BRITISH COLUMBIA SECURITIES COMMISSION Securities Act, RSBC 1996, c Citation: Re EagleMark Ventures, 2018 BCSECCOM164 Date:

Transcription

1 BRITISH COLUMBIA SECURITIES COMMISSION Securities Act, RSBC 1996, c. 418 Citation: Re EagleMark Ventures, 2018 BCSECCOM164 Date: EagleMark Ventures, LLC, Falcon Holdings, LLC, Richard Lian (also known as Richard Terry Ruuska) and Enna M. Keller Panel George C. Glover, Jr. Commissioner Gordon Holloway Commissioner Don Rowlatt Commissioner Submissions Completed April 17, 2018 Decision date May 22, 2018 Appearances Olubode Fagbamiye Enna M. Keller For the Executive Director For herself Ruling I. Introduction A. Background [1] The applicant, Enna M. Keller (Keller), made an application dated February 11, 2018 under section 171 of the Act to revoke the Commission s decision dated February 14, 2017 in Re EagleMark, 2017 BCSECCOM 42 (Decision). This initial application was supplemented by further submissions dated March 15, We refer to the initial application and supplemental submissions collectively as the application. The Decision incorporated the panel s Findings dated August 22, 2016 in Re EagleMark, 2016 BCSECCOM 288 and the sanctions decision, cited above, which imposed market bans and financial penalties on the respondents [2] The heading to Keller s application states that it is filed by Richard Lian and Enna M. Keller to request that the Section 161(1)(g) and section 162 order be lifted and revoked. At the hearing management meeting regarding the application, Keller, who was present at the meeting by telephone, confirmed that the intent of the application was to have us revoke our Decision in its entirety, including the Findings and all of the sanctions. For the purposes of this Ruling, we have treated the application as seeking to revoke our Decision in its entirety as it relates to all of the respondents. [3] At the hearing management meeting, the panel chair reminded Keller that the purpose of a section 171 application is not to rehear the matter and reiterate arguments that were already considered by the panel in the Decision, but to consider whether there was new and compelling evidence or a significant change in circumstances. Keller was afforded

2 the opportunity to provide the Commission with any new and compelling evidence or evidence of any significant change in circumstances. Keller filed the further submissions referred to in paragraph 1, after the hearing management meeting. B. Findings [4] In our August 22, 2016 Findings, the panel found that each of the respondents contravened the Act as follows: a) Lian and Keller committed fraud in the amount of US$2.4 million on 315 investors contrary to section 57(b) of the Act; b) Lian, Keller, EagleMark Ventures, LLC (EagleMark) and Falcon Holdings, LLC (Falcon) each contravened a Cease Trade Order (CTO) and a Temporary Order (TO); and c) Keller contravened section 34 of the Act by trading in securities without registration and without any available exemptions. C. Sanctions [5] In our February 14, 2017 Decision, the panel ordered the following: a) With respect to Lian: i. permanent orders under sections 161(1)(b),(c) and (d)(i) through (v); ii. an order under section 161(1)(g) to pay US$2.4 million to the Commission; and iii. an order to pay US$2.4 million to the Commission as an administrative penalty under section 162. b) With respect to Keller: i. permanent orders under sections 161(1)(b),(c) and (d) (i) through (v); and ii. an order to pay US$2.4 million to the Commission as an administrative penalty under section 162. c) With respect to EagleMark and Falcon: i. permanent orders under sections 161(1)(b), (c) and (d) (iii) and (v); and ii. an order to pay US$2.4 million to the Commission under section 161(1)(g). [6] Lian, EagleMark and Falcon were also jointly and severally liable to pay the US$2.4 million set out in the section 161(1)(g) orders against each of them respectively. D. Subsequent Commission order [7] On January 15, 2018, the Commission, on its own motion and considering that it would not be prejudicial to the public interest to do so, under section 171 of the Act, varied our Decision by staying the section 161(1)(g) orders against EagleMark and Falcon and the joint and several section 161(1)(g) order against Lian, EagleMark and Falcon. 2

