The Supreme Court of British Columbia is largely siding with the target of an enforcement action by the U.S. Securities and Exchange Commission (SEC), ruling that he should have access to assets frozen in Canada to fund a U.S. legal appeal.
In 2021, the SEC alleged that Jackson Friesen had violated U.S. securities law in connection with an alleged pump-and-dump scheme. Earlier this year, a U.S. district court issued an order specifying that Friesen must pay up to US$11.8 million in disgorgement to investors. He is appealing that ruling.
In the meantime, Friesen sought to vary a Mareva injunction, which was granted by the B.C. court in 2023, at the request of the SEC, against his assets.
According to the court, Friesen sought to vary the injunction, allowing him access to additional funds to pay legal fees, personal and corporate taxes and living expenses.
The SEC argued that the variance should be limited to allowing him to pay his outstanding legal bills in the U.S., not to fund future litigation. It also argued that Friesen should first be required to account for the proceeds of the sale of property in 2022.
In its decision, the court said that the case was largely argued on the issue of whether Friesen had proven that he had no ability to pay his expenses beyond the assets that were frozen by the court in B.C.
“For example, he has not deposed as to his current income, his current employment (if any), what his marital and family circumstances are, or any other evidence that could assist the court in determining whether he is able to meet his day-to-day expenses and the cost of his legal fees,” the SEC noted, adding that he also sold a home for $3.3 million in 2022, and hasn’t accounted for the proceeds of that transaction.
The court said Friesen argued that he only has to show that he doesn’t have enough unfrozen assets to pay his expenses, he isn’t required to give a full accounting of his income and access to credit.
The court also said Friesen argued that the demand for disclosure about the sale of his house, which took place before the Mareva injunction was granted, amounts to, “a back-door attempt to obtain discovery for the purpose of determining whether the U.S. injunction has been complied with.”
In its decision, the court largely sided with Friesen.
It noted that Mareva injunctions are intended to prevent a defendant from putting assets beyond the reach of the court, not to preserve them for specific creditors.
“Their primary function is to maintain the integrity of the court’s process rather than to protect the interests of plaintiffs,” it said.
The SEC argued that the Mareva injunction in this case should be considered, at least in part, an injunction to preserve assets that the regulator is seeking to recover to provide restitution to harmed investors.
However, the court disagreed.
“In my view, while disgorgement of ill-gotten gains and compensation to victims of fraud are both important and laudable potential effects of the preservation orders, they do not serve to render an asset-freezing order proprietary in nature,” it said, adding that the public interest in securing restitution for harmed investors doesn’t alter the nature of Mareva injunctions.
“Neither the severity of the alleged wrong (in this case, Mr. Friesen’s participation in securities fraud leading to a disgorgement liability of almost US$12 million), nor the public’s interest in seeing defrauded investors compensated for the wrongs perpetuated upon them, changes the character of the injunction,” the court said.
It also rejected the argument that more extensive financial disclosure is required in order for a court to vary a Mareva order.
“As I have noted, a Mareva injunction is not a form a prejudgment security; its purpose is maintaining the integrity of the court’s process. As such, the court must be cautious about imposing additional evidentiary requirements that would serve as impediments to a defendant accessing their own funds to pay reasonable living expenses or legal fees while under the burden of a Mareva injunction,” it said.
In this case, the court reviewed a sworn list of assets from Friesen, and concluded that, “he has no assets available to pay expenses other than those frozen by the injunction.”
It also found that he isn’t required to account for the proceeds from the sale of his house, which took place before the Mareva injunction was granted.
“Whether or not these actions fell afoul of the U.S. injunction is a matter for the [U.S.] district court to determine,” the B.C. court ruled.
It also found that he’s entitled to access the funds needed to finance an appeal of the U.S. court’s decision against him.
“In my view, Mr. Friesen has a right to appeal the district court order. He needs to access funds to pay counsel for that purpose,” it said, ruling that he can pay US$125,000 out of his frozen assets for estimated future legal fees.