The following is the Council For the Executive director (BCSC Prosecutors) James Torrance and Mila Pivnenkos' suggested punishment for the only offence against the Securities Act they could find us guilty of "Distributing without a Prospectus" As we all know even this charge is a sham and never should have existed as we worked with three law firms to maintain compliance. In addition our pleas for help so as to avoid such contraventions but save the shareholders money amid a extremely bizarre set of circumstances that included Mr. Peter Harris's former boss at Mr. Klaus Glusing embezzling funds from the original company Spyru.
Regardless of these events BC Securities Commission arbitrarily decided that we were guilty by association and proceeded to railroad us when we went to then in order to maintain legal compliance and protect the investor. We even told the BC Securities Commission if we were in contravention of any part of the Securities Act we would pay any administrative fines applicable and step-down as directors, our sole concern was the continuation of the U-GO Brands Company we formed in order to save all the Spyru shareholders.
U-GO Brands before its demise at the hands of the BC Securities Commission was a successful venture with product over a few hundred retail store shelves on the west coast of North America. It had 30,000 stores waiting for its products to hit their shelves.
This is The Council for the Executive directors suggested punishment for "Distributing Securities without a Prospectus".
To sum up what could be confusing it entails $9 Million dollars in Disgorgement fees.
How is a $9 Million dollar Disgorgement order a just ethical and fair punishment when no Fraud was committed, nor was their any deception or profit from ill gotten gains on the behalf of U-GO Brands.
In the own words of the Council for the Executive Director the reason was that we called them criminals and were insulting, unwilling to co-operate and generally a threat to the integrity of the Securities market. We do not deny that we after enduring nine months of BCSC entrapment we became unwilling to co-operate and called them criminals.
They are criminals and our resistance stems from our willingness to stand up for our Civil rights not to be abused in a criminal manner and prosecuted on the testimony of lies.
What's a bigger threat to the integrity of the financial markets in BC? The fact that we tell the truth?
Or the fact that the BC Securities Commission will do whatever it likes with no regard for the law, including commit Perjury, Tampering/Withholding Evidence, Fraudulent concealment and Entrapment? You tell me who is the real threat to the integrity of the financial markets?
SPYru Inc., Paradox Distributors (1992) Ltd., Echo Partners Ltd., U-GO Brands Nutritional Products Inc., Peter David Harris, Lorne Neil Cire, Christopher Andrew Burke, Millard Michael Kwasnek, and Joseph Yvan JeanClaude Thibert aka John Thibert
(collectively, the Respondents)
SECTION 161 OF THE SECURITIES ACT, RSBC 1996, c. 418
SUBMISSIONS ON SANCTION
OF THE EXECUTIVE DIRECTOR
Mila Pivnenko Counsel for the Executive Director
James Torrance
British Columbia Securities Commission
PO Box 10142
1200 – 701 West Georgia Street
Vancouver, B.C. V7Y 1L2
Telephone: 604-899-6610
E-mail: mpivnenko@bcsc.bc.ca
jtorrance@bcsc.bc.ca
Peter David Harris Self-Represented
1285 Toovey Road
Kelowna, BC V1X 6R3
E-mail: p.harris@telus.net
Lorne Neil Cire Self-Represented
2721 Benedick Road
Kelowna, BC V1Z 1V1
E-mail: lcire9@gmail.com
Christopher Andrew Burke Self-Represented
235 Venus Road
Kelowna, BC V1X 1H6
E-mail: bk1092003@yahoo.ca
Millard Michael Kwasnek Self-Represented
659 Cook Road
Kelowna, BC V1W 4T4
E-mail: mkwasnek@shaw.ca
Joseph Yvan JeanClaude Thibert Self-Represented
aka John Thibert
1351 Springfield Road
Kelowna, BC V1Y 9S4
cjohnbear53@yahoo.ca
SPYru Inc. Self-Represented
P.O. Box 64
Providenciales
Turks and Caicos Islands
The Mansions – Unit 1204
Grace Bay, Providenciales
Turks and Caicos Islands
Paradox Distributors (1992) Ltd. Self-Represented
800 – 1708 Dolphin Avenue
Kelowna, BC V1Y 9S4
2721 Benedict Road
Kelowna, BC V1Y 9S4
Echo Partners Ltd. Self-Represented
PO Box 22137 Capri Center
Kelowna, BC V1Y 9N9
U-GO Brands Nutritional Products Inc. Self-Represented
PO Box 22136 Capri Center
Kelowna, BC V1Y 9N9
TABLE OF CONTENTS
Summary of Findings ...................................................................................................................... 1
Factors to Consider ......................................................................................................................... 1
Seriousness of Conduct ............................................................................................................... 5
Harm to Investors ........................................................................................................................ 6
Damage Done to Integrity of the Market .................................................................................... 6
Enrichment .................................................................................................................................. 6
Past Conduct ............................................................................................................................... 7
Mitigating Factor ........................................................................................................................ 7
Aggravating Factors .................................................................................................................... 7
Poor record-keeping and co-mingling of investors’ funds ..................................................... 8
Abusive and offensive correspondence................................................................................... 8
Obstruction of the investigation .............................................................................................. 9
Fitness to be a registrant ............................................................................................................. 9
Risk to investors and capital markets ....................................................................................... 10
Deterrence ................................................................................................................................. 21
Orders made by the Commission in Previous Cases ................................................................ 21
Appropriate Sanctions ................................................................................................................... 22
Administrative penalty .............................................................................................................. 26
Harris and Cire .......................................................................................................................... 27
Thibert and Kwasnek ................................................................................................................ 28
Burke ......................................................................................................................................... 28
U-Go ......................................................................................................................................... 29
Spyru ......................................................................................................................................... 29
Paradox ..................................................................................................................................... 29
Echo .......................................................................................................................................... 29
Orders Sought ............................................................................................................................... 29
List of Authorities ......................................................................................................................... 36 1
SPYru Inc., Paradox Distributors (1992) Ltd., Echo Partners Ltd., U-GO Brands Nutritional Products Inc., Peter David Harris, Lorne Neil Cire, Christopher Andrew Burke, Millard Michael Kwasnek, and Joseph Yvan JeanClaude Thibert aka John Thibert
(collectively, the Respondents)
SUBMISSIONS ON SANCTION OF THE EXECUTIVE DIRECTOR
SECTION 161 OF THE SECURITIES ACT, RSBC 1996, c. 418
Summary of Findings
1. In its findings dated July 7, 2015 (Findings), the Panel found that:
a) with respect to contraventions of section 61,
SPYru breached section 61 with respect to distributions totaling $1,347,000;
U-GO breached section 61 with respect to distributions totaling $636,000;
Paradox, Cire and Harris breached section 61 with respect to distributions totaling $834,000 of SPYru shares and Cire breached section 61 with respect to distributions totaling $27,500 of U-GO shares;
Kwasnek breached section 61 with respect to distributions totaling $238,000 of SPYru shares and $366,000 of U-GO shares;
Thibert breached section 61 with respect to distributions totaling $392,000 of SPYru shares and $27,500 of U-GO shares; and
Burke breached section 61 with respect to distributions totaling $65,000 of SPYru shares and $51,000 of U-GO shares.
b) each of Harris and Cire, as directors of SPYru, is liable under section 168.2(1) for the contraventions of section 61 by SPYru;
c) each of Harris, Cire, Kwasnek, Thibert and Burke, as directors of U-GO, is liable under section 168.2(1) for the contraventions of section 61 by U-GO;
d) each of U-GO and Harris is liable under section 168.1(1)(b) in respect four EDRs filed by U-GO; and
e) each of Echo, U-GO, Cire and Kwasnek contravened the Temporary Order.
