BCSC sanctions pump-and-dump traders

Five people receive total of more than $28 million in penalties, market bans

The B.C. Securities Commission has handed more than $28 million in penalties to five British Columbians for committing what it characterized as a sophisticated pump-and-dump stock manipulation whose victims included the financially strained clients of an Ontario debt settlement company.

In a decision released Wednesday, a panel of the commission ordered that the five individuals pay back $7.33 million in net proceeds from the share sales and $21.5 million in fines starting with $10 million to the purported “mastermind” of the scheme, former junior mining executive Thalbinder Singh Poonian.

Poonian said he plans to appeal the decision to B.C. Supreme Court, arguing the process of the proceedings was unfair.

The scheme, the decision said, took place between 2007 and 2009 and involved acquiring the majority of shares in Ontariobased OSE Corp., a TSX-Venture-Exchange-listed junior energy company, trading the shares between their accounts and those of secondary nominees recruited for the venture to inflate their value, then selling them off to unsuspecting investors and allowing the price to collapse.

The liability decision said many of the buyers were the financially distressed clients of Richmond-Hill based Phoenix Credit Risk Management Consulting Inc., who the commission estimate lost $7.1 million in the scheme.

In its decision on liability, the panel concluded that Poonian played a key role choosing OSE as a company, arranging to acquire control of a majority of shares and engaging in trading of those shares through his accounts and those of others.

“His conduct was the most egregious and the administrative penalty against him should reflect this and his leading role in the manipulation,” the commission panel concluded.

The panel also fined Poonian’s wife Shailu (Sharon) Poonian, Robert Joseph Leyk and Manjit Sihota each $3.5 million and Perminder Sihota $1 million in the scheme, saying that the penalties imposed “must be sufficient to ensure that the respondents and others will be deterred” from similar behaviour.

It also banned all five participants from acting as a director or officer, or serving in any capacity for any issuing company in B.C., with one exception.

Manjit Sihota was allowed to remain a director of Richmond Plywood Corp. Ltd., an employee-owned firm that is not a share-issuing company, as long as it remains a non-issuing company.

However, Poonian argued that neither he nor his wife, nor any other participants, made any money from the scheme and that he wasn’t given full disclosure of the evidence that the BCSC held in the case.

On Feb. 26, Poonian won a ruling that the BCSC must disclose by April 10 most of the documents he is looking for.

The commission had argued they weren’t relevant to its prosecution and was overruled in its argument it didn’t need to release them under provisions of litigation privilege.

“My argument from Day 1 has been that they’ve yet to put forward a single complaint from any stakeholder of OSE (or other companies) I was involved in,” Poonian said.

The complaints, he said, were from other regulators — the Ontario Securities Commission and the Investment Industry Regulatory Organization of Canada, the disciplinary body for stockbrokers.

Included in the evidence at the BCSC hearing was a 2011 settlement agreement between the Ontario Securities Commission and principals of Phoenix in which they acknowledged recommending that clients buy shares in OSE and another company, for which Poonian paid commissions of between 10 and 28 per cent. The Phoenix principals and their companies were ordered to pay $3 million in penalties in the case.

It was that pool of investors that make the OSE case stand out, said Teresa MitchellBanks, the BCSC’s director of enforcement.

Unlike other pump-and-dump manipulations that involve significant promotions, she said, Poonian had a “readyto-go pool of investors” with Phoenix.

“Rather than just unload (OSE shares) into the market, they had a pool of victims, which Phoenix facilitated the selling (of),” Mitchell-Banks said.

In the settlement agreement, the Phoenix principals said part of their business involved helping people unlock RRSP funds to pay off debts.

And in some cases where clients had some funds left over, Phoenix representatives recommended they buy shares in Poonian’s companies — OSE or Great Pacific International.

Mitchell-Banks said those “already financially compromised clients just took a terrible financial beating.”