3 II. Applicable Law [8] Section 171 of the Act states: If the commission considers that to do so would not be prejudicial to the public interest, the commission.may make an order revoking in whole or in part or varying a decision the commission has made under this Act, whether or not the decision has been filed under section [9] BC Policy Hearings sets out procedures for hearings under the Act. Section 8.10(a) provides guidance based on the Act and caselaw, on revoking or varying a decision. It states: (a) Discretion to revoke or vary- A party may apply to the Commission for an order revoking or varying a decision. Generally, the Commission does not hold a hearing; it considers written submissions and makes its decision. Before the Commission changes a decision, it must consider that it would not be prejudicial to the public interest. This usually means that the party must show the Commission new evidence or a significant change in circumstances. [10] Section 167(1) of the Act states that: A person directly affected by a decision of the commission may appeal to the Court of Appeal with leave of a justice of that court. III. Submissions A. Applicants Submissions [11] The applicants submissions consist of the application and several attachments. The applicants did not submit any additional oral or affidavit evidence. None of the documents attached to the application is supported by sworn testimony or affidavits. The application also contains a link to a website for a Nevada company, Lexicon Building Products and Systems Inc. (Newco). The documents attached to the application include a photocopy of an unsigned form letter (Shareholder/Lender Letter) dated 13 March 2017 purporting to be signed by Shareholder and/or Lender and addressed to the panel chair. The other documents attached to the application were photocopies of: A Decree Closing Case dated September 28, 2011 regarding a Plan of Reorganization of Lexicon Building Systems, Ltd. (the company referred to in our Decision as Lexicon); A document entitled SHAREHOLDERS COMPLAINTS SUBMITTED ON BEHALF OF THE SHAREHOLDERS OF [Lexicon] dated October 30, 2009 Two share certificates of Newco dated the 10 th day of August 2017 in the names of LS and M-YK, each for 110,000 shares; An dated December 8, 2017 (the December ) to counsel to the Commission responding to a letter from that counsel dated November 29, 2017; and A Requisition - General dated January 24, 2018 and Notice of Application both filed by Commission counsel seeking enforcement of the monetary penalty imposed on Keller by our Decision. 3

4 [12] In the Shareholder/Lender Letter, reference was made to a raft of complaint letters to the Ombudsperson. The Shareholder/Lender Letter states that The Shareholders considered that the Ombudsperson did not have the will or the authority to pursue this complaint on their behalf. In the December , Keller refers to an appeal of this administrative matter to the Supreme Court of British Columbia but goes on to state that, due to Lian s health issues, the appeal process has not be (sic) initiated, but is forthcoming. [13] Turning to the submissions in the application, the majority of submissions consist of bald assertions challenging the Decision on virtually all aspects of the Findings. The following are typical examples: No trading in securities, No Scheme, No Fraud No Restrictions attached to the funds (loans) received Lian had absolute discretion for use/application of funds. There were no investors, as there were no demand loans/notes. Lian and Keller did not raise any money by their TO [temporary order]. Keller did not breach section 34 of the Act for (sic) trading in securities. Lian and Keller did not violate any the (sic) CTO [cease trade order] or the TO there was no harm done to the public, as there was no scheme or fraud committed. [14] The submissions reiterate arguments previously considered by the panel in the Decision, including that there were few complaints by any investors, and repeat arguments that the Commission allegedly: failed to respond to a filing for approval of a Loan Offering Memorandum regarding Lexicon, failed to follow up upon a complaint made in 2009 regarding alleged misconduct by Lexicon management at the time, and misled the public in believing that Lian and his corporations and Keller were fraudsters and operating under an illegal scheme to defraud the public by going public with their unproven allegations and press releases, using their power to confuse the public. [15] The application does, however, refer to two new circumstances that occurred after the issuance of our Decision. First, the applicants submit that Lexicon is now a dissolved company and is worthless, and all its investors[ ] holdings in the company is (sic) worthless. Secondly, the application states that a new company [Newco] (is) Registered in Las Vegas, Nevada, USA incorporated under the laws of the State of Nevada. [16] Photocopies of the Newco share certificates in the names of LS and M-YK were submitted in support of the statement that LS, who was an investor in the Friends and Family Program (FFP), in fact did receive something to evidence his unrestricted private loan. The application submits that Lian and corporate (sic) 4