Findings, 2015 BCSECCOM 277, para. 188
Factors to Consider
2. This case is distinct from other cases in that the Respondents have demonstrated that they refuse to be regulated by the Commission and are therefore ungovernable. The securities
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regulation system is premised on voluntary compliance. The Commission is not expected to, and cannot, monitor every transaction and every individual. The system requires individuals who are amenable to comply with self-regulation.
3. The Respondents, however, refuse to even recognize the authority of the Commission. This refusal to be regulated presents a direct, ongoing, serious risk to investors and capital markets. According to the Respondents, the Commission is corrupt, commits criminal acts and is in conflict of interest. Any investor communicating with any of these respondents would be told these opinions. The Respondents have published their views on a blog on the internet.
4. According to the Respondents, they are not bound by the Securities Act, RSBC 1996, c.418 (the Act). Therefore, they will deal with investors however they see fit. None of the safeguards in the Act would have any application to the respondents.
5. A capital markets system cannot function when participants refuse to even recognize the legitimacy of the system. When a participant publicly declares that they are not bound by a decision of the panel, that harms the reputation of B.C.’s capital markets.
6. The executive director alleged in the amended notice of hearing that the respondents were unfit to be involved in the securities markets. This allegation was set out at paragraph 35(p). The panel made its findings on this allegation at paragraphs 183 to 187. The panel agreed that the respondents, and Harris in particular, communicated with Commission staff, on multiple occasions, in an offensive and abusive manner.
Findings, para. 185
7. However, the panel found that the executive director "failed to show how the respondents’ engagement with Commission staff regarding enforcement efforts against the respondents relate to the allegation in the amended notice of hearing and render the respondents unfit to participate in the capital markets."
Findings, para. 186
8. The panel found that the conduct alleged related to the relationship between the Commission and the respondents, and was not related to investors or capital markets. The panel therefore declined to make an order in the public interest.
Findings, para. 187
9. The conduct of the respondents after submissions on liability were made goes beyond their relationship with the Commission. The content of their communication demonstrates that they will not be governed by the law in the capital market system nor will they be governed by the law in their relations and communication with investors. The respondents cannot function in the highly-regulated securities industry.
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10. Orders under sections 161(1) and 162 are protective and preventative, intended to be exercised to prevent future harm.
Streamline Properties Inc. et al, 2015 BCSECCOM 66, para. 6 (referring to Committee for Equal Treatment of Asbestos Minority Shareholders v. Ontario Securities Commission, 2001 SCC 37)
11. As set out in Asbestos, 2001 SCC 37, "the purpose of an order under s.127 [of the Ontario Securities Act] is to restrain future conduct that is likely to be prejudicial to the public interest in fair and efficient capital markets. The role of the OSC under s.127 is to protect the public interest by removing from the capital markets those whose past conduct is so abusive as to warrant apprehension of future conduct detrimental to the integrity of the capital markets."
Committee for Equal Treatment of Asbestos Minority Shareholders v. Ontario Securities Commission, 2001 SCC 37, [Asbestos] at para. 43
12. In Re Cartaway Resources Corp. 2004 SCC 26 (CanLII), in the context of the use of general deterrence in a Commission sanction, the Court found that "it is reasonable to view general deterrence as an appropriate, and perhaps necessary, consideration in making orders that are both protective and preventative." Further, the Court found that general deterrence was preventative.
Re Cartaway Resources Corp., 2004 SCC 26 (CanLII), paras. 60, 61
13. In British Columbia Securities Commission v. Branch, 1995 CanLII 142, Sopinka and Iacobucci, JJ., stated:
a) "Persons who carry on the business of trading in securities realize that the industry is heavily regulated and for good reason. It is a crucial part of our economy that is at stake." (para. 57)
b) "…t is widely known and accepted that the industry is well regulated. Similarly, it is well known why the industry is so regulated." (para. 58)
c) "…he effective implementation of securities legislation depends on the willingness of those who choose to engage in the securities trade to comply with the defined standards of conduct." (para. 59)
d) "…n a highly regulated industry, such as the securities market, the individual is aware, and accepts, justifiable state intrusions. All those who enter into this market know or are deemed to know the rules of the game." (para. 64)
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These comments are all consistent with the protective and preventative nature of sanctions in the highly-regulated securities industry.
British Columbia Securities Commission v. Branch, 1995 CanLII 142 (SCC), paras. 57,58,59,64
14. In Re Black, 2015 LNONOSC 85, the OSC noted that the role of the OSC is to impose sanctions that will protect investors and the capital markets from exposure to similar conduct in the future. (para. 91)
Re Black, 2015 LNONOSC 85
15. The OSC also noted that the future conduct to be restrained is any breach by the respondents of securities laws and any conduct contrary to the public interest, and "not solely the specific conduct for which the Respondents were convicted.
Re Black, above, para. 121
16. Further, "to limit restraints on future conduct to that which relates solely to the repetition of one or more specific incidents of misconduct resulting in criminal convictions would not achieve those purposes, particularly where the prior misconduct raises fundamental issues of honesty and integrity".
Re Black, above, para. 122
17. One factor the OSC considered in sanctioning the Respondents was that they demonstrated "a total disregard for and indifference to the findings of serious fraud by the U.S. courts…heir attitude with respect to the discharge of their responsibilities as officers and directors of public companies raises serious concerns in our minds relating to their future behaviour in Ontario’s capital markets. (para. 141).
Re Black, above, para. 141
18. While the liability findings of the Commission panel in the case at bar are different, the attitude of the Respondents and their disregard for the panel’s findings, jurisdiction or authority of the Commission itself, also pose on ongoing risk to investors and to B.C.’s capital markets.
19. For the purpose of the sanction hearing, the Executive Director has filed an affidavit of the investigator Lindsay Donders sworn July 31, 2015 which attaches:
Correspondence from the Respondents from the time submissions on liability were made to the present;
One civil statement of claim filed by the Respondents on March 5,2014 against the Commission and some Commission staff;
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One petition filed by the Respondents on June 30, 2015 against the Commission and some Commission staff, including the Chair of the Commission, General Counsel and the Executive Director; and
A "Blog" published on the internet by the Respondents.
20. The evidence attached to the Donders affidavit is consistent with evidence tendered at the hearing and demonstrates the Respondents publicly refuse to be regulated. In short, they cannot be governed by the securities regulator. Therefore, they pose an ongoing, serious risk to investors to capital markets. This evidence will be further addressed under the heading "Risk to investors and capital markets" which is one of the factors from Eron Mortgage.
