting as a director or officer of an issuer, and participating in other aspects of the securities industry for 20 years.
- Arti Modi: Subject to similar prohibitions for 10 years.
- Rajeev Singh: Banned from these activities for three years.
The corporate respondents, including 982 Media House Inc., 1611385 Alberta Ltd., OmniArch Capital Group Inc., OmniArch Ventures Inc., OmniArch Global Bond Corp., 1505106 Alberta Ltd., 1502631 Alberta Ltd., and LendingArch Financial Inc., also agreed to permanently refrain from engaging in specific securities activities. These measures underscored the serious consequences of violating securities laws and demonstrated the ASC’s commitment to upholding market integrity.
The Aftermath: Investor Losses and Legal Recourse
The aftermath of OmniArch Capital’s deceptive practices resulted in substantial financial losses for many investors. The company’s leadership misled investors by painting a false picture of its operations and the safety of their investments. Cynthia Campbell, Director of Enforcement at the ASC, emphasised that “Investors need to know that they can trust and rely on the information they are given.” She added that overstating management’s financial knowledge and failing to adequately disclose how investor funds would be used were serious breaches of trust.
The ASC’s investigation concluded that the respondents acted contrary to the public interest and violated several sections of the Alberta Securities Act. However, the settlement agreement provided a resolution to the matters outlined in the original Notice of Hearing, leading to the cancellation of the hearing scheduled for June 1, 2020.
In a separate proceeding related to OmniArch’s filing for creditor protection under the Companies’ Creditors Arrangement Act (CCAA) in July 2016, the Court of Queen’s Bench approved a Plan of Arrangement aimed at increasing recoveries for creditors, including investors. This plan included a repayment schedule and other compensation methods, which were considered by the ASC in determining the terms of the settlement agreement.
OmniArch Capital’s Case: Broader Implications and Lessons
The OmniArch Capital Corporation case serves as a crucial lesson for both investors and financial regulators. For investors, the importance of conducting thorough due diligence before investing cannot be overstated. While high returns may be tempting, understanding the associated risks and scrutinising the track record and credibility of fund managers is essential.
For financial regulators like the ASC, the OmniArch Capital case highlights the need for continued vigilance in monitoring financial markets and enforcing securities laws. The ASC’s decisive actions in this case reflect its commitment to protecting investors and fostering a fair and efficient capital market in Alberta.
The settlement agreement reached with the respondents sends a clear message to other market participants: misleading investors, misrepresenting professional qualifications, and engaging in undisclosed related-party transactions will not be tolerated. The substantial financial penalties and long-term prohibitions on participation in the securities market act as a deterrent against such behaviour.
Conclusion
The saga of OmniArch Capital Corporation is a sobering reminder of the consequences of corporate mismanagement and investor deception. While the penalties and prohibitions imposed by the ASC provide some measure of justice for affected investors, the financial and emotional toll on those who trusted OmniArch with their hard-earned money cannot be fully quantified.
As the financial landscape continues to evolve, cases like OmniArch Capital emphasise the importance of transparency, accountability, and ethical conduct in the investment industry. For the Alberta Securities Commission and other regulatory bodies, the focus remains on ensuring that capital markets operate fairly and efficiently, safeguarding the interests of all market participants.
For investors, the lessons learned from OmniArch Capital should serve as a guide for future investment decisions. Understanding the risks, scrutinising investment offerings, and relying on factual, accurate information are essential steps to protect one’s financial future.
