West Vancouver resident Justin Liu has agreed to pay the B.C. Securities Commission a $950,000 fine after admitting his participation in a multimillion-dollar consulting scheme involving nine penny stock companies was “abusive to the capital markets.”
The commission’s executive director Peter Brady had previously alleged Liu to be one of two “primary architects” of the “cash-swap scheme,” which was first disclosed in a November 2018 commission hearing notice against over three dozen “purported consultants” and corporate entities he dubbed the Bridgemark Group — the largest group of respondents in the commission’s history.
According to the agreed facts in a Feb. 21 settlement agreement, Liu and his two companies participated in the scheme that saw consultants, including Liu, collectively enter into $43 million of pre-paid consulting agreements with nine firms listed in the Canadian Securities Exchange (CSE).
The consultants “performed little or no consulting work” while also using consultant exemptions to collectively buy $50.9 million of newly issued free-trading shares from the nine firms, which only kept $7.9 million. (Several firms have since admitted to misrepresenting their sales of shares, as they never disclosed to the public that most of the funds were returned as pre-paid consulting fees.)
The consultants “in most instances” subsequently re-sold those newly issued shares (on the open market, to regular investors) either before they received them or shortly after receiving them and often at a loss, according to the commission.
The settlement states Liu bought $5.6 million shares in three private placements of two firms. Liu also received $4.5 million in consulting fees from nine firms.
In addition to obtaining private placement shares in their own names, Liu and his companies also paid $12.4 million to other entities to buy shares as part of the scheme, the settlement states.
“Liu promoted the scheme to several [CSE-listed companies],” the settlement states.
The settlement does not, however, indicate how much Liu re-sold his shares for and thus how much he made from the scheme in its entirety.
Brady stated the commission took under consideration the fact Liu has no prior securities disciplinary history and made the admissions prior to a lengthy hearing scheduled to commence this month.
Another matter the settlement does not address is the allegation of illegal insider trading against Liu in the amended hearing notice from 2021 — one that had significantly reduced the number of respondents to just four key alleged respondents.
The amended hearing notice had alleged Liu entered into securities transactions while in a special relationship with three firms.
Having not proven those illegal insider trading allegations, Liu’s settlement indicates he did not specifically violate the B.C. Securities Act, rather “the Liu Respondents participated in conduct that was abusive to the capital markets.”
For the next 10 years, Liu has also agreed to not trade in securities or derivatives unless in his own account through a registered dealer or registrant who is made aware of his misconduct. Liu also agreed not to act as a director, officer, consultant or stock promoter with any public company or entity that issues securities, according to the settlement.
Two of the four respondents to illegal insider trading allegations — Cameron Paddock and Robert John Lawrence — admitted to such violations last year and settled on a $200,000 fine each plus 10- and three-year banishments from market participation, respectively.
Allegations against the fourth respondent Anthony Kevin Jackson, the principal of BridgeMark Financial Corp. and Jackson & Company Professional Corp. remain unproven and untested before a panel of commissioners, who render administrative judgments.
A hearing for Jackson, one of the two alleged “primary architects,” was scheduled to commence this week with dates extending to April 2025, following years of delays, including constitutional legal challenges.
Judge’s decision on class-action lawsuit pending
Vancouver securities lawyer Paul Bennett has followed the Bridgemark case carefully since 2018 and helped retail investors launch a civil class-action lawsuit in B.C. Supreme Court against many of the consultants, as well as the CSE-listed companies, all of which had little to no revenue at the time the scheme was alleged in 2018.
Bennett noted Liu’s settlement is the first one in which admissions of the consulting scheme has been made and proven.
Bennett said the commission’s settlements will serve to inform the courts in his case, which had a certification hearing in December with a judgment now pending.
Bennett has already secured three settlements from companies: $2.4 million from Beleave Inc.; $1.34 million from Affinor Growers Inc.; and $350,000 from Preveceutical Medical Inc.
Bennett also noted it is not stated in the settlement how much Liu profited from the exchange of shares and consulting contracts.
In the original hearing notice from 2018, the commission outlined a portion of trades and contracts that allegedly showed consultants paid four companies $17.9 million for shares, which they re-sold for $8.8 million while receiving $15.3 million returned by the companies as consulting fees. And so, their profit was $6.2 million on roughly one-third of the total transactions of the alleged scheme.
