A British Columbia court struck down a regulatory order that froze the retirement accounts of a man ordered to pay millions in penalties and disgorgement in connection with a fraudulent investment club scheme.

The B.C. Court of Appeal struck down a preservation order obtained by the B.C. Securities Commission (BCSC) against Earle Douglas Pasquill, who owes the regulator $36.7 million in unpaid monetary sanctions.

The order prevented Pasquill from withdrawing or transferring funds from two life income fund (LIF) accounts, which represented $644,951 in assets.

Pasquill first asked the commission to revoke the order, but it rejected his application in November 2020. The appeal court has now overturned the regulator’s decision.

In its ruling, the court found that the regulator’s order violated provisions of pension legislation that protect pension benefits from being seized.

The commission had granted the order under recent legislative changes designed to beef up its collection powers, including allowing the regulator to “preserve” property in registered accounts.

Pasquill argued that the order amounted to a form of “seizure” that’s not allowed under pension law, and the court sided with him

“I agree with the appellant that it is not correct to say the preservation order preserves the status quo and ‘does not purport to take any enforcement steps,'” the judge wrote. “Indeed, once a final sanction has been imposed, the preservation order is the first step in its enforcement.”

As a result, the court concluded that the commission erred in finding that a preservation order isn’t part of an enforcement process.

It also ruled that “the commission does not have the authority to enforce judgments against plans that are derived from pension funds.”

Despite the ruling, the BCSC indicated that it will continue to try and collect sanctions ordered in regulatory proceedings.

“We are determined to return money to investors that has been obtained through misconduct, and we will continue to use every tool at our disposal in our efforts to collect sanctions imposed by our panels,” said Peter Brady, executive director of the BCSC, in a release.

In this case, Pasquill was ordered to pay $36.7 million, including a $15-million penalty and $21.7 million in disgorgement, after a BCSC hearing panel found that he and a business partner fraudulently raised more than $21 million in 2008 by selling securities to nearly 700 investors without telling them about “severe cash flow problems.”

The regulator said that Pasquill has not paid any of the sanctions ordered against him.