21. In Re Eron Mortgage Corporation et al., the Commission listed a non-exhaustive list of factors relevant to making orders under sections 161 and 162 of the Act:
Re Eron Mortgage Corporation et al., [2000] 7 BCSC Weekly Summary 22
22. These factors are discussed below. Some of the evidence may apply to more than one factor.
Seriousness of Conduct
23. This Commission has consistently held that breaches of section 61 are inherently serious. The requirement to be registered when selling securities and to provide prospectus disclosure to purchasers of securities are two of the fundamental tenets of the Act. This provision is critical to ensuring investor protection and the integrity of capital markets because it ensures that investors get the information necessary for an informed investment decision.
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Streamline Properties Inc. et al, 2015 BCSECCOM 66, para. 11
Yan Zhu (aka Rachel Zhu), Guan Qiang Zhang and Bossteam E-Commerce Inc., 2015 BCSECCOM 264, para. 13
Harm to Investors
24. The Respondents’ misconduct has resulted in significant harm to investors. The investments in Spyru ($1,347,000) are lost, as Spyru has no current directors and is essentially defunct. It is unclear if the investments in U-Go ($636,000) could result in any benefit to the investors if handled by more capable hands than those of the Respondents.
25. None of the investors in Spyru or U-Go received any of their investment back.
Damage Done to Integrity of the Market
26. The Respondents’ misconduct damaged the integrity of the capital markets of British Columbia. The Respondents conducted unregistered distributions activities in BC for several years, funneling a portion of investors’ money raised for Spyru offshore, to Turks and Caicos and Klaus Glusing.
27. Such behaviour undermines the reputation of British Columbia as a safe place to conduct business.
Enrichment
28. The panel found that:
a) Harris and Cire received commissions and bonus shares of Spyru for raising funds for Spyru. Kwasnek, Thibert and Burke received bonus shares of Spyru for raising funds for Spyru;
Findings, paras. 25
b) Kwasnek, Thibert and Burke received cash commissions for raising funds for U-Go;
Findings, para. 26
c) Kwasnek received $36,559 in commissions for raising funds for U-Go;
Findings, para. 30
d) Thibert received $2,500 in commissions for raising funds for U-Go;
Findings, para. 31
e) Burke received $5,000 in commissions for raising funds for U-Go.
Findings, para. 32 7
29. The Panel but was unable to determine the exact amount of commissions that Cire received because of the Respondents’ poor record-keeping and commingling of investors’ funds with personal funds. However, Cire admitted that he received commissions for Spyru, and admitted to having received $5,000 in cash from U-Go that he called a director’s fee.
Findings, paras. 25, 28, 89 and 93
Exhibit 1-35 – Cire Transcript, p. 128, ll.8-22; p. 224, ll. 1-3
30. The evidence shows that Harris received $94,934 in commissions and salary (he admits to having received both commissions and salary of $3,790 per month).
Exhibit 1644 (BCSC2145), Chart – Payments to Harris
Exhibit 323 (BCSC498) – Harris Transcript, p. 169, ll. 13-19
Exhibit 1-35 – Cire Transcript, p. 130, ll. 21-23
Exhibit 334 (BCSC501) – Kwasnek Transcript, p. 100, l. 12 to p. 101, l. 4
31. The Respondents made profits from their illegal distributions by taking commissions and other payments. The evidence shows that each of the Sales Group members received payments and were, therefore, materially enriched by their misconduct.
Past Conduct
32. The Respondents do not have any past regulatory misconduct.
Mitigating Factor
33. Harris and Cire brought this case to staff’s attention in June 2013, when they filed a complaint alleging that Klaus Glusing had defrauded them.
Aggravating Factors
34. There are three aggravating factors in this case:
a) The Respondents’ poor record-keeping and co-mingling of investors’ funds with personal funds;
b) The Respondents’ abusive and offensive correspondence with the Commission;
c) The Respondents’ obstruction of the Commission in its investigation. 8
Poor record-keeping and co-mingling of investors’ funds
35. The Respondents commingled investors’ funds and had poor record-keeping, which resulted in unreliable and ever-changing records.
36. The panel found that "their poor record keeping and co-mingling of funds was significant", and stated that "poor record-keeping and co-mingling of funds are appropriate factors to be considered in the context of sanctions and a respondent’s fitness to participate in the capital markets".
Findings, para. 182
Abusive and offensive correspondence
37. The panel found that "the respondents, Harris in particular, have communicated with Commission staff, on multiple occasions, in a manner that is abusive and offensive".
Findings, para. 185
38. In Robert Waters, the panel found that:
26. Waters sent a number of threatening and abusive emails to the Commission in connection with the sanctions hearing. This conduct falls far short of the standards of behavior required of participants in the capital markets.
27. We find the above-described conduct and Waters’ past misconduct to be aggravating factors.
Robert Waters, 2014 BCSECCOM 369, paras. 26-27
39. The abusive and offensive correspondence with the Commission has continued since the oral hearing on liability. For example:
April 16, 2015 at 7:58 p.m.: Harris emailed COMMSEC and a secretary in the litigation group with a copy to the other respondents and Commission staff.
o "Just send us our penalty and stop this on going nonsense…"
o "You people are the Agency from Hell!"
Affidavit of Lindsay Donders, sworn July 31, 2015 (Donders affidavit), exhibit 12 (page 77)
April 17, 2015 at 7:16 a.m.: Harris emailed COMMSEC and a secretary in the litigation group with a copy to other respondents and Commission staff.
o "You Sir [referring to Torrance] are a disgrace to your profession…
o "Mr. Torrance, what you and your colleagues have done to the Respondents and our Shareholders, is immoral, non-ethical, cruel and just out-and-out mean!"
o "How the hell do you sleep at night?"
o "If we are as guilty as you say we are, why the hell would we be defending ourselves for the last 23 months?"
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Donders affidavit, exhibit 13 (page 79)
40. The Executive Director submits that the Respondents’ continued abusive and offensive correspondence to staff is an aggravating factor in this case that justifies a significant ban from the markets.
Obstruction of the investigation
41. The Respondents obstructed the Commission in its investigation at various points by refusing to appear for their compelled interviews and sending multiple emails to investors alleging improper conduct by staff. It is submitted that the emails to investors prevented or impaired Commission staff from obtaining full cooperation from some investors.
42. In Streamline, the panel held that "obstructing the Commission in its investigation could be a significant aggravating factor".
Streamline Properties Inc. et al, 2015 BCSECCOM 66, para. 27
43. The Executive Director submits that the panel in the case at bar should consider the Respondents’ obstruction of the investigation an aggravating factor.
Fitness to be a registrant
44. The Respondents refused to recognize the jurisdiction of the Commission or comply with its rules. The Respondents have sent multiple e-mails to the Commission before and after the hearing where they stated this. After the Findings were issued, they insisted that the Findings are "compromised".
45. The Commission is the agency responsible for the administration of the Act. One of the requirements of being a registrant under the Act is compliance with the requirements of the Act. Since the Respondents insist that they will not comply with the Commission, it means that they will not comply with the Act. They are ungovernable and consequently, unfit to participate in the British Columbia markets.
