Litigation Brief

Alberta Securities Commission imposes highest-ever penalty

The Alberta Securities Commission has assessed $4 million in penalties against David Greene and John Jenkins, two insiders of Nevada-based Gold-Quest International Corp. (“Gold-Quest”). The penalty, reported as Gold-Quest International Corp., Re, 2010 ABASC 278, is the highest ever imposed by the Alberta Securities Commission.

Between 2006 and 2008, Gold-Quest raised US$29 million from investors, using both a Ponzi scheme and pyramid scheme, promising investors annual returns of 87%. It also illegally traded in and distributed its shares in Alberta in contravention of the Albert Securities Act, R.S.A. 2000, c. S-4.

The Alberta Securities Commission found that Greene was the guiding mind of Gold-Quest and Jenkins played a significant role in administering the scam and luring in investors. Millions of dollars from investors in Gold-Quest was transferred to Greene’s and Jenkins’s personal accounts to pay for personal items including cars, golf clubs, hotels and restaurants.

As a result of the central roles played by Greene and Jenkins and the egregious nature of their misconduct, the harm done to Alberta investors and to the integrity of the capital markets in Alberta, a penalty of $2 million each was assessed against Greene and Jenkins. Greene, Jenkins and Gold-Quest are also the subject of several SEC enforcement actions with respect to investments by American investors.

To read the full penalty decision of the Alberta Securities Commission, click here.

To read Hakemi & Company's summary of the first part of the hearing, click here.

Misrepresentation of investment guarantees and interest rates will lead to penalty

In 1205676 Alberta Ltd., Re, 2010 ABASC 237, several Alberta companies and individuals (“Respondents”) were associated with a company operating as Front Row Tickets (“Front Row”) that bought and re-sold large blocks of concert tickets. Front Row, through the Respondents, solicited $40 million in loans from investors. The Alberta Securities Commission found that some of the Respondents illegally traded and distributed securities of Front Row, misrepresented investment guarantees and interest rates to investors, and engaged in conduct contrary to the public interest. A penalty hearing is schedule next month.

To read the full decision text click here.

Alberta Securities Commission finds Hav-Loc statements were misleading

In Hav-Loc Private Wealth Partners Inc., Re, 2010 ABASC 225, Hav-Loc Private Wealth Partners Inc. (“Hav-Loc”), and its president, CEO and sole director, Thierry Gevaert, were found to have made misleading and untrue statements to investors while selling securities. In this proceeding, the Alberta Securities Commission considered the appropriate sanctions and penalties under the Alberta Securities Act, and ordered that each of Hav-Loc and Gevaert cease trade in all securities for five year (except personal trading by Gevaert) and jointly and severally pay a $15,000 administrative penalty and $2,000 in hearing costs. It also prohibited Gevaert from acting as a director or officer of any issuer for five years.

To read the full decision, click here.

Alberta securities firm agrees to pay $40,000 fine for illegal distribution of securities

Hallett Financial Services Ltd. and its principal, Phillip Hallett, have agreed to pay a $40,000 fine as part of a settlement agreement reached with the Alberta Securities Commission over the illegal distribution of securities. The firm sold fixed rate term notes to Alberta investors without being registered and without issuing a prospectus to investors. They raised $1.3 million in the illegal distribution. 

Educational seminars found to be regulated "advice" under the Securities Act

In Kustom Design Financial Services Inc., Re, 2010 ABASC 179

, the Alberta Securities Commission took evidence on Staff's allegations that all Respondents had violated securities laws by illegally trading and distributing securities, and that two Respondents had acted as advisors without being registered to do so.

Kustom put on educational seminars to train the public on the "Biblical principles of finance," and promoted investment in one of the Respondent enterprises, receiving substantial referral fees for doing so. People could also invest directly in Kustom, which would pool the money and then loan it out. Kustom would assist clients in finding money to invest, such as by showing them how to take out loans against a pension. Investors were unsuccessful in attempts to retrieve their principle from either Kustom or from the companies to whom Kustom loaned pooled money.

The Commission found that the people giving money to Respondents were investing in securities, and that Respondents did not follow the registration and prospectus requirements under the Securities Act. The Commission also found that the information given to clients came with assurances of quality which brought the dissemination of that information under the definition of "advice" under the Act, and that the advisors lacked required registration. These actions were deemed to be contrary to the public interest. A schedule was entered on the matter of sanctions and costs.

