It may be little consolation, but local investors with the now defunct company Pigeon King International may soon be getting some closure.
The company’s former owner, Arlan Galbraith, turned himself into police last week and was arrested and charged with fraud and violations of the bankruptcy act.
Galbraith, 62, is accused of conducting a pigeon breeding scheme in which over 1,000 investors, including many from Wellington County, lost millions of dollars.
Police allege Galbraith defrauded investors in the U.S. and Canada of more than $1-million between 2004 and June, 2008, when he declared bankruptcy and closed Pigeon King offices in Moorefield and Waterloo. However, it is estimated more than $20-million overall was invested in Galbraith’s company.
Police are also accusing Galbraith of failing to comply with bankruptcy regulations. More charges are not expected from the investigation, which was conducted by the Waterloo Regional Police fraud branch and the RCMP Kitchener detachment.
Galbraith appeared in court on Dec. 1 and was released on bail. His next court appearance is set for Jan. 25.
Questions arise
A letter to breeders from Galbraith in June 2008 stated the move to declare bankruptcy was motivated by several factors, including:
– rising fuel and feed prices;
– a slumping economy;
– government attempts to track down unpaid taxes from which he feels the company should be exempt; and
– a spiteful campaign organized by his critics.
However, speculation began about a year earlier that Pigeon King International (PKI) may in fact be a Ponzi scheme, defined as a fraudulent investment operation involving abnormally high returns paid to investors out of money paid by subsequent investors, rather than from revenues generated by real business.
In the first half of 2008, PKI was banned from conducting business in Washington, Maryland and Iowa, and had agreed with a South Dakota state attorney to stop its activities in that state as well.
American officials, including Iowa Attorney-General Tom Miller, questioned the validity of PKI’s business, specifically “whether there is a realistic and independent market for pigeons now and in the future.”
In Canada, the alleged scheme was first profiled in several print and on-line articles by Better Farming staff.
The pigeon scheme
PKI, which had several holding barns throughout central and northern Wellington County, would charge independent breeders up to $500 for a pair of breeding pigeons in return for a guarantee to buy back all their offspring for 10 years for about $50 each.
Many investors would buy 200 pairs of pigeons or more at a time, for a total investment upwards of $100,000. And some, impressed by an operation that appeared to be far more lucrative than traditional poultry sales, even transformed parts of their farm operation in order to breed pigeons.
PKI specialized in several different types of pigeons, including breeds designed for racing, showing and even young ones for eating. The latter is known as squab and considered by some to be a delicacy.
Galbraith often claimed, as he did on the PKI website, the goal was to “offer quality squab at a very affordable price on a massive scale,” which he said had never been done before. He also predicted avian influenza would destroy the North American chicken industry, and pigeons would take over the market.
Deception?
A common element of most Ponzi schemes is deceiving and preying on the naivete of investors.
Former PKI employee Bill Top, of the Drayton area, told the Wellington Advertiser in 2008 that Galbraith billed himself as a family man and touted his pigeon breeding company as a way to “save” family farms that were in financial trouble.
“I received hundreds of calls from Amish people crying on the phone because they’re worried about losing their farm,” Top said at the time, noting the issue divided many of those families.
Top quit his PKI position as a U.S. salesman in February of 2006 after he became suspicious about the abnormal growth of the company and its number of breeders.
In just six months, Top said he helped PKI grow from just seven U.S. breeders to about 135. He took great pride in his role in that growth, but said he began to wonder about the actual market demand for the pigeons. After repeated attempts to get an answer from Galbraith, Top said his boss finally came clean.
“I sat down with Arlan one day and he actually said, ‘I’m in the business of selling breeders,’” Top recalled.
Top resigned shortly thereafter and remained silent for some time, largely due to what he called “intimidating” threats of a lawsuit should he speak poorly of the company.
But having had his own family lose its farm under different circumstances, Top said he had to speak out with the hope of saving other families from the same fate.
“I’m just glad it’s over,” Top said in 2008. “The truth always comes out in the end.”
Bankruptcy
Shortly after Galbraith declared bankruptcy on June 18, 2008, he handed over financial information about PKI to Waterloo accounting firm BDO Dunwoody, which acted as bankruptcy trustee for the company. Documents revealed PKI was about $23.5-million in debt.
Of the 168 Canadian pigeon breeders cited, at least 15 were from Wellington County. There were over 300 American breeders listed. Also located within the county were seven of 12 Canadian barns rented by PKI, as well as the homes of at least 12 of the listed 16 company employees.
Total PKI liabilities based in the county (for breeders and rented barns) were over $1.3-million.
But Galbraith operated the business as a sole proprietor until 2007, so the list of total breeders and landlords in Wellington County is likely much larger.