46. The Respondents commingled investors’ funds and had poor record-keeping. The panel found that "their poor record keeping and co-mingling of funds was significant", and stated that "poor record-keeping and co-mingling of funds are appropriate factors to be considered in the context of sanctions and a respondent’s fitness to participate in the capital markets".
Findings, para. 182
47. The panel stated that they had "a significant concern that there were personal expenditures of Cire that were paid from investor funds. However, we do not have certainty of the amount of investors’ dollar that flowed through these accounts. We do not have certainty about the amount of commissions that Paradox/Cire were entitled to."
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Findings, para. 169
48. The panel’s uncertainty about the amounts of money that were used for different purposes stemmed directly from the Respondents’ failure to keep proper records. Persons who want to be operating in British Columbia markets need to keep proper records of their activities and separate investors’ money from personal funds. The Executive Director submits that the respondents’ failure to keep proper records and separate investors’ money from personal funds makes them unfit to participate in British Columbia markets for a lengthy period of time.
Risk to investors and capital markets
49. The Respondents pose a serious, ongoing risk to investors and capital markets. The Respondents will make their own rules and will decide when and how they will be regulated. The Respondents have demonstrated that they:
Refuse to be regulated and are therefore ungovernable;
Believe the Commission operates outside the rule of law;
Will decide how to conduct their securities-related affairs;
Will attempt to politicize any grievance they have with the Commission;
Will attempt to contact Commissioners directly when it suits their purposes;
Will accuse Commission staff of criminality when they do not agree with Commission staff; and
Will harass COMMSEC until they get a decision.
50. In Streamline, the panel stated:
Recklessness or carelessness with respect to compliance with securities laws in the context of an illegal distribution also represent a significant risk to our capital markets. This Commission’s decision in Solara Technologies Inc. and William Dorn Beattie 2010 BCSECCOM 357 (para. 23) (also an illegal distribution case) stated:
"Although we did not find that Solara or Beattie knowingly contravened the Act, they were sloppy about ensuring that the exemptions were available. Their carelessness and demonstrated failure to ensure compliance with requirements when raising capital suggests the potential for significant risk to our capital markets were they to continue to participate in them unrestricted."
Streamline Properties Inc. et al, 2015 BCSECCOM 66, para. 33 11
The Respondents have started a "blog" which they use to tell investors and the capital markets their opinion of the Commission
51. The Respondents have started a "blog" under the internet address "bcsccriminalcharges.blogspot.ca". Both Harris and Burke have contributed to the blog. The Donders affidavit attaches a "screen capture" of the blog as of July 24, 2015 and a printout of the blog as of July 31, 2015.
Donders affidavit, exhibits 60 (page 274) and 61 (page 305)
52. The blog is a public internet forum through which the Respondents can publish material for investors and others in the capital markets to view. The material published on the blog is a public declaration of the opinions of the Respondents.
53. On the blog the Respondents have published correspondence with Commission staff including:
A letter dated February 19, 2014 (published on June 29, 2015);
A letter to the Commission Chair dated March 12, 2014;
A letter to outside counsel for the Commission regarding the BC Supreme Court civil suit;
A letter to David Thompson dated May 25, 2015;
Emails sent after July 7, 2015;
The daily count report – June 29, 2015.
54. The blog postings that demonstrate that the respondents are ungovernable include:
July 9, 2015 – email to COMMSEC from Burke (email dated July 8 at 1:43 p.m.)
o "We respectfully decline any comment or input on the aforementioned findings. As we have previously stated our position is that any ruling the BCSC makes is compromised as numerous Criminal Code breaches have occurred in the process of investigation in addition to Charter of Rights violations. The BCSC has continuously insisted that law does not apply to it. This is a brazen contravention of law itself as the Securities Act gives it no such right to commit such unlawful offences."
o "With all due respect to the panel on whom we place no blame we must continue with the Supreme Court injunction and criminal charges."
Donders affidavit, exhibit 60 (page 281) 12
July 9, 2015 – Burke authored a posting on the blog (which is the text from a letter emailed to various parties on July 11, 2015). Burke purports to respond to the July 9, 2015 press release by the Commission:
o "The Commission’s laws and rules are contrary to the rule of law and the Canadian Constitution. The B.C. Public deserves to know the truth about the agency responsible for overseeing a large part of the B.C. economy";
o Reference to the "Criminal Offences" committed by Commission investigators and litigators, including senior executives. Burke says they have clear evidence of "perjury, obstruction of justice, destroying a perfectly good start-up company and the hopes and dreams of 390 Canadian investors, withholding evidence, unlawful prosecution, libel and illegal private retirement trust accounts being frozen";
o An overview of the Petition to the Court;
o "We have been forced to study the law for ourselves and as we learn more, we find that the B.C. Securities Commission operates completely outside the rule of law with absolutely no justification for doing so";
o The Commission must "achieve its funding goals by creating complex regulations that need to be broken in order to levy fines and financial penalties to the unwary. The Commission calls this the cost of ‘Compliance’. This model is a clear conflict of interest and does the public no good…;
o "The BC Securities Commission insists this is to protect investors. However, regulations that restrict people from investing based on their financial assets (poor people not "qualified") in start-ups are ludicrous. These regulations inhibit the economy by stifling growth and development of new industries";
o "A more effective and pro-active way to regulate and protect the investor would be to monitor the money after the money is invested and to ensure that these funds are not misappropriated by the company involved. Stopping one from investing does not ‘protect’ them."
o "If the Commission really was concerned about the investor it would FOLLOW THE MONEY and put the onus on the corporations to be responsible for spending it";
o "…nstead, the Commission stops the money and limits the investors and stifles the economy, all the while perpetrating criminal acts in the guise of a public agency which is there to protect the Canadian citizens". 13
Donders affidavit, exhibit 60, (pages 278-9)
55. The July 9, 2015 postings were made after the findings of the panel. The response of Burke to the panel’s findings is to publicly state that the BCSC is in a conflict of interest and operates outside of the law.
56. What Burke has published on the blog is the vision of the Respondents for a new securities regime. The Respondents view is that the current Securities Act is unconstitutional, contrary to the rule of law, inefficient and unprotective of investors. These are all reasons the Respondents advance as to why they refuse to be governed or regulated.
The Respondents continued to attempt to correspond directly with panel members despite being told not to
57. The Respondents had been told, by COMMSEC, not to correspond directly with Commission panel members. However, both and Harris and Burke (with the knowledge of the other Respondents), attempted to communicate directly, via email, with Commission panel members. The Respondents knowingly did the exact opposite of what they had been told to do. The Executive Director is referring to these emails to demonstrate that the Respondents will not listen to directions from the Commission, will make excuses to justify breaking rules and are therefore ungovernable in the securities industry.
58. For example, on April 16, 2015 at 11:51 a.m., Harris emailed COMMSEC and Commissioner Ho with copies to the other Respondents and Ms. Pivnenko. The email starts "Good morning Ms. Ho, I respectfully apologise (sic) for my breaking protocol by contacting you directly."
