BCSC set to get new tools to target fraud

B.C. government has introduced a bill to revamp the Securities Act

brigeeta richdale - rk
Cassels Brock & Blackwell LLP partner Brigeeta Richdale’s legal niche is securities litigation, regulatory matters and internal investigations, including defending clients who face enforcement action by securities regulators |Rob Kruyt

A new law is working its way through the B.C. legislature that would revise the Securities Act to provide the British Columbia Securities Commission (BCSC) with new powers to collect fines and to demand documents to help investigate investor fraud.

The B.C. government’s aim is to stamp out investment scams and protect unwitting investors from being conned out of their money – but some say that the new legislation goes too far and could hurt innocent third parties.

BCSC investigators have been hobbled by restrictions on what documents they can demand to see, BCSC CEO Brenda Leong explained to Business in Vancouver.

She said she is excited to see “stronger powers to order production of documents from a wider group of people.”

Leong said that the B.C. government’s new law would make the province the only one in Canada where there is a securities commission that can obtain some key information for investigations that typically have been out of reach.

Not only do the sweeping changes to the Securities Act make it easier for the BCSC to conduct investigations, but once the investigations are completed, and penalties are issued, the new law will help the BCSC collect fines.

Critics have long lambasted the BCSC for its inability to collect fines, and Leong agreed collections have been a problem.

“There is $500 million outstanding in financial sanctions [in the past decade] but out of that number, we’re actively pursuing about $155 million,” she said.

One obstacle is that many times the fraud perpetrator is in jail in another country, she said.

“Another large obstacle is that they’ve declared bankruptcy and our judgments do not survive bankruptcy today,” Leong said.

She added that the provincial government is in discussions with Ottawa to seek to have the federal government change that situation, so that financial-fraud penalties would still apply even if the guilty party declares bankruptcy.

The parties would still be essentially bankrupt, however, so collecting could be a challenge. 

In some cases, BCSC penalties are not necessarily intended to be collected, but rather act as a general deterrent to those tempted to conduct financial crimes.

Regardless, one of the biggest new tools that the proposed provincial law would give the BCSC is the ability to collect fines by seizing property that fraudsters have transferred to family members or to other third parties at a below-market-value cost.

That ability to seize property would apply not only in a situation where a fraud artist sells a house to a family member for $1, but also in any case where the BCSC deems a property transfer to be below market-value cost.

Another new tool that the law would provide BCSC staff is the ability to seize assets in registered retirement savings plans (RRSPs).

The proposed legal changes would also enable the Insurance Corp. of British Columbia to prevent those who owe money under BCSC orders from renewing their driver’s licences and vehicle licence plates until they have paid penalties.

“We’ve been granted these new powers and we intend to use them aggressively,” Leong said.

She added that she is “optimistic” that the new powers will enable the BCSC to collect fines more effectively than it has in the past.

The prospect of an aggressive BCSC going after assets, however, worries lawyers who defend those accused of financial wrongdoing.

“You hope that the regulator is going to be responsible with any new power that they do get, but there is always a risk,” said Cassels Brock & Blackwell LLP partner Brigeeta Richdale.

“It’s concerning,” Richdale said. “The commission already has a broad scope of powers. Now, to be able to go after third parties’ accounts, or RRSPs, it has an impact not just for our clients, but for family members. That’s pretty significant.”

One scenario could be that an innocent third party is owed money by a scofflaw. The scammer pays the innocent person with ill-gotten gains and the BCSC is able to step in and reclaim the assets from the innocent person.

Richdale said there is also uncertainty because the BCSC may be able to unilaterally determine that a property-transfer transaction was made below market value.

“It’s a new landscape,” Richdale told BIV. “That’s really the message.”

Some of the other changes in the tabled legislation include:

•mandatory minimum jail sentences for certain types of fraud;

•increased penalties for certain types of misconduct;

•new prohibitions on false or misleading statements;

•tighter rules around promotional activities; 

•removing a 15-year time limit on penalties;

•adding an ability for the BCSC to order administrative monetary penalties without hearings; and

•adding protection for whistleblowers•