A regulatory hearing panel approved a settlement with a company and its CEO, who admitted that they violated securities rules by issuing misleading disclosure about major government contracts that turned out not to be genuine.
Ontario’s Capital Markets Tribunal approved a proposed settlement between the Ontario Securities Commission (OSC) and issuer Kallo Inc., its CEO John Cecil, and its only other employee, Samuel Pyo, that will see them sanctioned for breaching securities rules.
According to the settlement, Kallo issued misleading disclosure in 2020, claiming that it had contracts with five African governments that would see the company provide €5.9 billion worth of healthcare goods and services to those countries.
However, those contracts were not real, and the regulator said that the company, and its CEO, “failed to recognize red flags that should have led them to question whether the contracts were genuine.”
At the time, due to pandemic-related travel restrictions, the company didn’t deal directly with the governments. Instead, it relied on its agents and other intermediaries on the ground in those countries.
“The respondents now acknowledge that there were no contracts,” the tribunal noted in its oral reasons for approving the settlement — adding that they should have questioned whether they were real, given various red flags.
“Kallo should have been suspicious that five different African governments were prepared to potentially borrow billions of euros to finance the implementation of [Kallo’s products and services] without conducting any due diligence on Kallo to ascertain its ability to perform the contracts,” the settlement said.
“Kallo did not independently verify whether the 2020 contract amounts were realistic in light of the healthcare budgets of the African countries in question, or take independent steps to ascertain whether any of the African governments allocated funds for the 2020 contracts in their budgets,” it added.
According to the OSC, after the company filed its annual report in the U.S. in March 2021, its stock price surged. Trading was ultimately suspended by the U.S. Securities and Exchange Commission on March 23, 2021, after one of the governments complained that the contracts disclosed in the annual report weren’t genuine.
Under the settlement, Kallo and Cecil admit that the disclosure about the supposed contracts was misleading, and amounted to a violation of securities law.
They agreed to pay a $200,000 penalty and $50,000 in costs to resolve the OSC’s allegations — the panel noted that $75,000 of the total has already been paid, and that the balance is due Nov. 14, 2025. Kallo was also permanently banned, and Cecil was banned for 10 years.
“The misconduct here, particularly that of Kallo and Mr. Cecil, is serious,” hearing adjudicator Tim Moseley wrote. “While there is no basis to conclude that their misconduct was deliberate, in my view their conduct fell far short of what is required of a company and its chief executive officer, where that company raises funds from the public.”
The panel noted that Pyo’s misconduct was “much narrower” — he admitted that he should have been more skeptical about the claims made by the company’s agents. He was banned for four years and has paid $5,000 in costs to settle the case, it said.