Regulators in British Columbia have found that a former mutual fund rep violated securities law by carrying out an illegal distribution of securities in raising several million dollars for real estate developments, and that he committed fraud in the process.
A hearing panel of the B.C. Securities Commission (BCSC) found that former mutual fund rep, Michael Jerome Knight, along with another man, Jeffrey Karl Wiegel, and their three companies (0772835 B.C. Ltd., Local 1661 Building Inc. and Almaval Building Inc.) sold securities without a prospectus and without being registered. It found that they illegally raised approximately $1.9 million by distributing securities in one of the companies to 31 investors; and that they illegally raised another $1.7 million by distributing securities in another company to 19 investors.
The panel also found that Knight, who was registered as a mutual fund rep between 1992 and 1995, breached an earlier commission order that prohibited him from “engaging in acts in furtherance of a trade and investor relation activities”. And, it ruled that Knight “committed fraud by falsely claiming that a promissory note on behalf of Almaval would become secured by a mortgage on land located at 3701 West Broadway, Vancouver.”
“Knight knew that Almaval did not own the property at 3701 West Broadway,” it said. “We find that Knight had subjective knowledge of the prohibited act, being the failure to tell the investors that Almaval did not own the property.”
However, the panel dismissed the same fraud allegations against Wiegel. It found that the commission did not prove that charge in his case. “In oral submissions the executive director also admitted that he had not introduced any evidence that confirmed (or even suggested) that Wiegel had subjective knowledge of the deceit at the time it was made, other than his subsequent actions. Wiegel’s later actions do not necessarily equate to his having knowledge of the deceit at the time it was made. He may have had other motivations for his subsequent actions. We do not find that the executive director has satisfied the burden of proof in establishing Wiegel’s subjective knowledge of the deceit,” it said.
The decision notes that Knight attended the hearing but did not testify or enter any other evidence in the proceedings. It says that the corporate respondents were given notice of the proceedings but did not attend. And, Wiegel gave testimony and tendered documentary evidence in his defence.
The panel did not hand down sanctions in the case. It directed the two sides to make submissions on sanctions according to the schedule set out in the findings.