5 after their investigation into [Lexicon s] status took their investment of support to [Newco].[Newco] has the rights to the Polyblock. As identified in our Decision, the Polyblock was the principal product and business opportunity for Lexicon. [17] Finally, the application states that: The unrestricted private funds loaned to Lian and corporate (sic) have now been pledged with the approval of all lenders of record into [Newco]. All lenders of record have been issued and received their certificates as per their request on record. None of these lenders have (sic) lost their private funds loaned to Lian and corporate (sic). [... ] At the time of the liability and sanctions hearing or time of the Decision, had the [Commission] known that Lian and corporate (sic) had discontinued their investment into the Lexicon of BC company (sic); and were making their unrestricted private prior loans in NEWCO USA to secure their loans of record; the [Commission] Decision would have been different. B. Executive Director s Submissions [18] The Executive Director submitted his response in writing after receiving the applicants initial application. After receiving the applicants subsequent submissions, the Executive Director declined to make any further response other than to state that: The [applicants] have not identified new and compelling evidence or a significant change of circumstances and they have not met the onus of establishing that the revocation of the Decision that it seeks would not be prejudicial to the public interest. [19] The Executive Director submits that the applicants have not shown that the panel, had we known the information set out in the application when we issued our Decision, would have made a different decision. [20] Further, the Executive Executor states that, given the absence of sworn testimony and documents supported by affidavits, he had no opportunity to test the submissions in the application or determine their relevance to the applicants arguments. He asserts that many of the submissions of the applicants relate to documents and events that were in existence and known to the applicants at the time of the hearings. He says the application restates arguments and submissions that the panel previously considered and rejected in its Decision, and the proper forum for arguments to overturn findings or sanctions based on the existing record is the BC Court of Appeal. [21] The Executive Director finally asserts that the applicants misconduct was serious and they are not fit to participate in the capital markets or to serve as directors, officers or advisors to issuers. He says the applicants have shown no remorse but rather minimize their conduct and blame others, thus reinforcing the prejudice to the public interest in revoking our Decision. 5

6 IV. Analysis and decision [22] A section 171 application is not an opportunity to appeal a decision of the Commission. The process to appeal a Commission decision to the Court of Appeal is outlined in section 167(1) of the Act. It is clear from the Shareholder/Lender Letter and the December that Keller was aware of the opportunity to appeal our Decision. [23] Numerous previous decisions of the Commission have confirmed the limited circumstances in which the Commission will revoke or vary one of its decisions. [24] For example, in Re Pyper, 2004 BCSECCOM238, the Commission panel stated that for an application under section 171 to succeed, the applicant must show new and compelling evidence or a significant change in circumstances, such that, had the panel known them at the time of issuing the original decision, they would have made a different decision. Similarly, in Re McIntosh, 2015 BCSECCOM 162, the Commission panel stated at paragraph 12: Section 171 of the Act does not provide an unfettered opportunity for a respondent to relitigate the liability or sanctions portion of an enforcement hearing. A party seeking a variation must meet the threshold outlined in s. 8.10(a) of BC Policy , and identify new evidence, or a significant change in circumstances, before the commission will change a decision. [25] With the exception of the submissions relating to Lexicon and Newco summarized in paragraphs [15-17] above, none of the applicants submissions contain any new information. To the contrary, the information that was contained in the submissions was before the panel at the liability and sanctions hearings. 1 As well as not being new information, none of this information was in any way compelling, and was rejected by the panel as either irrelevant or unpersuasive. None of this information affected our Decision at that time nor would affect our decision on this application. [26] Turning to the information relating to Lexicon s dissolution and Newco, this information is clearly new as it relates to events and circumstances which occurred after we issued our Decision. [27] Panels on an application to revoke or vary a previous order often take a restrained approach in exercising their discretion to allow evidence to be tendered that was not available at the time of the original hearing. However, we are willing to consider the circumstances regarding Lexicon and Newco in this matter to determine whether it constitutes compelling evidence. [28] None of the information regarding Lexicon or Newco that arose after our Decision affects in any way our liability Findings. The information regarding Newco has no bearing on the fraudulent misconduct of Keller and Lian, the breaches of the CTO and TO by all respondents and the breaches by Keller of section 34 through her unregistered trading. 1 See paragraphs 64 to 69 of the Findings and paragraphs 9 to 16 of the Decision. 6