Donders affidavit, exhibit 10 (page 69)
59. On April 22, 2015 at 7:07 a.m., Harris emailed COMMSEC and the other Respondents. The subject line is "This is mental cruelty and unbecoming practice by a Public Agency." The emails starts with "Dear Panel Members". Harris clearly intended the email be sent to the panel members because "we do not trust the Commission STAFF since they have lied to us so many times."
Donders affidavit, exhibit 18 (page 92)
60. On April 23, 2015 at 11:48 a.m., Harris emailed COMMSEC and "Neil" Cave. (Harris and Burke sent emails to "Neil" Cave who is a litigator in the enforcement division of the Commission. It is apparent, from the content of the emails, that Harris and Burke intended to send the emails to Vice Chair Cave as he has same surname as "Neil" Cave.) Copies were sent to the other Respondents, Commission staff and Commissioners Ho and Downes.
Donders affidavit, exhibit 20 (page 102)
a) The subject line of the April 23 – 11:48 a.m. email is "Impairment of Due Process (BCSC) – 680 Days – U-GO Brands Nutritional Products." The email is addressed to "Nigel P. Cave, Vice Chair, Executive Commissioner" and to
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"Audrey Ho, Commissioner; Judith Downes, Commissioner; Paul C. Bourque, Executive Director".
b) Harris acknowledges that he is "again" violating "the Commission’s protocol by my contacting you directly and copying your fellow Commissioners...". Harris says that "we do not trust the Commission’s Staff involved in our case file!" Harris further states that they have not received a "direct and honest answer from COMMSEC" that the panel has received Harris’ communication.
61. Other examples where Harris has included Commissioners Downes and Ho in the email addresses and included "Neil" Cave included a series of emails where Harris provided a "daily count" of the days from the time the Respondents first contacted the Commission to the date of the email. It appears the intent of these emails was to reduce the waiting time for the Respondents to receive a ruling from the panel. These emails included the following:
May 11 – 3:37 p.m.; May 12 – 3:03 p.m.; May 13 – 4:11 p.m.; May 14 – 2:36 p.m.; May 15 – 9:02 a.m.; May 19 – 4:35 p.m.; May 20 – 3:06 p.m.; May 21 – 2:26 p.m.; May 22 – 3:51 p.m.
Donders affidavit, exhibits 26,28,29,30,31,32,33,34,35 (pages 142– 152)
The Respondents requested political intervention and accused the Commission of criminal acts
62. The Respondent requested political intervention while waiting for the liability decision. This is further evidence that the Respondents were not content to allow the Commission hearing process to run its course. The Respondents conduct themselves according to their own views, and will continue to operate outside of the law.
63. On June 13, 2015 at 5:57 p.m., Harris emailed the Minister of Finance. Harris copied the premier of BC, other Respondents, Commissioners Ho and Downes, "Neil" Cave, the Executive Director and others. Just below the heading "attachments" is "Criminal Charges Filed, Case #2015-25-798, Wednesday June 3, 2015". This email attaches a letter to the Minister of Finance. Some excerpts from the letter include:
Refers to the Commission as "immoral, unethical, threatening, intimidating and vindictive";
Harris claims "every office involved in this matter is culpable as accessory to the criminal offences perpetrated by the Commission staff and that includes Ms. Leong, Mr. Thompson and Mr. Bourque, as they have been notified many times by us that the Commission is corrupt and violates every law on the books to make a case stick";
"These are very dangerous people to have as enforcement agents…; 15
"…e have filed criminal charges against the Commission, its employees and its executives. Rest assured, careers will fall for what these people have done to us and our shareholders";
Harris seeks compensation of $11,322,376;
Harris said that if the Minister’s office refused to intervene, "we will proceed with the Criminal charges and then we will seek punitive damages of $50,000,000";
Harris concludes by telling the Minister "if you so choose to not get involved, we will move forward to expose an illegal enforcement agency that operates beyond the rules of the law".
Donders affidavit, exhibit 38 (page 159)
64. On June 16, 2015 at 7:41 p.m., Harris emailed the Minister of Finance again. Copies were sent to the premier of BC, Commissioners Ho and Downes and Commission staff, among others. This email is a follow-up to the June 13 email.
"…e can only assume that upon your review of our email and letter, you have chosen to ignore our whistle blowing pertaining to an out of control, abusive and unlawful BC Securities Commission";
"With you or without you, we will us (sic) all the legal means at our disposal to insure that the BC Securities Commission never violate people’s rights again!";
Harris says the Minister and his department "oversee a corrupt and abusive" Commission;
Harris says that Minister has been made aware "of the serious criminal offenses perpetrated by the Commission’s staff…and if you do not intervene in this serious mater, the Courts of Laws may see your non-action as being complicit to the above said known criminal actions";
"…e are seeking $11,322,376 that the BC Securities Commission is directly criminally responsible for these actual financial losses to U-Go Brands Nutritional Products Inc., the U-GO Brands Investors, the SPYru Investors and the U-GO Brands Directors";
"… was wondering if we had donated $25,000 to your party, would you be ignoring us and our messages in regard to our being Wrongfully and Illegally Prosecuted";
Harris then sets out "Details of Criminal Charges Filed", and included the names of the people who allegedly committed the offences. These names include William Ting, Lindsay Donders, Teresa Mitchell-Banks, James Torrance, Mila 16
Pivnenko, Brenda Leong, Paul Bourque, Dave Thompson, Mike Dejong and Christy Clark.
o Count 1 – Breach of Trust by Public Officer;
o Count 2 – Perjury;
o Count 3 – Defamation and Libel;
o Count 4 – Accessory and Conspiracy;
o Count 5 – Fraudulent Concealment;
o Count 6 – Section 341 of the Criminal Code;
o Count 7 – Disobeying a Statute.
Donders affidavit, exhibit 39 (page 162)
65. On June 17, 2015 at 10:53 a.m., Harris emailed the Minister of Finance. Harris copied Commissioners Ho and Downes, "Neil" Cave, the other Respondents, Commission staff and others. Harris was resending the letter of June 16. Harris also states "I’m confident you are aware that about five years ago several Commission employees where (sic) sent to jail for criminal wrongdoing. The Criminal Court will take objection as to the Commission being a recidivist criminal organization, in other words the hammer is going to come down hard on you, your associates and the Commission employees."
Donders affidavit, exhibit 40 (page 170)
The Respondents accuse Commission staff and the Chair of criminality
66. In addition to the correspondence with politicians, further evidence of the Respondents refusal to be regulated and contempt for the Commission is in their accusations of criminality by Commission staff and the Chair of the Commission. The Respondents want investors and the capital markets to know that Commission staff are criminals.
67. For example, on June 12, 2015 at 3:33 p.m., Harris emailed the Commission Chair and COMMSEC (and Ms. Colter, an assistant in the litigation group). Copies were sent to the other Respondents, Commissioners Ho and Downes, "Neil" Cave, the Executive Director Paul Bourque, the Ministry of Finance and other Commission staff.
