A regulatory hearing panel’s findings in an alleged market manipulation case have been upheld by the Court of Appeal for British Columbia.
In 2019 a hearing panel of the B.C. Securities Commission (BCSC) panel imposed sanctions against three people, Raffi Khorchidian, Garo Aram Deyrmenjian and David Craven; and a Swiss wealth management company, EHT Corporate Services S.A., after finding they were involved in a scheme to manipulate the price of a B.C. issuer, Kunekt Corp., by financing a campaign to hype the company as the “next Apple” even though it has few assets and no proprietary technology.
Among other things, the panel ordered over $14 million in disgorgement and $3.1 million in penalties, along with market bans, against them.
They appealed both the panel’s findings on liability and the sanctions imposed, arguing that the tribunal “erred in law by making impermissible inferences based on speculation and conjecture,” the Appeal Court noted in its decision.
In particular, the four respondents objected to the panel’s findings that they attempted to conceal their participation in the market manipulation scheme, and that Deyrmenjian and Khorchidian allowed their funds to be used to pay for the efforts to hype the stock.
Additionally, EHT and Craven argued the panel erred by finding it had jurisdiction over them.
Now, the court has dismissed their appeals, finding the panel did not err in making certain inferences based on the evidence presented in the hearing, and rejecting the challenge to its jurisdiction.
Specifically, the court found that, based on the evidence, it was open to the BCSC panel to conclude that Deyrmenjian and Khorchidian permitted payments from their funds to finance the promotional campaign, and that, as a result, they engaged in conduct that contributed to market manipulation.
“It was also open to the panel to find that each knew or ought reasonably to have known that their conduct would result in or contribute to an artificial price for the Kunekt shares, given the grossly promotional nature of the campaign being funded,” the court said. The panel’s decision to draw these inferences should be granted deference on appeal, it said.
“The inferences the panel drew that, in essence, each of Khorchidian, Deyrmenjian and EHT were aware of and facilitated the manipulation through their respective conduct, were supported by evidence,” it said.
On the issue of jurisdiction, the court said EHT and Craven argued that the regulator failed to establish “a real and substantial connection” between them and the province.
“They say there was no evidence Craven carried on business in British Columbia. The tout sheets were not created here nor paid for here. They were disseminated outside of British Columbia and there was no evidence before the commission that anyone in this province read the tout sheets or invested in Kunekt shares as a result,” the court noted.
However, the appeal court found that, “having concluded that EHT and Craven, along with two British Columbia residents, Khorchidian and Deyrmenjian, were fundamental to implementing a grossly promotional tout sheet campaign to artificially inflate the price of the shares of Kunekt, a reporting issuer in British Columbia, the commission did not err in law in concluding there was a real and substantial connection between them and this jurisdiction.”
It also found there was a basis for concluding that the market manipulation would harm B.C.’s capital markets, since it involved a B.C. issuer and residents. And since Craven and EHT were implicated in that scheme, it was open to the panel to assume jurisdiction over them.