"Too Good To Be True" Returns: Ontario Judge Orders Ponzi Investors To Repay Profits

Ontario's Superior Court of Justice has released an important decision in the bankruptcy of Hamilton resident Douglas Grozelle, who ran a large Ponzi scheme disguised as a high‑yield real estate lending business.¹ The ruling matters for anyone in Ontario who makes private investments or high‑interest loans, especially where returns seem unusually good.

Background

Grozelle raised money from 236 investors by promising short‑term "bridge loans" on real estate with fast repayment and very high returns. There were no real bridge loans or business profits as Grozelle simply used new investors' money to pay "interest" and "profits" to earlier investors. Over $103 million flowed through his accounts between 2021 and 2023, and the scheme collapsed when he could no longer bring in enough new funds to satisfy existing investors. When the scheme stopped, 116 investors were left out‑of‑pocket by about $24.6 million, while 120 "net winners" had recovered all of their capital plus roughly $21.6 million in profit. Those profits ranged from modest returns to eye‑watering gains of up to 6,700% on principal. Grozelle went into receivership and then bankruptcy, and he and others now face criminal charges.

The central issue in the bankruptcy was whether net winners could keep their profits while others recovered only a fraction of their original investments. The court‑appointed bankruptcy trustee, Grant Thornton, asked the court to order winners to repay only their profits, i.e., the amounts they received over and above what they invested, so those funds could be shared among the net losers. The trustee did not seek to claw back capital; winners would still be ahead of those who lost principal.

Decision of the Court

The court agreed and held that Grozelle operated a fraudulent Ponzi scheme that was legally insolvent from day one. In that context, every profit payment to winners was a "fraudulent conveyance" under Ontario's Fraudulent Conveyances Act, because it was made with intent to "defeat, hinder, delay or defraud" other creditors. The judge emphasized that in a Ponzi scheme, there is no need to prove fraudulent intent separately for each payment; the structure of the scheme itself allows the court to infer that all such profit payments were made with that intent.

Many investors relied on promissory notes that appeared to promise high but fixed returns for short terms. The court found those notes were largely useless as legal protection, as most were incomplete, unsigned, internally inconsistent, or promised criminally high (usurious) rates once annualized (up to 18,250% in some cases). Payments to investors bore little relationship to the notes' terms and instead depended on what cash Grozelle had available when investors demanded money. The court treated the notes as marketing props rather than genuine evidence of a legitimate business and held that they did not justify keeping profits.

Practical Takeaways for Investors

The decision confirms that in a Ponzi scheme, there is no "good consideration" or "good faith" defence to keeping profits. While many investors were innocent and unaware of the fraud, the court found that no one provides real value in exchange for profits that are simply paid out of other victims' capital. Innocent investors can keep their principal, but they cannot reasonably expect to keep gains that depend on others' losses.

For Ontario retail investors, the lessons are clear. Extremely high, "too good to be true" returns combined with vague or inconsistent explanations should trigger serious caution. Fancy‑looking promissory notes are not a guarantee of safety, especially if the underlying business model is opaque or implausible. And if an investment later turns out to be a Ponzi scheme, even innocent investors who came out ahead may face demands to return their profits so losses can be shared more fairly among all victims.

If you wish to pursue an investment-related civil claim arising from breach of contract, unjust enrichment or fraudulent misrepresentation, please contact Unwana Udo to discuss and assess your options.

Footnote

1. In the Matter of the Bankruptcy of Douglas Grozelle, 2026 ONSC 758 (CanLII)