The subject is "Commission Executives refusing to deal with the Respondents";
"Dictatorships always fall hard!";
The email starts "Dear Ms. Leong";
Harris says that it is "unfortunate" that "Commission Executives are not proactive in wanting to fix a major illegal blunder on the part of the Commission when 17
facing adversity as a result of condoning unethical practices on the part of the Commission investigators and litigators";
"The complete refusal on the part of the Commission Executives to provide the Respoondents with the Panel’s decision …is a great injustice, malicious intent and very unprofessional, not to mention criminal";
"We guaranty you and promise you, that you Ms. Leong, your staff involved and the Commission will be held 100% criminally, legally and financially responsible for the unlawful prosecution that the Commission and its staff have perpetrated on the Respondents";
"Every day that goes by with the Commission Executives refusing to deal with the Respondents, is a show of complete contempt of private citizens and our shareholders. You people are not above the law, what goes around comes around! Dictatorships always fall hard!";
Donders affidavit, exhibit 36 (page 153)
68. On June 17, 2105 at 12:37 p.m., Harris sent copies of an email to the other Respondents, Commissioners Ho and Downes, "Neil" Cave, the Chair, the NDP Spokesperson for Finance, COMMSEC, Minister of Finance, Minister of Justice, the federal Liberal leader and the federal MDP leader, among others. The email attached an invoice to the Commission for $11,284,376. The email concludes "We all know that the Commission committed serious criminal offences."
Donders affidavit, exhibit 41 (page 179)
69. On June 17, 2015 at 3:14 p.m., Burke emailed the Commission Chair with copies to the other respondents, Commission staff and the Minister of Finance. The "Subject" was "Criminal Ongoings". Among Burke’s comments were:
"We have begun compiling (again!) a list of the crimes your agency has committed, names are matched with criminal offences…;
"Now I understand one might wonder why we are proceeding in such a manner when a decision for are (sic) case is (we are told) about a month away…imply put we do NOT TRUST the BCSC as it has given us every reason to be suspicious and wary of it";
"We have yet to witness your agency act in a fair and uncompromising manner";
"The following is a brief description of some of the criminal offences and parties involved"
o Perjury (Donders, Pivnenko, Torrance, Mitchell-Banks) 18
o Breach of Trust by Public Officer (Ting, Mitchell-Banks, Donders, Torrance, Pivnenko, DeJong, Christy Clark)
o Defamation and Libel (Donders, Mitchell-Banks, Ting)
o Accessory and Conspiracy (Donders, Torrance, Pivnenko, Mithcell-Banks, Brenda Leong)
o Obstruction of Justice (Donders, Mitchell-Banks, Pivnenko, Torrance, Brenda Leong)
o Misconduct of Officers Executing Process (Ting, Donders, Mitchell-Banks, Pivnenko, Torrance, Leong)
o Theft (Donders)
o False Pretence (Pivnenko, Donders, Mitchell-Banks, Torrance)
o Fraudulent Concealment (Torrance)
o Disobeying a Statute (Donders, Mitchell-Banks, Ting, Pivnenko, Torrance, Leong).
Donders affidavit, exhibit 42 (page 184)
The Respondents do not recognize the authority of the Commission
70. On June 18 at 4:30 p.m., Burke wrote a letter to counsel representing the Commission. It appears that Harris sent the email which contains Burke’s written content. The email also attaches a letter written by Burke dated June 18, 2015.
Donders affidavit, exhibit 44 (page 207)
71. The email includes the following (the letter contains the same content):
Burke alleges "bad faith" on the part of the Commission.
"In addition, we consider the very foundation of the BCSC to be arbitrary in nature. It does not operate in the best interests of the investors or the BC economy. The fact that the BCSC has to make rules and regulations that need to be broken to allow the BCSC to receive its funding does not sit in accordance with the rule of law as it is a clear conflict of interest."
"…n addition to Criminal Charges we intend to have the Commission examined with a Constitutional Challenge in the Canadian Supreme Court. The basis of the BCSC is in many ways without legal merit. No doubt Section 33 of the Canadian Constitution Act of 1982 will come to your mind but it is only applicable if "good faith" is clearly demonstrated. The Securities Act does not allow for criminal acts such as those that the BCSC has clearly committed against us; there are no 19
legislations that give the BCSC the right to operate in the manner in which it does."
Donders affidavit, exhibit 44 (page 207)
72. On June 21, 2015 at 3:15 p.m., Harris sent an email with copies to numerous people including Commissioners Ho and Downes, the Chair, the other Respondents, COMMSEC, "Neil" Cave, Commission staff, NDP MLAs, Suzanne Anton, Christy Clark and Justin Trudeau. The last paragraph concludes "[t]he Honorable (sic) Michael de Jong apparently is not concerned about criminal offences perpetrated by the Commission, a Public Enforcement Agency that in our view no longer has any credibility in the Market Place including in or out of Court."
Donders affidavit, exhibit 45 (page 213)
73. Of note in the June 21 – 3:15 p.m. email is the contact: John Thibert, Vice President Media Relations. This is further evidence that the Respondents are presenting a common position against the Commission.
74. On June 22, 2015 at 3:22 p.m., Burke emailed the Chair, Commission staff, the Minister of Finance and outside counsel for the Commission. The "Subject" is "criminal proof". Burke stated: "Hi Guys – Heard from your new lawyers he wasn’t sure you knew what happened he believes you have not breached any sections of the criminal code so thought I would share just one of dozens of breaches we can prove. We have tried to be cordial, we were first to admit mistakes we are done playing games."
a) Burke attaches to the email a combination of his own words, a portion of a hearing transcript, and a case note. Burke asserts that this "evidence" supports perjury charges against members of the Commission. Burke states that "this agency is corrupt with the exception of a very few all the way to the top, thats you Brenda. Again I must warn you that we will use every legal means to bring the BCSC down as it has seriously violated its mandate to serve the good people of British Columbia and act as a fair and just regulator of markets."
b) Burke continues "[a]s we can prove that the Commissions Lawyers and Investigator’s routinely lie in order to manipulate investigations in their favour we can also demonstrate bad faith through out the entire investigation and in the daily operations of the Commission as they purport to serve the BC public."
c) Burke further states the Commission has no authority over the Respondents: "In fact any ruling the Commission makes even if in favour of the directors of U-Go Brands has no legal validity whatsoever, the Commission has long ago compromised its position not only in our case but it is becoming evident in its standard operating procedure as it acts in an arbitrary manner that is a conflict of interest, this is in addition to having agents that perjure themselves on a regular basis therefore undermining any credibility, validity, or authority they may have had. Any decision rendered at the BCSC regarding the Spyru, U-Go Brands case 20
is rendered invalid as such and in accordance with the rule of law which governs this nation."
Donders affidavit, exhibit 48 (page 222)
75. On June 29, 2015 at 3:58 p.m., Harris emailed the Minister of Justice, the Minister of Finance and the premier of B.C. Harris copied the other respondents, Commissioners Ho and Downes, "Neil" Cave, COMMSEC, Commission staff and others. The "Subject" was "Conduct UNBECOMING PUBLIC Officials and officers". Harris attached a five-page letter which included the "Daily Count Report". Harris repeats themes from previous correspondence from the respondents including perjury by the investigator and litigators and other matters. Harris claims their criminal allegations have legal merit. He concludes with a demand for $11,494,376.
