A British Columbia Securities Commission panel has found that a Vancouver Island man illegally and fraudulently advised 484 clients to purchase over $65 million worth of risky except market securities, without being registered as required.
According to the decision, David Michaels used the media to lure clients into his web, conducting weekly infomercials on CFAX 1070 radio in Victoria (creating wealth with David Michaels).
He also testified that he used the C-FAX program to draw the public to investment seminars that he hosted in Victoria and Vancouver, and to appointments in his office.
The average age of his clients was 72.
The C-FAX programs drew 20,000 listeners per week. Michaels paid C-FAX about $2,000 for each weekly program, which aired on Saturdays and were pre-taped.
The panel found that Michaels advised his clients to sell their stocks, bonds, and mutual funds and purchase high-risk exempt market securities instead. He also advised his clients to borrow against their homes to purchase these risky investments.
By giving this advice, Michaels made misrepresentations to his clients, deceived them, and betrayed their trust, the panel found.
“Michaels preyed on clients by frightening them and misleading them into leaving the comparative safety of traditional capital markets for the far riskier part of the exempt market,’’ the panel said.
“As a consequence, his clients suffered a grievous deprivation, and he was greatly enriched.’’
According to a report by former Vancouver Sun investigative reporter David Baines, Michaels sold $550,000 worth of highly risky and illiquid securities to a woman in her late 80s.
Michaels was paid $5.8 million in fees and commissions for his sales of the exempt market securities.
He repeatedly said on his C-FAX program that he loved helping seniors make money. The panel found that at least $40 million of the $65 million that his clients invested is lost, and most of the rest remains at risk.
The panel has yet to make a ruling on possible sanctions.
Exempt Market Securities
The term refers to securities that are sold in the so-called “exempt market.” This market is called “exempt” because securities sold in this market, due to their inherent features, or the circumstances of their distribution, can be legally distributed under an exemption from the requirement to file a prospectus.