An Ontario Securities Commission (OSC) hearing panel has ordered about $5 million in disgorgement, $1.5 million in penalties and costs, along with extensive trading and registration bans in a fraudulent futures trading scheme.

Back in September 2012, the commission found that Gordon Alan Driver, Axcess Automation LLC and other companies, and Steven Taylor, Berkshire Management Services Inc. and other companies knowingly engaged in a fraudulent futures trading scheme. Additionally, Reynold Mainse and World Class Communications Inc. were found to have engaged in unregistered trading and illegal distribution, but were not found to have been part of the fraud.

The scheme raised about US$15.2 million from investors for a scheme that promised to generate superior returns by trading E-mini S&P 500 futures on the Chicago Mercantile Exchange, or other futures and options, using proprietary software. However, according to the commission, most of the money was not used to trade derivatives. Instead, almost US$10.4 million was diverted to pay investors to create the appearance of a legitimate investment, the OSC said. Investor funds were also diverted to pay personal expenses and commissions. Of the $3.6 million that was actually used to trade, $3.5 million of it was lost, it adds.

On Wednesday, the OSC panel issued its decision on sanctions in the case. It ordered that Driver and the Axcess companies must disgorge $3.1 million, and pay an administrative penalty of $750,000. They are also permanently banned from trading and registration. Taylor and the Taylor companies were ordered to disgorge $1.6 million and to pay a $500,000 penalty; along with permanent bans too. And, it ordered Mainse and WCC to disgorge $210,219, pay a penalty of $35,000, and face a 15 year ban from the markets. Additionally, it ordered over $200,000 in costs against Driver, Taylor and their companies, and $2,500 against Mainse and WCC.

It granted the sanctions asked for by staff in terms of monetary penalties and market prohibitions, although the disgorgement orders were less than they requested, noting that it is ordering disgorgement that represents the amount that has not been returned to investors to ensure they “do not retain any financial benefit from their breaches of the Act and to achieve general and specific deterrence.”

In its penalty decision, the panel said, “The allegations made by staff and proven in this matter with respect to Driver, the Axcess companies, Taylor and the Taylor companies demonstrate egregious behavior on their part.”

Axcess Capital Advisors Inc. of Calgary is not associated with the events described in the above article.