Donders affidavit, exhibit 49 (page 227)
76. On June 30, 2015, the Respondents filed a "Petition to the Court" in B.C. Supreme Court. The petition contains a reprise of themes previously advanced by the respondents. The statements in the petition provide further proof that the respondents cannot participate in the highly-regulated securities industry.
Page 9/13 (page 269 in affidavit): "The very foundation of the BCSC is arbitrary in nature and contrary to the Canadian Constitution Acts. The BCSC as clearly stated by its own admission is funded through regulatory offences that are punishable by fines. Thus, its very existence depends on finding and/or creating regulations to be broken in order that it may levy fines and charges on the accused."
Page 9/13 (page 269 in affidavit): Sets out alleged Criminal Code offences committed by the Commission’s investigators and litigators.
Donders affidavit, exhibit 59 (page 269)
The Respondents conduct after the July 7, 2015 liability decision
77. On July 11, 2015 at 2:37 p.m., Harris emailed the other Respondents. Harris copied Commissioners Ho and Downes, "Neil" Cave, COMMSEC, Commission Staff and others. Harris attached a letter written by Burke which Burke signed as a director of U-Go Brands. The letter is a response to the press release from the CASTANET site. The content of the letter was posted on the blog and is referred to above.
Donders affidavit, exhibit 53 (page 240)
78. Based on the foregoing evidence, the Executive Director submits the Respondents will remain ungovernable and pose a serious, ongoing risk to investors and the capital markets.
21
Deterrence
79. The sanctions must be sufficient to ensure that the respondents and others will be deterred from engaging in similar misconduct.
Streamline Properties Inc. et al, 2015 BCSECCOM 66, para. 35
80. All the Respondents contravened the Act by conducting unregistered distributions in British Columbia. Kwasnek, Cire, U-Go and Echo also breached a Temporary Order specifically put in to protect the public. Harris and U-Go also filed four false exempt distribution reports with the Commission. The Respondents are unfit to conduct trading activities unrestricted, and bans from the markets and fines will provide specific deterrence in this case.
81. We must also reassure the public in British Columbia markets and warn other likely minded persons and companies operating in British Columbia that the Commission is serious about taking action against such behaviour. As the Commission stated in Alexander:
James Terrence Alexander, Anne Christine Eilers and JT Alexander and Associates Holding Corporation, 2007 BCSECCOM 773, at para. 46
Orders made by the Commission in Previous Cases
82. Prior recent decisions on breach of section 61 of a comparable quantum of the illegal distribution are:
a) VerifySmart Corp. (formerly known as Verified Capital Corp.), Verified Transactions Corp., Daniel Scammell and Casper de Beer aka Casha de Beer (VerifySmart), 2012 BCSECCOM 176;
b) Armadillo Energy Inc., 0894563 BC Ltd., Darwin James Hajime Okano, Richard Gozdek and Mohammed Soolaman (Armadillo), 2013 BCSECCOM 409; and
c) Pacific Ocean Resources Corporation and Donald Verne Dyer (Pacific Ocean), 2012 BCSECCOM 104.
83. In VerifySmart, the panel found that Scammell raised $1,216,309 in two separate distributions, Verified Transactions raised $641,309, and VerifySmart and de Beer raised $575,000, contrary to sections 34 and 61 of the Act. The panel noted that Scammell and de Beer were not enriched, on the contrary, they both lost money. The Commission imposed
22
5-year market bans against each of Scammell and de Beer and ordered them to each pay an administrative penalty of $50,000. Verified Transactions and VerifySmart were permanently banned from the markets. The panel also made disgorgement orders of $1.2 million against all respondents.
VerifySmart et al., 2012 BCSECCOM 176
84. In Armadillo, all individual respondents had entered into settlement agreements prior to the hearing, and the hearing proceeded only against the corporate respondent, Armadillo. The panel found that Armadillo contravened section 61 of the Act by illegally raising $868,759 from 26 British Columbians. The panel imposed permanent bans on Armadillo and an administrative penalty of $800,000. The panel did not order disgorgement "because Armadillo offered rescission to investors", and there was "some evidence that Armadillo paid its investors their returns".
Armadillo et al., 2013 BCSECCOM 409, paras. 11-12
85. In Pacific Ocean, the Commission found that Pacific Ocean and Dyer raised US $836,658 from 93 investors in transactions structured in an attempt to avoid the registration and prospectus requirements of the Act, breaching sections 34, 49 and 61 of the Act. The panel imposed permanent bans from the markets on Pacific Ocean and 10-year bans on Dyer, and ordered Dyer to pay a $65,000 administrative penalty. The panel stated the following regarding disgorgement:
The executive director also seeks the return of the US$836,658 to the investors. In illegal distribution cases such an order would normally be made. In this instance, however, none of the proceeds went to either of the respondents. The proceeds went to Global 8. Neither of the respondents has control over Global 8. We are not making an order that this amount be paid to the Commission.
Pacific Ocean, 2012 BCSECCOM 104, para. 27
Appropriate Sanctions
a) Orders under section 161(1)(g) ("disgorgement order")
86. Section 161(1)(g) states that the commission after a hearing may order:
if a person has not complied with this Act, the regulations or a decision of the commission or the executive director, that the person pay to the commission any amount obtained, or payment or loss avoided, directly or indirectly, as a result of the failure to comply or the contravention.
Section 161(1)(g), Securities Act, RSBC 1996, c. 418 23
87. Orders under section 161(1)(g) are commonly known as "disgorgement orders".
88. In Thalbinder Singh Poonian et al., the panel applied the disgorgement principles discussed as relevant to disgorgement orders in David Michael Michaels et al., stating that:
a) in considering section 161(1)(g), the calculation is not one of profit but of the amount obtained as a result of the contravention [para. 79];
b) the focus of section 161(1)(g) sanction order is on compelling a respondent to pay any amounts obtained as a result of contraventions of the Act and not on compensation or restitution, nor deterrence beyond compelling payment of such amounts [para. 80];
c) section 161(1)(g) is to be read broadly. The amount obtained need not be traced to an individual respondent, nor does it have to be obtained or retained by that respondent. It is not limited to "benefits" or "profits" [para. 81] [emphasis added].
Thalbinder Singh Poonian, Shailu Sharon Poonian, Robert Joseph Leyk, Manjit Singh Sihota and Perminder Sihota, 2015 BCSECCOM 96, para. 79
David Michael Michaels and 509802 BC Ltd. dba Michaels Wealth Management Group, 2014 BCSECCOM 457, at paras. 42-43
89. In Oriens Travel & Hotel Management Capital, the panel rejected a narrow interpretation that would limit the disgorgement order to the amount obtained by a particular respondent.
