Legal experts hope first remediation agreement under Criminal Code will lead to more

Nearly four years after the federal government added deferred prosecution agreements to the Criminal Code as part of its arsenal to fight corruption and other white-collar crime, legal experts hope that guidance provided by Quebec Superior Court in Canada’s first ever remediation agreement will prompt federal prosecutors and organizations to take advantage of the new way of settling criminal charges.

The comprehensive, meticulous and “important” decision introduces a “welcome” degree of certainty to the new process in the absence of accompanying regulations, guidelines or policies in the remediation agreement regime, according to legal experts. The ruling by Quebec Superior Court Justice Éric Downs sheds light on how remediation agreements will be broached by the courts, indicating that while they will not act as a “rubber stamp” in reviewing proposed settlements, the agreements will be afforded a high degree of deference, added the experts. The judgment also signals that self-reporting, though not a “hard condition,” will carry considerable weight as does “strong cooperation” to help sway the courts to sanction the agreement, they added.

“It’s an important decision because there were question marks around how the courts would approach the approval of a remediation agreement and how involved they would be in the process,” noted Louis-Martin O’Neill, a Montreal M&A and securities litigator with Davies Ward Phillips & Vineberg LLP. “The Court was very mindful of the fact that there is a huge need for stability in the system, and that implies that when a corporation starts to negotiate with the prosecution for a remediation agreement it has to know that unless something very grave happens, that agreement should stick when presented to the court.”

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Quebec court applies Jordan ceilings to white collar crime

A Quebec man accused of tax evasion by provincial tax authorities won an “important” legal battle after the Court of Quebec applied the landmark Jordan ruling and ordered a stay of proceedings and charges.

The decision affirms that the principles set out by the Supreme Court of Canada in R. v. Jordan, 2016 SCC 27, [2016] 1 applies to white collar crimes, clarifies the notion of “complexity of the case,” underlines that the prosecution must analyze the evidence and develop a “concrete management and trial plan” before laying charges, and it may even prompt Revenu Quebec to review its procedures, according to tax lawyers. The ruling also suggests that the Covid-19 pandemic is not in itself sufficient grounds to justify delay, without examining other factors.

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U.S. SEC obtains another order to freeze assets of alleged PlexCorps founder

The noose is tightening around Dominic Lacroix, a Quebec City businessman believed by Quebec’s financial watchdog and the U.S. Securities and Exchange Commission to be behind PlexCorps, a controversial cryptocurrency start-up accused of fraudulently selling millions of dollars’ worth of digital assets.

Nearly a month after Lacroix was ordered by the Quebec Financial Markets Administrative Tribunal to hand all bitcoins in his possession, the SEC obtained on June 15, 2018 a second emergency court order freezing his assets.

On December 2017, the SEC had filed securities charges, and obtained an emergency asset freeze, against Lacroix, described as a “recidivist” Quebec securities law violator, his partner Sabrina Paradis-Royer and PlexCorps.

The SEC returned to the federal court in Brooklyn, New York this month because Lacroix allegedly has been using secret accounts, including an account in his brother’s name but which he controlled, to “improperly dissipate” for personal use monies he obtained from investors during the PlexCoin Initial Coin Offering. U.S. District Judge Allyne Ross granted the emergency freeze asset after finding there was a grave risk that Lacroix would siphon monies he obtained from PlexCoin investors.

The SEC original complaint alleges that from August 2017 to December 1, 2017, PlexCorps, Lacroix and Paradis-Royer “purportedly” obtained $15 million from thousands of investors through “materially false and misleading statements” made by Lacroix and through entities Lacroix controls. The complaint  alleges that he promised investors returns of 1,354% in under 29 days. The complaint further alleges that Lacroix and Paradis misappropriated investor funds and engaged in deceptive acts relating to PlexCoin.

On May 24, 2018, the Quebec Financial Markets Administrative Tribunal issued new freeze orders against Lacroix and Paradis-Royer — on top of the ones they already face — in a bid to protect the public and prevent them from transferring or “squandering” monies in their possession.

Lacroix was found guilty last October of contempt of court for failing to adhere to broad ex parte orders issued by the Tribunal on July 2017 that forbade him and his company DL Innov Inc. from trading in any form of investment. On December 2017, he was sentenced to a two-month jail term and fined $10,000 for contempt of court while DL Innov was fined $100,000. Both rulings have been appealed.

In 2013, Lacroix pleaded guilty to six counts of “illegal placement, illegal practice, and transmission of false or misleading information” and was fined $25,000.

Alleged PlexCorps founder ordered to hand bitcoins to Quebec financial watchdog

A Quebec City businessman believed by Quebec’s financial watchdog and the U.S. Securities and Exchange Commission to be behind PlexCorps, a controversial cryptocurrency start-up accused of fraudulently selling up to millions of dollars’ worth of tokens, has been ordered to hand all bitcoins in his possession within 48 hours, ruled the Quebec Financial Markets Administrative Tribunal.

The Tribunal, in a ruling that will likely create precedence given the dearth of case law, also issued new freeze orders against Dominic Lacroix and his spouse — on top of the ones he already faces — in a bid to protect the public and prevent them from transferring or “squandering” monies in their possession.

“Cryptocurrencies have changed the approach the Tribunal must adopt in order to protect the sums held in this manner because there exists no other third party like a financial institution to ensure the respect of decisions issued by a tribunal,” said the two-member panel of the Tribunal in a ruling issued on May 24th.