7 Similarly, the dissolution of Lexicon has no bearing on our Findings on liability, other than to confirm that the investors expectations of receiving shares of Lexicon, which might at some time have some value, were thwarted. [29] Accordingly, we find no basis for revoking or varying our Findings on liability based on the new information regarding the dissolution of Lexicon or regarding Newco and we dismiss the application as it relates to our liability Findings. [30] We now turn our analysis to the issue whether the information regarding Lexicon s dissolution or regarding Newco would affect our sanctions orders. [31] As set out in the Decision, we found that Keller and Lian s fraudulent misconduct involved US$3.2 million in funds raised of which US$2.4 million was almost entirely spent by Lian on matters that had no relation to the representations made to the investors. This misconduct took place over several years and was exacerbated by frequent false and misleading communications to investors and prospective investors. All of the respondents breached both the CTO and TO. Keller engaged in multiple trades in securities without being registered under the Act and without the availability of any exemptions. The serious sanctions imposed on the applicants at the time of the Decision were in the public interest, given the magnitude and persistence of the applicants misconduct and the need to deter similar misconduct in future by both the applicants as well as others. [32] At best, the applicants submissions are that the new information regarding Newco undermines our finding that FFP participants funds had been dissipated with substantial risk that they were lost permanently. 2 The applicants say that Newco has rights to the Polyblock and the unrestricted private funds loaned to Lian and corporate (sic) have now been pledged to [Newco]. The applicants conclude that all lenders of record have been issued and received their certificates as per their request on record. [33] Nothing in this submission demonstrates that our Findings regarding fraud, breaches of the CTO and TO and Keller s illegal trading activities were incorrect at the time of our Decision. If the new information regarding Newco constituted compelling evidence that the FFP investors had received repayment of their investments in whole or in part, or indeed received anything of value from Newco, that might be a basis for considering varying our sanctions under section 161(1)(g). However, the new information regarding Newco falls far short of compelling us to revoke or vary any of our sanctions. [34] Ignoring the frailty of the Newco information regarding its credibility and reliability, there is no evidence that the FFP investors have received repayment in whole or in part or anything of value. There is no evidence that the Newco shares have any value and there is no evidence of how pledging the unrestricted private loans to Newco could be of any value to the FFP investors. Further, it is unclear that all of the defrauded FFP investors received any Newco shares. The statement that Lexicon is dissolved and worthless, as 2 Findings para. 95 7

8 are the investments in Lexicon, does not support the applicants position as the intent of the FFP investors was to obtain shares of Lexicon- not Newco- when Lexicon s legal impediments were eliminated. [35] We find that there is no evidence from the new information regarding Newco or the dissolution of Lexicon that would compel us to make an order varying or revoking the sanctions in our Decision and we dismiss the application as it relates to sanctions. [36] The applicants have not provided any new and compelling evidence, or shown any significant change in circumstances, which could lead us to conclude that it would not be prejudicial to the public interest to revoke or vary our Decision either as to liability or sanctions. [37] Accordingly, we dismiss the application. We note that our decision to dismiss the application does not affect the stay order regarding the section 161(1)(g) orders referred to in paragraph [7] above. May 22, 2018 For the Commission: George C. Glover, Jr. Commissioner Gordon Holloway Commissioner Don Rowlatt Commissioner 8