Canadian regulator claims breach by Caledonian co-defendant

The executive director of the British Columbia Securities Commission has issued a notice of hearing alleging that Verdmont Capital S.A, a co-defendant in the U.S. Securities and Exchange Commission case against Caledonian, breached securities laws by trading in securities on behalf of British Columbia residents.

The notice alleges that Verdmont Capital S.A., an offshore securities dealer and broker in Panama, offered or solicited trades of securities without being registered in British Columbia.

The commission said at least three former B.C. registrants, including Glynn David Fisher and Taylor Kennedy Housser, were employed at Verdmont during the relevant period.

Mr. Fisher, a founder, director and president of Verdmont, was registered in the province as an investment adviser from 1994 to 1997. Mr. Housser, a founder, director and secretary of Verdmont, was registered in B.C. as an investment adviser from 1994 to 1998.

The commission alleges that Verdmont offered its services through its website without prominently posting a disclaimer that expressly identified the foreign jurisdictions in which the offering or solicitation was qualified to be made, and failed to take reasonable precautions not to sell to B.C. residents.

On its website, Verdmont said it offered worldwide securities and investment management services and posted restrictions on U.S. residents using its advertised services, but mentioned no restrictions for Canadian residents.

By doing so, the securities regulator maintains, Verdmont held itself out as being in the business of trading and advising in securities, and carried out both activities without being registered to do so.

Following inquiries to both Verdmont and the Panamanian securities commission, the securities regulator received information about 112 Verdmont brokerage accounts for more than 100 British Columbia residents, held either in their own names or in the names of offshore companies controlled by them.

The BCSC believes that on behalf of B.C. residents, Verdmont bought 70 million shares worth more than $15 million and sold 109 million shares worth more than $31 million. The transactions earned Verdmont approximately $1.5 million in commissions, the regulator said.

BSBC asserts that Verdmont, Mr. Fisher and Mr. Housser breached securities laws with regard to registration requirements. These allegations have not been proven. A hearing into the allegations before the panel of commissioners is scheduled for Dec. 8.

The securities regulator acknowledged the assistance provided by the Superintendencia del Mercado de Valores of Panama and the U.S. Securities and Exchange Commission during its investigation.

Earlier this year, the U.S. securities regulator sued Verdmont together with Cayman Islands-based Caledonian Bank and its brokerage Caledonian Securities and two Belize-based brokers for their alleged participation in penny stock pump-and-dump schemes and trading in unregistered securities in the United States.

In the case, Verdmont maintained that the SEC failed to establish a prima facie case that the broker violated Section 5 of the Securities Act which requires securities to be registered before they can be sold or offered for sale. Verdmont argues it was covered by an exemption for dealers and brokers under the law.

On Nov. 10, a U.S. district court judge rejected a pretrial motion by Verdmont for a judgment on the pleadings, allowing the case to go to trial.