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Alleged securities fraudsters can be charged in U.S. but free to conduct business in B.C.

And, whether a convicted international fraudster can conduct business in the province depends on if the B.C. Securities Commission files for a reciprocal order against them — that's not always a sure thing
Vancouver-based marijuana stock promoter Avtar Dhillon has been charged with securities fraud, conspiracy and obstruction.

After Canadian and former Vancouver resident Avtar Dhillon was arrested in California last August on criminal and civil securities fraud charges, temporary trading orders were placed on him and his American bank accounts were frozen by the U.S. Securities Commission (SEC) via a federal court application.

Yet Dhillon, or any other person facing fraud charges and market bans from the SEC, remains free to conduct business in British Columbia’s capital markets.

When applying for orders against Dhillon, the SEC made clear to the court he was a risk to the markets and it even cited a Vancouver-area cannabis company Dhillon was in charge of.

“Dhillon remains in positions of authority in several related publicly-traded companies. He is currently the executive chairman of Emerald Health Therapeutics, Inc., a publicly traded cannabis company that is currently raising money,” stated the SEC.

“Dhillon’s influence over these companies that are currently selling securities to the public poses the threat that he will misuse his authority to commit securities fraud, as he did when he was the chairman of Arch, Stevia/Vitality, Oncosec Medical Incorporated (“Oncosec”) and Inovio Pharmaceuticals, Inc. (“Inovio”),” the commission added, citing Dhillon’s U.S. public companies under examination in a massive, alleged securities fraud scheme orchestrated from Vancouver via a network of offshore shell companies that transacted more than $1 billion worth of shares in hundreds of public companies spanning a decade.

While Dhillon quickly resigned from Emerald Health Therapeutics following his arrest, he was not compelled to. Nor is there any ruling from the B.C. Securities Commission (BCSC) that would stop Dhillon from steering B.C.-registered companies — although practically speaking, he must remain in his home monitored by a GPS ankle bracelet and has surrendered his passport.

Dhillon has pleaded the Fifth Amendment — his right not to self-incriminate himself — in the commission’s case against him and is presumed innocent if and until the court rules on his case. A parallel criminal case brought forth by the U.S. Department of Justice following a Federal Bureau of Investigation probe has yet to proceed.

Furthermore, in a circumstance where one is found guilty of securities fraud, or any other stock offense, in a U.S. court and is subsequently banned from participating in the U.S. stock market, the BCSC has no avenue to automatically reciprocate those orders. Theoretically, a convicted fraudster can come to Vancouver and promote stocks — at least until the commission’s executive director becomes aware of such activity and, pending any determination of risk, applies to a commission panel for its own bans against the fraudster.

And it was only in March 2020 that such circumstances applied to out-of-province Canadian securities violators. Until then, the BCSC did not have automatic reciprocal orders against those found to have violated laws in other provinces (Canada has no federal securities regulator; rather, it is a mishmash of provincial regulators).

“For orders issued by another Canadian jurisdiction prior to March 2020 that we wish to reciprocate, as well as orders issued by a self-regulatory organization, a court or a foreign regulator, we are required to make an application,” stated BCSC spokesperson Elise Palmer via email.

“The BCSC is unable to issue a reciprocal order based on mere allegations from a law enforcement agency or securities regulator,” noted Palmer of cases before the court, such as with Dhillon.

Palmer noted there is “no registry that comprehensively tracks the movement or business activity of Canadian citizens or permanent residents, including those who have been disciplined by a Canadian securities regulator.”

“When the BCSC becomes aware that an individual who is subject to orders of another securities regulator is residing in B.C. or may be engaged in the investment market in B.C., it considers making an application under [the B.C. Securities Act],” stated Palmer.

And so, a fraudster could slip under the radar if the commission is not aware of them.

In the case of convicted fraudster Aly Mawji, it took the commission seven years. Mawji was a Vancouver-area resident convicted of illegal market manipulation (pump and dump) in 2012 in Germany, who was issued a 38-month prison sentence.

Mawji was released from prison in 2013 and returned to B.C. He subsequently started a consulting business for public companies and in November 2018 was among a group of respondents, known as the Bridgemark Group, facing a hearing for alleged stock offenses.

Mawji was dropped as a respondent but his business partner Anthony Jackson, principal of Bridgemark Financial faces a hearing for insider trading this November. Mawji was dropped as a respondent after the BCSC issued a permanent all-encompassing market ban on him in a February 2020 reciprocal order. However, even the Ontario Securities Commission was quicker to the punch, issuing a ban in December 2019.

A lack of a registry and depending on word of mouth, or awareness, could explain the seven-year delay to expel Mawji from B.C.’s markets, putting aside the fact his high-profile case had B.C. connections and his name would have appeared in filings with the commission for years.

In another case that exemplifies delays in reciprocating, the BCSC banned Benjamin Thompson Kirk from various market activities in January 2021, six years after he came to a settlement agreement and undertaking with the Alberta Securities Commission. Kirk happens to be among 13 B.C. residents, including Dhillon, who are charged with securities fraud by the SEC in the alleged scheme orchestrated by former Vancouver lawyer turned offshore shell facilitator Fred Sharp. The SEC complaint concerns his activity as a Sharp network client between 2011 and 2016.

Glacier Media reached out to BCSC CEO Brenda Leong for comment on the matter of oversight of U.S. and other international fraudsters; however, she declined an interview.

The Ministry of Finance stated the BCSC is not prevented, on a case-by-case basis, from making reciprocal orders in the public interest to prevent a person who has been found guilty of violating securities laws in an international jurisdiction from engaging in the capital markets here.

“Though the BCSC has a good working relationship and track record of open communication and collaboration with other international regulatory bodies, consideration by the BCSC of the securities law framework in B.C. and the B.C. public interest is an important component that ensures B.C.’s reciprocation of orders made in foreign jurisdictions is fair and impartial.

“Given the similarity of securities laws across Canada and in consideration of the close collaboration and working relationship the BCSC has with other Canadian regulators, automatic reciprocation of orders was limited to Canadian provincial jurisdictions,” the ministry said.

The BCSC has issued 183 reciprocal orders since it began issuing them in 2008. Automatic reciprocal orders (available since March 2020) are not included in this total since they are issued by other provincial commissions.

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