Oriens Travel & Hotel Management Capital, 2014 BCSECCOM 352, at para. 63
90. The above principles were applied in Streamline Properties Inc. where the panel stated that:
a) the general principle is that the full amount raised should be disgorged;
b) the panel will then consider if it is equitable, in the public interest, and not punitive, to order payment of the full amount obtained, as opposed to a lesser amount or no payment at all;
c) they do not find payment of the full amount raised to be inequitable or punitive in circumstances where the proceeds raised were used for the purpose of the investments and not kept for personal gain by the respondents.
Streamline Properties Inc. et al, 2015 BCSECCOM 66, at paras. 53-54 24
91. The Executive Director submits that it would be equitable, in the public interest, and not punitive to order disgorgement of the whole amount in this case as there were no mitigating factors present in this case that were present in cases where the panel chose not to order the respondents to pay disgorgement:
a) In Saafnet Canada Inc. et al. and Photo Violation Technologies et al., the individual respondents were diligent in obtaining legal advice in an attempt to ensure compliance with the Act.
Saafnet Canada Inc., Nizam Dean, and Vikash Sami, 2014 BCSECCOM 96, para. 50
Photo Violation Technologies Corp., Frederick Lawrence Marlatt, also known as Frederick Lawrence Mitschele, Michale Wallace Minor and Michael Garfield Timothy Minor, also known as Tim Minor, 2013 BCSECCOM 276, para. 27
This factor is absent in the case at bar with respect to Spyru, as the Respondents never turned their minds to the requirements of the Act for their Spyru distributions;
The Respondents’ retention of counsel for U-Go distribution cannot be viewed as an attempt to comply with the Act as they did not provide full disclosure to their counsel that would allow the counsel to advise them properly on compliance with the Act. For example, they did not disclose to their counsel that they paid themselves commissions on U-Go distributions, thereby voiding availability of Private Issuer and Friends, Family and Business Associates exemptions and filing false Exempt Distribution Reports.
b) In Pacific Ocean et al., the respondents did not control the issuer who did receive the money.
Pacific Ocean Resources Corporation and Donald Verne Dyer, 2012 BCSECCOM 104, para. 27
In this case, Harris and Cire were directors of Spyru, chose to raise money from investors and willingly sent it to Klaus Glusing.
All individual Respondents were directors of U-Go and controlled it.
c) In Oriens Travel & Hotel Management Corp. et al., the respondent Anderson had a limited role and had no control over the issuer who received the money.
Oriens Travel & Hotel Management Corp., Alexander Anderson and Ken Chua, 2014 BCSECCOM 352, at para. 71 25
In this case, Harris and Cire had major roles in both Spyru and U-Go distributions;
Kwasnek, Thibert and Burke had a limited role in Spyru distribution, but the panel did not find them liable for any contraventions of Spyru that they were not directly responsible for, so their proposed illegal distribution amounts only include their direct liability;
Kwasnek, Thibert and Burke were directors of U-Go and controlled it together with Cire and Harris. It would not be inequitable to seek that they disgorge the amounts that U-Go illegally raised.
b) Market prohibitions
92. The factors set out above demonstrate that significant market prohibitions should be placed on all Respondents. The case precedents do not assist the panel with respect to length of prohibitions as the Respondents in this case have demonstrated an ongoing, persistent refusal to be regulated or governed. This poses a greater prospective risk to investors than in other cases. Therefore, the market prohibitions should be significant.
93. Cire and Harris are indistinguishable in terms of conduct. Cire was found to have contravened a temporary order while Harris was liable regarding four EDRs of U-GO. Harris was the primary person responsible (with Burke also making significant contributions) for communicating with Commission staff, politicians, the Commission Chair and the Commission panel. However, Cire was copied on most, if not all, of Harris’ correspondence. Cire has never said anything to contradict either Harris’ or Burke’s views. The only inference is that Cire agrees with both Harris and Burke.
94. Both Cire and Harris pose an ongoing, serious risk to investors that will carry on indefinitely. Taking all of the factors together, including the breaches of the Act, the commingling of funds, the poor record-keeping, in conjunction with the their refusal to be regulated, both Cire and Harris should receive permanent market bans.
95. Burke also poses a significant, ongoing risk to investors. Burke, through his letters and emails, clearly sets out his views of the legitimacy and authority of the Commission. Burke is of the view that there needs to be fundamental changes to the securities regulation system before he will comply. Given Burke’s stated opinion, and his refusal to be regulated, he should also receive a permanent market ban.
96. Kwasnek and Thibert should also receive significant market bans. In addition to illegally distributing securities, Kwasnek contravened the temporary order. As well, both Kwasnek and Thibert clearly agreed with all of the opinions of Harris and Burke. Both Kwasnek and Thibert should receive 20 year market bans.
26
Administrative penalty
97. Section 162 of the Act provides the following:
If the commission, after a hearing,
(a) determines that a person has contravened,
(i) a provision of this Act…
(b) considers it to be in the public interest to make the order,
the commission may order the person to pay the commission an administrative penalty of not more than $1 million for each contravention.
98. The following chart is an overview of the position of the Executive Director on sanction:
| Respondent | Illegal Distribution amount1 (s. 61 and s. 168.2(1)) | Other Contraventions | Proposed sanctions | ||
| Lorne Neil Cire |
$1,983,000 - - $1,347,000 Spyru ($834,000 direct) - - $636,000 U-Go ($27,500 direct) |
Contravened Temporary Order |
Disgorgement: $1,983,000 Fine: $100,000 Permanent orders |
||
| Peter David Harris |
$1,983,000 - - $1,347,000 Spyru ($834,000 direct) - - $636,000 U-Go ($27,500 direct) |
s. 168.1(1)(b) - 4 EDRs (6 investors) |
Disgorgement: $1,983,000 Fine: $100,000 Permanent orders |
||
| Joseph Yvan JeanClaude Thibert aka John Thibert |
$1,028,000 - - $392,000 Spyru direct - - $636,000 U-Go ($27,500 direct) |
Disgorgement: $1,028,000 Fine: $85,000 20 year orders |
|||
| Millard Michael Kwasnek |
$874,000 - - $238,000 Spyru direct - - $636,000 U-Go ($366,000 direct) |
Contravened Temporary Order |
Disgorgement: $874,000 Fine: $85,000 20 year orders |
||
| Christopher Andrew Burke |
$701,000 - - $65,000 Spyru direct - - $636,000 U-Go ($51,000 direct) - |
Disgorgement: $701,000 Fine: $60,000 Permanent orders |
|||
| SPYru Inc. | $1,347,000 Spyru |
No disgorgement or fine Permanent orders |
|||
| Paradox Distributors (1992) Ltd. (Paradox) | $834,000 Spyru |
Disgorgement: $834,000 Fine: $100,000 Permanent orders |
|||
| U-GO Brands Nutritional Products Inc. (U-Go) | $636,000 U-Go |
s. 168.1(1)(b) - 4 EDRs (6 investors) Contravened Temporary Order |
Disgorgement: $636,000 Fine: $100,000 Permanent orders |
||
| Echo Partners Ltd. | Contravened | No disgorgement or fine | |||
signed by..
ALL OF WHICH IS RESPECTFULLY SUBMITTED July 31, 2015.
Mila Pivnenko
Counsel for the Executive Director
James Torrance
Counsel for the Executive Director
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