A British Columbia Securities Commission panel has ordered a European bank that held accounts at 11 B.C. investment dealers that the panel says were used for suspicious trading to permanently cease trading in any securities or exchange contracts in B.C.

From November 2006 through August 2007, Hypo Alpe-Adria-Bank (Liechtenstein) AG traded through its accounts at the 11 B.C. dealers a total volume of about 463 million shares, representing about $165 million in value. Over 90% of this volume was in shares of issuers quoted on the U.S. Over-the-Counter Bulletin Board or the Pink Sheets, with almost all of the total volume in sales. Some of the trades were in securities of issuers that were the subject of unsolicited promotional emails, or “spam.”

During their investigation of this trading, commission staff were unable to identify the beneficial owners of the shares traded in the Hypo Bank accounts because the bank said Liechtenstein bank secrecy laws prevented it from providing commission staff investigators with that information.

In its decision, the commission panel said, “what is relevant is that commission staff has been unable to obtain the information required for their investigation on a timely basis…The passage of time is often significantly damaging to an investigation.”

The panel referred to an earlier commission decision holding that the banking secrecy laws of foreign jurisdictions cannot serve as a shield against the legitimate exercise by the commission of its powers to enforce securities regulation in B.C.

Noting that the commission has the responsibility to protect investors and the integrity of the capital markets, the panel acknowledged that a permanent cease trade order would not help reveal the identities of the beneficial owners.

“However,” the panel said, “we are faced with suspicious trading activity, and commission staff is unable to complete its investigation until it gets the information about the identities of the beneficial owners.”

“We cannot ignore the potential risk to our markets in these circumstances. Although making the order permanent may have limited effect because, as Hypo argues, the wrongdoers (if there are any) may well have moved on, it will at least forestall the use of Hypo as a conduit for any further suspicious trading.”