Six British Columbians facing civil stock fraud allegations tied to an alleged, massive and multifaceted $1 billion-plus trading arrangement have been denied their motion to dismiss the case.
Meanwhile, two other B.C. residents facing criminal fraud charges in relation to the arrangement have had their extradition trial moved back to next May.
U.S. District Court judge William G. Young in Massachusetts dismissed the applications of Zhiying Yvonne Gasarch, Courtney Kelln, Mike K. Veldhuis, Paul Sexton, Jackson T. Friesen and Graham R. Taylor on September 6.
The group collectively argued the U.S. Securities and Exchange Commission applied an incorrect statute of limitations on the alleged violations and did not allege sufficient facts.
But according to the judge, exceptions of a five-year statute of limitations on securities fraud violations apply for those who have been absent from the United States, as is the case here.
The SEC’s claim centres around a “scheme to sell fraudulently hundreds of millions of dollars in stocks in the United States markets” between 2010 and 2019. The commission filed its claim against the Canadians in August 2021.
Also named in the claim are offshore shell facilitator and former Vancouver lawyer Fred Sharp, of West Vancouver, and former B.C. cannabis company director Avtar Dhillon, a Canadian residing in Long Beach, Calif. Sharp has been found liable for the civil charges by defaulting (not responding) on the case and is now subject to a US$52.9 million claim from the commission. Dhillon is under house arrest. Both are charged criminally on the matter and no court date has been set.
The six other Canadians, who allegedly worked with Sharp, applied to dismiss the charges, claiming laws limited prosecution against allegations dating back more than five years. The defendants stated a federal law that recently changed those limitations should not apply retroactively.
But the judge found the new law “constitutes an express mandate of retroactivity as to both pending claims and claims commenced after the statute’s passage.”
Following the application, the commission was provided an opportunity to amend its initial complaint by providing more details of the allegations.
“Kelln managed nominee entities, transfers, and the production of false documentation to legitimize the scheme; …Veldhuis, Sexton, and Friesen artificed several fraudulent transfers of shares; and …Taylor managed nominee entities and transferred unregistered stock to trading platforms for illegal sale to the public," stated the commission in its update.
The commission added that “Gasarch was allegedly a key member of the Sharp group which facilitated illegal stock sales from 2010 to the present” and who “created false invoices, loan subscription agreements, and other documents that could back the illegitimate payments that emerged from the scheme."
Kelln initially claimed she only made a nominal annual salary from Sharp but the commission provided evidence she took home about $1 million from the alleged arrangements Sharp facilitated, the judge stated.
“Kelln and Gasarch’s actions were specifically directed at skirting SEC regulations in order to deceive American investors trading in United States markets. For example, Kelln ‘routinely split Sharp Group clients’ shareholdings into blocks of stock, each comprising less than five percent of each public company’s outstanding shares to be held in the names of various nominee entities,” noted the amended complaint.
None of the charges against the six has been proven in court. A trial is set for July 17, 2023.
Sharp’s arrangements were multifaceted, with different groups alleged to be part of similar arrangements. Since August 2021, the commission has filed multiple complaints involving British Columbians with alleged arrangements with Sharp.
Appearing in B.C. Supreme Court Thursday, Lehner’s hearing was pushed back to May as his lawyer Teresa Mitchell-Banks KC sought more clarity on the evidence to be tabled from the U.S. Department of Justice.