To read the full decision, click here.

Receiver appointed in Canada's largest Ponzi scheme case

An Alberta court has appointed a receiver over Gary Sorenson's companies to ensure the remaining assets are not wasted or liquidated. Mr. Sorenson was charged last year, with Milowe Brost, for his involvement in an alleged $500 million Ponzi scheme that allegedly bilked more than 3,000 investors in Canada. The alleged Ponzi scheme is the largest in Canada. In 2007, the Alberta Securities Commission fined Mr. Brost $650,000 for various violations of the Alberta Securities Act and cease traded his company, Capital Alternatives Inc. 

Alberta Securities Commission clamps down on misuse of private issuer exemption

The Alberta Securities Commission has found that executives in The Hear Now Incorporated (“THN”) had breached the Alberta Securities Act, R.S.A. 2000 c. S-4 (the “Act”) by making prohibited representations to investors and by conducting trades without the requisite registration or exemption.

THN sought to use the “private issuer” exemption from the registration and prospectus requirements, which is available for distributions of securities to an aggregate of not more than 50 investors.  The plan was to keep the number of direct THN shareholders below 50, regardless of how many investors were actually involved through the intermediate companies. While those ultimate investors were, technically, purchasing shares in an intermediate company, the subscription money was used by that intermediate company to purchase an equal number of shares in THN.  In a decision reported as Wilby, Re, 2010 ABASC 121, the Commission held that this investment structure was wholly inconsistent with the purpose and spirit of the private company exemption, breached the terms of the exemption, and was clearly contrary to the public interest.

The Commission also examined the financial forecast outlined in a letter sent to “potential investors”, and concluded that it was unjustifiably optimistic.  Although Commission Staff did not take the position that the executive signing the letter intended to mislead, and the executive claimed he signed the letter without reading it, the Commission found that the executive ought to have known that the contents were misleading and by signing it, he made “it his statement to the addressee ‘potential investors.’” The Commission accordingly held that the THN executives had contravened the Act, and set a schedule for submissions on sanctions.

To read the full Commission decision, click here.

Alberta Securities Commission finds deficient disclosure violated securities laws

The Alberta Securities Commission has rejected arguments that deficiencies in certain public companies disclosure were mere “technical defects”.

Commission staff alleged the two corporate Respondents contravened Alberta securities laws by failing to file, or by filing deficient, continuous disclosure.  Staff further alleged the president of one of the corporate respondents, McLeod, was responsible for these deficiencies. The corporate Respondents argued that to the extent the filings were deficient, they contained mere “technical defects.”  In Flag Resources (1985) Limited, Re, 2010 ABASC 143, the Commission rejected this argument, stating, “We cannot overemphasize the importance we place on reporting issuers' scrupulous compliance with all continuous disclosure reporting obligations.”

Alberta securities commission rules RCMP documents not disclosable

 The Alberta Securities Commission has ruled that it has no statutory authority to direct investigations undertaken by Commission staff or to compel staff to obtain documents and other information held by third parties. 

The decision arose because an Alberta oil and gas company, Arbour Energy Inc. and its president, Dennis Morice, applied for an order compelling staff of the Alberta Securities Commission to obtain and provide to them material in the possession of the RCMP related to charges against Milo Brost and Gary Sorenson.

Alberta Securities Commission clarifies definition of illegal "advising" and dismisses some allegations

The Alberta Securities Commission has clarified the definition of illegal “advising”, and found that the Respondents made misleading statements to Alberta investors.

In Hav-Loc Private Wealth Partners Inc., Re, 2010 ABASC 43, Commission Staff commenced proceedings against Hav-Loc Private Wealth Partners Inc. (“Hav-Loc”), an Alberta company, and Thierry Gevaert (“Gevaert”), a resident of Ontario, who had served as Hav Loc’s president and chief executive officer.  Neither Hav-Loc nor Gevaert had ever been registered under the Securities Act, R.S.A. 2000, c. S-4 (“the Act”) in any capacity.  Instead, Hav-Loc was at one time registered as a “limited market dealer” and Gevaert to sell mutual fund securities, but neither registration was active during the time period relevant to this proceeding. Gevaert reported Hav-Loc had become a shell of a company, indebted but without income or assets. Both Hav-Loc and Gevaert were alleged to have (1) performed illegal “advising” and (2) made misleading statements to Alberta investors.