Pt. 2 Record-High Penalties: Kim, Castiglioni, and IFC
Last night, CBC TV ran a story about the collection rates of financial penalties imposed by Canadian regulators.
we explained that our rate of the collection was lower than other Canadian regulators because of four significant fraud cases, one of which was the Manna Trading Corp. case. We went on to feature the Manna Trading Corp. case to highlight a BCSC panel’s comments regarding the legislation that allows for $1 million-plus penalties.
In this post, we are highlighting the three other fraud cases where BCSC panels have imposed high penalties to provide a deterrent against this type of misconduct.
Sun Wan (Sean) Kim: a BCSC panel found that Kim significantly harmed investors and abused both the capital markets and the authority of the commission when he targeted the Korean religious community to enrich himself. Kim, a registered futures trader with his own firm Cirplus Future Inc., took $15.7 million from 35 BC investors (most of them members of the same Burnaby Baptist Church) and one Korean investor.
The panel wrote: “Kim set out to steal the investors’ money. He lied to them about how their funds would be invested and the returns they would earn. He forged letters purportedly from the BC Securities Commission falsely stating that the BCSC was actively engaged in the oversight of Cirplus’ business. He falsified investor account statements and made them appear to be from the carrying broker.”
The BCSC panel permanently banned Kim from capital markets and imposed combined penalties of more than $47 million (the highest in Canada to date) for misconduct “at the top range of seriousness.”
Mr. Kim fled to South Korea where he was convicted of financial crimes and put in jail.
Luc Castiglioni: Castiglioni raised a total of $8.2 million from more than 60 investors using two companies, CPLC Limited Partnership, and CPLC Management Group Ltd. He prepared false account statements for investors and misrepresented the structure and operation of the companies to them.
He also forged bank statements in order to frustrate commission staff’s attempt to discover the truth. Castiglioni prepared documents for investors that said CPLC Management group was a registered portfolio manager and that he was a registered advisor.
The panel said: “This was a lie and a serious one. Registration is one of the key investor protection mechanisms in the Act and a representation of registration leads investors to a degree of trust and reliance that they otherwise would not have.”
The panel fined Castiglioni $6 million – three times the amount he defrauded investors, plus an additional $2 million.
The International Fiduciary Corp. Three men, Malcolm Cameron Boyd Stevenson, Daniel Eric Byer (of Abbotsford) and Preston Pinkett II (of Virginia) perpetuated a fraud through an investment vehicle called International Fiduciary Corp SA.
The men promised investors a return of 6 percent a month, telling them this was possible through ICS’s “asset growth program” that purportedly bough securities called “1st Tier medium term bank notes”. The program was a Ponzi scheme that took over $23.3 million from 89 BC investors, who received payments of only $10.3 million.
The panel imposed combined penalties of $16.7 million. At the time, the receiver had located a little over $8 million in IFC bank accounts, suggesting that any recovery from IFC will fall far short of any meaningful repayment of the investors’ principal.