Court backs key scam-busting tool
Asset-freezing orders — key tools in combating financial misconduct — are constitutional, a B.C. Supreme Court justice has concluded after considering their sweeping use in an investigation into an alleged $50-million scam.
In a rare case referred for clarification of the legal issue by the attorney general on behalf of the B.C. Securities Commission, Justice Veronica Jackson said such orders were non-intrusive and don't tread on privacy rights.
“The purpose of a freeze order is not to ensure property is available for further investigation, it is only to ensure property is available for payment of potential administrative penalties or disgorgement,” she wrote.
“I find, `the mechanism does not greatly impact privacy interests.' As the Supreme Court of Canada has observed, in modern society regulation of activity by the state is often the means by which an individual's pursuit of their self-interest is balanced with the community's interest in achieving its collective goals and aspirations.”
Jackson was asked to decide whether the securities law was consistent with the Charter of Rights and Freedoms and whether its power to freeze funds, securities, contracts, property or other assets constituted unreasonable search and seizure.
The question arose after serious allegations by the commission in 2018 of insider trading against dozens of purported consultants and their respective companies, known as the Bridgemark Group.
They were accused of taking part in a stock market scheme that raised $50.8 million through 12 private placements in which most of the funds were paid to the “consultants” as prepaid fees when little or no consulting work was done. Some 55 freeze orders were issued.
In April, however, the commission significantly trimmed the sweeping allegations to include only four purported consultants and their six respective companies. Several of the orders were rescinded.
Meanwhile, a raft of individuals and firms unconnected to the charges challenged the constitutionality of the Securities Act over the breadth of the orders and potential breaches of privacy.
“I conclude reasonable and informed people in the position of the respondents would not expect privacy in respect of the property that can be the subject of a freeze order,” Jackson wrote.
“I disagree with the submissions of several of the respondents that accepting the position advanced by the executive director and the (attorney general) means `there are no constitutional limits on the power of government to freeze property in an administrative investigation.' It only means a reasonable expectation of privacy in what is frozen is a prerequisite for the protection of s. 8 of the charter to be triggered. That is neither new nor controversial in the law.”
The regulatory actions have sparked a class-action lawsuit and other litigation.
Although the freeze orders issued in the Bridgemark proceeding provide the factual context for the constitutional question, those orders weren't the subject of the challenge.
Instead, Jackson was asked to examine more broadly the types of property that have the potential to be the subject of a freeze order and the overall context in which an order may be made.
She said those involved in capital markets shouldn't be surprised by such measures.
“Persons who enter the highly regulated securities market — those that issue, sell, and buy — are taken to, or are deemed to, know and accept the nature of the regulated state action and `the rules of the game' and as such may be found to have a low expectation of privacy in the information and property covered by such regulation.”
A freeze order restricts what a person can do with their property — it directs the individual to refrain from withdrawing their property or to hold the property of clients or others in their possession or control, and directs those having the person's property on deposit, under control or for safekeeping, to hold it.
The commission doesn't pursue criminal charges but refers evidence of suspected Criminal Code violations to provincial Crown counsel for charge assessment and prosecution if warranted.
Jackson emphasized freeze orders aren't to obtain account balance information, account numbers or banking transaction records.
Instead, they're directed at property and funds that have already been identified. If they generated information, Jackson said there might be an argument the commission is really after information, not the asset.
But that's not the case.
“Freeze orders don't have the potential to expose biographical information such as specific interests, likes, and propensities, reveal financial or medical information, or uncover guarded details of lifestyle or personal choices of the individual, such as their intimate relations, political, or religious opinions; they do not deal with `those aspects of individual identity which the right of privacy is intended to protect from the overbearing influence of the state,'” the justice explained.
“I agree with the submission of the executive director: `A freeze order plays no role in securing property or information for an evidentiary or investigative purpose. Freeze orders are only incidental to an investigation.' The subject of the freeze order is, simply, the property itself.”
Although the law has been amended, the justice said her ruling was not moot and some of the orders remain in place.