A tentative trial date has been set for several British Columbians facing civil charges from the United States Securities and Exchange Commission for an alleged fraud scheme involving over $1 billion in stock transactions.
U.S. District Judge William G. Young of the District of Massachusetts is aiming for a January 2023 start date. The Canadians will then have a jury trial hear allegations of a scheme that netted an estimated $770 million in profits for company insiders and other co-conspirators such as lawyers, stock touts and financial agents.
Young held a hearing on Jan. 20 to iron out details of motions to dismiss brought forth by alleged co-conspirators Jackson Friesen, Graham Taylor, Paul Sexton, Zhiying Yvonne Gasarch, Courtney Kelln and Mike Veldhuis — all of whom are believed to be residing in the Metro Vancouver region.
Not submitting motions are two co-respondents, including offshore shell facilitator and ex-Vancouver lawyer Fred Sharp and former B.C. cannabis company director Avtar Dhillon — who both face criminal charges connected to the alleged scheme.
The SEC is now demanding US$52.9 million from Sharp to finalize a default judgment against him for reportedly ignoring the allegations and failing to be served charging documents.
The whereabouts of Sharp, who would otherwise reside in his West Vancouver home, remains an apparent mystery to the Federal Bureau of Investigation. Meanwhile, Dhillon has pleaded the Fifth Amendment — his right not to speak and self-incriminate — to the civil charges; he remains under house arrest in his $12 million waterfront home in Long Beach, California with a GPS ankle monitor.
Sharp is considered to have “masterminded” the scheme between 2010 and 2019 by setting up offshore shell companies to facilitate illegal insider trading for his so-called “Sharp Group” clients, such as Dhillon.
Sharp’s work facilitating offshore shell companies was made public in the Panama Papers leak in 2016.
It is a significant case for the SEC; one it describes as "a sophisticated, multi-year, multi-national attack on the United States financial markets and retail United States investors by foreign and domestic actors."
There are already 24 defence attorneys assigned to the case, per court filings.
Via individual submissions, some defendants claim the SEC’s case against them is unconstitutional as it violates a five-year statute of limitations. The group, outside of Sharp and Dhillon, also claims the SEC’s submissions lack detailed allegations and should be tossed.
Young tentatively denied the motions to dismiss but has given the commission an option to submit more evidence in two weeks before he makes a final decision on the motions. He indicated he’d be reviewing the statute of limitation claims, specifically.
Young’s decision to proceed with the securities fraud charges relies on back-and-forth submissions between the parties since the case was opened last August.
Stephen Topetzes, the lawyer for Sexton, briefly summarized the SEC’s case against Sexton as one “painted with a very large brush” and absent of particular allegations.
Surrey resident Courtney Kelln, who was Sharp’s administrative assistant from 2011 to 2019, asserts she had no knowledge of the alleged scheme. In fact, she only earned $100,000 annually, on average, according to SEC filings.
Kelln’s lawyer Kevin Muhlendorf submitted that she earned “less than one-half of the annual salary of an SEC attorney” and the case was “a shotgun approach at ensnaring her in this wide-ranging fraud scheme.”
And, he said, “the SEC fails to plausibly allege how those amounts are causally connected to any individual wrongdoing as opposed to her annual salary for her job as Sharp’s administrative assistant.”
Some evidence shows Kelln communicating with U.S.-based Canadian lawyer Scott Lawler, who was barred from penny stock offerings after being charged with securities violations for engaging in schemes to fraudulently transfer control over the shares of two publicly-traded shell companies to a client. He was barred from practicing before the SEC and fined $186,594 in August 2021.
Muhlendorf argued Kelln’s limited engagement with Lawler does not “plausibly connect Kelln to fraudulent activity directed to the United States.”
Muhlendorf concluded, “The SEC’s prayers for disgorgement, a permanent injunction, civil monetary penalties, and collateral bars should all be dismissed, or stricken.”
Similar to Kelln’s argument is that of Gasarch, whose codename among the Sharp Group was “Wires,” according to SEC affidavits showing intercepted encrypted cell phone messages between defendants.
The Richmond woman’s lawyer Michelle Pascucci argues in submissions “the SEC brought an untimely, thinly-pleaded case against Ms. Gasarch” as “the factual allegations in the Complaint, even when viewed as a whole, show that Ms. Gasarch played, at most, an administrative role in the alleged scheme.”
Pascucci summarizes that any claim that Gasarch was the money mover or acted as a corporate nominee, is nevertheless still insufficient to state a claim for securities laws violations.
“The SEC has to allege something beyond a defendant’s presence or mechanical participation,” argued Pascucci.
A key disagreement between the sides is whether the SEC has a right to bring charges against these Canadians more than five years after the alleged infractions, in order to seek trading injunctions and to collect fraudulent profits from them. At the root is the National Defense Authorization Act, which provides the SEC with statutory authority to do so.
The SEC says first and foremost the law only applies to people in the United States. However, if it were to apply to the foreign nationals, it still has 10 years since the Act was amended in January 2021 to double the limitation period. But defence attorneys have argued for a five-year statute. Taylor, for instance, argues any alleged infractions occurred more than five years ago. And Kelln notes she’s been in the U.S. for purposes other than work and that’s when the statute would be imposed if it were even relevant.
Young is also wading through other immediate matters including asset freezes.
Taylor, for example, has fought a preliminary injunction against him, which froze many assets, including stocks. Young ordered assets to be frozen in Taylor’s 16 Canadian brokerage accounts at PI Financial Corp. or Haywood Securities. However, the judge allowed Taylor to sell some penny stocks (all listed on the Canadian Securities Exchange or TSXV) so long as the proceeds remained frozen.
The case against the group is also connected to five other Sharp-connected respondents from B.C. who are also facing civil charges brought by the SEC in related cases, thus making it 13 defendants in total.
Sharp and Dhillon are also charged with criminal securities fraud and conspiracy to commit fraud along with Veldhuis, Kelln and stock promoter Luis Carrillo of Mexico. They are all presumed innocent until a court rules on the allegations.