Record-High Penalties: The Manna Case

 

Today, the CBC ran a story about the collection rates of financial penalties imposed by Canadian securities regulators.  The size and total amount vary considerably depending on the nature of the case.  BC’s rate of collection was considerably lower because BCSC imposed record-high penalties totalling $113 million in four significant investment fraud cases. 

 

In the absence of these penalties, the BCSC’s rate of collection increases to more than 50% when you take the four cases out of the overall figure of $119 million owing.

 

Regulators make every reasonable effort to collect monetary penalties, including using the service of collection agencies and registering judgements against assets.  Recovery is often limited as a significant number of cases involve serious fraud where there is little or no likelihood of ever collection the money as is the case in these four cases.

 

In the Manna Trading Corp. case sanctions decision, which was issued in September 2009, the BCSC panel clearly explained the rational behind the significant administrative penalties.

 

The panel said, “In amending section 162, the Legislature quadrupled the maximum penalty and authorized the maximum to be applied “per contravention”. It seems clear that the Legislature’s intent was that the Commission have the power to impose significant administrative penalties in the public interest where appropriate in the circumstances.”

 

In the Manna Trading Corp. case, four Hal (Mick) Allan McLeod, David John Vaughan, Kenneth Robert McMordie (also known as Byrun Fox) and Dianne Sharon Rosiek perpetrated a “deliberate and well-organized” fraud in a Ponzi scheme that resulted in the loss of over $10 million by more than 800 investors in BC and elsewhere. 

 

The Ponzi scheme began as an investment club which ultimately grew to $16 million before its collapse in June 2007. The BCSC panel permanently banned the four BC residents and ordered them to pay combined penalties of $42 million for operating a Ponzi scheme.

 

“In these circumstances, we are making orders based on the upper limit – US$13 million,” the panel said. “To provide an appropriate deterrent, we have doubled that amount and allocated that total penalty among the respondents in proportion to what we consider their relative culpability.”

 

On March 7, 2012, BCSC’s Criminal Investigations Team arrested McLeod at him home with the assistance of the Surrey RCMP.  The arrest followed an undercover investigation by the BCSC.  McLeod is charged in connection with the Provina Investment.

 

In our next post, we’ll highlight three other cases where BCSC panels have levied high penalties.