by Jason Rosen

by Kevin Hong

Commentary, CRA Articles, TaxAugust 5, 20211 comment

Mark Laurin and My Private Circle

Previously, we wrote about Mark Laurin, CPA, and his involvement with the Edge Software, Edge of Command, Highshare, SecureShare, Advanced Cloud Solutions Inc. (“Edge”) investment. Our earlier blog posts can be found here and here. This blog post seeks to highlight Mr. Mark Laurin’s new business venture, My Private Circle (“MPC”).

Edge Franchise Dispute

In summary, Edge was marketed to investors as a cloud-based software business that would be offered to small businesses domestically and abroad. Investors had the opportunity to invest in Edge thus providing themselves with franchise(s) from the business. By investing in Edge, investors expended their personal funds by paying an up-front cost and all of whom executed promissory notes for significant funds. These up-front costs and promissory note amounts varied depending on which year an individual invested, and in which form of the business they invested in for that respective year. Upon paying the up-front expenses and executing the promissory notes, the investors obtained certain rights and requirements.

Based on the above, investors claimed corresponding capital cost allowance (“CCA”) deductions on their tax returns along with other expenses including marketing expenses, publicity expenses, interest expenses, among others, depending on the investment year.

Unfortunately, based on the structure of the transactions and the tax treatment of the deductions claimed, the CRA alleged that Edge was a tax shelter, that the proper forms should have been filed, and that all of the deductions claimed by the investors associated with Edge were improper.

As a result, all of the deductions claimed by the investors on each of their tax returns were disallowed in their entirety. The CRA assessed gross negligence penalties on the amounts disallowed and opened tax years that were statute-barred due to the alleged misrepresentations.  Due to these situations, our firm has been representing 20+ Edge franchisees through the CRA Audit Division and CRA Appeals Division process, most of whom now find themselves before the Tax Court of Canada. Due to our experience that the CRA Appeals Division is not able to be impartial or independent in group audits like the CRA’s audit of the Edge investments, we have fast tracked our clients to the Tax Court of Canada to have their matters heard before an independent and impartial third-party reviewer. Unfortunately, those Edge franchisees who are not represented by us remain at the CRA Appeals Division awaiting Appeals Officers to be assigned. In our experience with these situations, it could take up to two (2) years for the same.

Our memorandum detailing the highlights of the dispute process for the Edge franchise can be found here.  

My Private Circle

Sometime in 2016, several Edge franchisees received a letter from the Surete du Quebec – Criminal Investigation Branch stating that an on-going fraud and police investigation has been launched in regards to the Edge of Command and Edge Highshare Franchises.

The letter further stated that since the 11^th of March 2016, bank accounts used to deposit, directly or indirectly, cheques from franchisees have been frozen by court orders. This was supposedly to protect franchisees from depositing further funds into a fraud scheme managed by Mark Laurin and associates.

Following this investigation, it has come to our attention that Mark Laurin has commenced a similar business venture under the name My Private Circle.

Among other services, MPC alleges to offer the following:

• Send & Receive Secured E-mail and SMS;
• Secure File Exchange & Encrypted Cloud Storage;
• Full Management Control;
• Secure Chat, Voice & Video Calls;
• Delivery/ Read Status & Message Destruction;
• Choice of Server location;
• Private Server Licensing;
• Real-Time Translation; and
• Account Authentication by E-mail.

If this product offering seems familiar for some readers, that is because the Edge investment also focused on offering integrated monitoring, data management and backup & recovery solutions for the small business market. Indeed, MPC’s website under the tab “All Features” states that the following:

“MPC is a Secure Global Communications Hub for business and professionals to easily and efficiently collaborate with colleagues and clients.”

Importantly, you will notice that MPC’s home webpage has their address as the following:

1060 Guelph Street,

Lower South Unit,

Kitchener ON N2B 2E3

This is the same address listed on the SecureShare homepage website. Furthermore, Mark Laurin is the director for both corporations and the MPC transmission slips note to courier all documents to Advanced Cloud Solutions Inc.

Similarities Found in Edge and MPC Disclosure Documents

In their disclosure documents, MPC claims that their product portfolio “seamlessly integrates” file/photo transfers, voice/video/test messaging as well as other functions revolving protection of privacy.

Furthermore, it claims that “flexibility is the key to MPC Product Portfolio in terms of product and price.” It goes on to list the different product offerings including MPC personal account, MPC – personalized (small business edition) and MPC – personalised (Enterprise Edition).

This language is strikingly similar to the statements found in the Edge Disclosure Agreement. In particular, the Edge disclosure document also states that “Edge Solutions seamlessly integrate productivity monitoring, digital backup and recovery, advanced file management functionality and other functions. It also states that “flexibility is key to the EDGE advantage in terms of product and price” and then proceeds to list the various product offerings of Edge.

In other words, the MPC disclosure statement replaced the Edge “storage” functions and offerings with the supposed MPC “security” functions and kept the other language the same.

That said, arguably the most salient similarity between the MPC and Edge disclosure statements can be found in the “Earnings and Operating Cost Projections for the Franchise”. Rather than providing any actual historical data or sales figures, both disclosure statements proceed to state the following:

One question you are probably asking yourself is, “How much money can I expect to earn as a Franchisee? There are many variables and factors that make it impossible to answer that question with any certainty.

Without making any specific projections or forward looking information, the Franchisor expects that recruiting Partners and Resellers within the Franchisor’s Territory will significantly increase potential sales. Furthermore, the Franchisor recommends the hiring of an experienced, professional manager to oversee the commercialization of the (MPC Product Portfolio or Edge Solution).

Potential Audit

Based on the above, and the government’s pursuits thus far, if you are a franchisee or investor of MPC, there is a high probability that your tax returns will be audited by the CRA in the future for the years in which you claimed deductions related to your investment with MPC.

Indeed, the costs relating to becoming a franchisee of the MPC business remain the same as Edge. In particular, franchisees are expected to paying for initial franchise fees, license fees and marketing costs all of which they claim can be deducted.

While we cannot say for certain, it is likely that the CRA will take issue with the deductions and will deny the same while imposing gross negligence penalties on the investors, as they did with Edge.

If you invested in MPC or Edge, or are being audited by the CRA, call us today for more information about how we can help.

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.