The B.C. Securities Commission has made another high-level personnel change.
On Tuesday, BCSC executive director Paul Bourque announced that Bob Abrams, the commission’s manager of criminal investigations, had left the commission. No reason was given, but I have confirmed that he was dismissed.
Abrams’ departure comes just six weeks after his new boss, former Crown prosecutor Teresa Mitchell-Banks, took over as the commission’s director of enforcement. It is not clear what input, if any, she had into the decision to relieve Abrams of his duties.
Mitchell-Banks replaced longtime enforcement director Lang Evans, who stepped down in May to head a new special investigations team.
That same month, Bourque dismissed chartered accountant Martin Eady, the commission’s longtime director of corporate finance, “without cause.” He has since been replaced by Peter Brady, a lawyer.
Eady’s dismissal shocked commission staff. He was well regarded, and well liked. Abrams did not appear to me to enjoy the same sort of popularity.
Abrams worked at the commission for 16 years. He served as the commission’s manager of investigations until 2007, when he was assigned to head the new criminal investigations team.
Its mandate is to investigate alleged securities offenders with a view to criminal prosecution, which could potentially result in more serious sanctions, including jail time.
The team has met with some success. During the year ending March 30, it referred nine cases to Crown counsel, resulting in 508 charges under the Criminal Code and 193 under the Securities Act against 11 people. During the year, five people were convicted.
For the most part, these cases have been relatively minor in nature. Of the five people convicted last year, the largest jail term was five months and the largest restitution order $40,000.
The pace of charges has accelerated this year, and Bourque has indicated his interest in advancing this model. Mitchell-Banks’ arrival and Abrams’ departure may signal a move toward larger, more complex and more significant prosecutions.
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Consumer Alert: Richard “the Goose” Gozdek, who has a knack for selling money-losing investments, is now promoting a multi-level-marketing scheme called Lyoness.
Gozdek, a self-described “golden egg specialist” has made a living selling sketchy investment deals through his firm, Sterling Financial Group, in Abbotsford.
Among those deals have been have been Horizon FX Investment Inc. and New Life Capital Corp., which were exposed as frauds, and several charitable donation tax shelter schemes that have been disallowed by the Canada Revenue Agency.
In August, BCSC enforcement staff cited him and two other men for the allegedly illegal sale of investments in an Oklahoma oil deal, Armadillo Energy Inc., to 26 B.C. investors. A hearing is pending.
Meanwhile, Gozdek and 23-year old Burnaby resident Jakub Baclawski are busy marketing the Lyoness cashback card, which enables cardholders to get cash back on purchases from participating retailers. It also enables participating retailers to foster customer loyalty.
As in all these schemes, participants make money from their “downline,” in this case, a percentage of the purchases made by members they have recruited.
Participants have to pay several thousand dollars for the right to recruit others. Although the profit potential is theoretically immense, the vast majority of these schemes burn out before participants can recover their investment.
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Regulators have alleged that former Vernon mutual fund salesman Robert Bruce Rush sold interests in two investment schemes that hadn’t been authorized by his employer.
In a notice of hearing, the Mutual Fund Dealers Association of Canada alleged that Rush, while working at Sun Life Financial Investment Services in Vernon from 2005 to 2007, recommended that two clients invest $5,000 US in Gold Quest International.
In May 2008, the U.S. Securities and Exchange Commission filed a complaint alleging that Gold Quest was a Ponzi scheme that had raised more than $27.9 million from over 2,100 investors in the U.S. and Canada. The SEC obtained an order freezing the assets of Gold Quest’s principals and appointing a temporary receiver.
The MFDA also alleges that, before the Gold Quest scheme collapsed, Rush recommended that the same two clients invest $14,000 in a deal called “The Here and Now,” which purportedly sold radio-controlled dog collars.
The clients ended up losing all the money they invested in both schemes, neither of which had been authorized by Sun Life.
MFDA enforcement staff further allege that during their investigation they found at least two more clients and 11 non-clients who may have also invested in Gold Quest, but were unable to confirm this because Rush failed to cooperate with them, contrary to MFDA rules.
A hearing has been set for Jan. 16.
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It’s heart warming to know that our federal government is supporting local businesses abroad.
Last week, Lisa Stadelbauer, Canada’s ambassador to Angola, intervened on behalf of Quest Water Global Inc., a North Vancouver firm that is promoting a device that can produce water from air in Angola.
“Quest Water is ready not only to provide these units, but also to establish an assembly plant in Angola to build the units, thereby providing both the water purification systems and much-needed jobs for Angolans in rural communities,” Stadelbauer stated in a letter to Angola’s secretary of state for industry.
“We hope that the (Angola) ministry of industry will move quickly to execute an agreement with Quest Water Solutions, so that the goals of the Water-for-All program can be realized very soon.”
What Stadelbauer didn’t know, or knew but failed to mention, is that Quest trades on the loosely regulated OTC Bulletin Board in the United States, and was subject to a temporary cease-trade order in B.C. this summer after BCSC enforcement staff determined that it had been the subject of an Internet pump-and-dump campaign.
According to disclosure documents, the campaign had been substantially funded by Irwin Speckert who, according to the commission, “acts as an intermediary for undisclosed persons who secretly promote securities in or though British Columbia.”
Quest’s principals, John Balanko and Peter Meile, denied any involvement in the promotion. Regardless of who was responsible, the irrefutable result is that the company’s stock chart — which peaked at $1.56 concurrent with the Internet promotion and has since slumped to one-third that value — has all the hallmarks of a classic pump-and-dump scheme.
There are a few other matters that Stadelbauer failed to mention. As of Sept. 30, the company had not produced a cent of revenue; its cumulative loss stood at $6.1 million; it had only $13,179 cash in the bank; and it had only $21,014 in current assets against $710,828 in current liabilities. In other words, it was a financial basket case.
So what does our foreign affairs ministry have to say about Stadelbauer’s endorsement of this company?
“The letter of provided by the Canadian Ambassador to Angola to the Government of Angola pertains solely to the company’s on-the-ground activity in Angola,” a ministry spokesman said in an email this week.
I think it’s specious to try to disconnect the company’s “on-the-ground activity” from these hard financial realities and the company’s dubious stock market history. They are all inextricably connected. Surely there are more worthy Canadian companies that our government can promote?