The Tribunal felt then “it had no choice but to innovate in the application” of article 249 of the Quebec Securities Act. The article stipulates that that the Autorité des marchés financiers (AMF), Quebec’s financial regulator, may for purposes of an investigation request the Tribunal to order a person to refrain from disposing funds, securities or other assets in his possession. By its own admission, the Tribunal noted that article 249 did not have enough bite. Lacroix, the Tribunal pointed out, repeatedly ignored orders against him. The Tribunal, as a result, turned to article 94 of the Act respecting the Autorité des marchés financiers which allows for the Tribunal to “take any measure conducive to ensuring compliance.”

“In the opinion of the Tribunal, this article gives it the possibility to adjust an order that would be adapted to the virtual reality of bitcoins,” said the Tribunal “It is clear that new technologies and new ways of holding assets pose important challenges to those responsible upholding the application of the law.”

Faced with an “exceptional situation,” the Tribunal adopted a “large and liberal” interpretation of article 94 that allowed it to take measures just as exceptional to protect investors. In this vein, the Tribunal “believes it is justified” to use the powers conferred to it under article 94 to order Lacroix to transfer bitcoins in his possession to the Quebec financial watchdog but only to safeguard it, and not as the AMF hoped to sell them.

Lacroix was found guilty last October of contempt of court for failing to adhere to broad ex parte orders issued by the Tribunal on July 2017 that forbade him and his company DL Innov Inc. from “engaging in activities for the purpose of directly or indirectly trading in any form of investment” covered by section 1 of the Quebec Securities Act, either in Quebec or from Quebec to outside of the province. On December 2017, he was sentenced last year to a two-month jail term and fined $10,000 for contempt of court while DL Innov was fined $100,000. Both decisions have been appealed.

In spite of the orders issued against him over the past year, the Tribunal found that Lacroix has used his entourage, including his spouse, his brother and his employees, to circumvent “by all means possible” the restraint orders issued against him.

On April 23, 2018, PlexCoin wrote in its Facebook page that “we assure to these people that 100% of the money used to buy their PlexCoin, by credit card, is still in the bank accounts and ready to be used to pay you back, we have proposed this option to the SEC and the AMF but we still have not received their agreement for the process.”

Yet the Tribunal notes that in spite of this statement, evidence revealed that amounts obtained from investors who used their credit cards to purchase PlexCoins were deposited in Lacroix’s bank accounts with CIBC and Tangerine and used for personal purposes. Further evidence revealed that Lacroix and his spouse paid more than $100,000 to suppliers who worked on his luxurious $2.5 million home in Quebec City. As well, evidence also revealed that Lacroix and his spouse spent in the space of a couple of months 314.75 bitcoins to “maintain a luxurious lifestyle” in part by monies obtained from PlexCoin investors.

According to an AMF investigation, the PlexCoin initial coin offering generated US$3.3 million, 1,677 bitcoins. Testimony provided by an AMF investigator alleges that Lacroix still controls 464.22 bitcoins as of May 7, 2018. The value of each bitcoin at that date is estimated to be between $9,000 and $12,000. All told, according to the investigator, Lacroix has more than US$4 million in bitcoins.

“To ensure that the bitcoins held or under Lacroix’s direct or indirect control are preserved, the Tribunal has no choice under the circumstances but to order Lacroix to transfer to a third party, in this case the regulator, the AMF, his bitcoins,” said the Tribunal. “Prime facie evidence revealed to the Tribunal leaves it with no alternative in this case given the repetitive wrongdoing attitude demonstrated by Lacroix.”

The Tribunal also ordered the Bank of Montreal, Tangerine, Caisse Desjardins de Charlesbourg and the CIBC to refrain from disposing funds, securities or other assets belonging to Lacroix or his spouse.

Investment counsellor fined $2.1 million

Nearly 10 years after Quebec’s financial watchdog launched penal proceedings against an investment consultant, a Court of Quebec judge fined Denis Patry $2.1 million after being found guilty of 89 counts of securities violations.

Patry was charged for aiding, by act or omission, Les conseillers en valeurs Planiges inc., with making misrepresentations in securities transactions on 81 occasions and failing to fulfill an undertaking with the financial regulator, the Autorité des marchés financiers, on six occasions.

Patry was president and director of Planiges, a firm founded in 1982 that offered investment consultant services. Between 1991 and 1995, the value of the portfolios managed by the firm declined substantially. In February 1996, Patry persuaded the vast majority of his clients to transfer their money, until that time held by Desjardins Trust, which was acting as a securities custodian, into an account held by Planiges at Royal Bank of Canada. Some $10,000,000 was transferred as a result.

Over the following months, some clients asked to be repaid, and were given some $7,000,000, leaving about $3,000,000 in the account. At some point during the 2000’s, the quarterly statements of account sent to clients and prepared by Planiges according to the Patry’s instructions contained falsified values. Patry was trying to use this scheme to hide the fact that, because of his use of the funds to perform futures or options transactions as well as to finance the operations of Planiges, the cash had evaporated. In reality, nothing was left in June 2005, whereas the quarterly statements showed substantial amounts.

The case took so long to resolve because the courts had to grapple with the admissibility of the defence of mental disorder for a strict liability offence, its limits, and the nature of evidence required. On February 2011, Judge Claude Millette of the Court of Quebec concluded that it had been proven beyond a reasonable doubt that Patry had aided with making misrepresentations to investors and had failed to fulfill an undertaking with the AMF, but because he was afflicted with a serious illness – bipolar disease — he had been found not responsible by reason of mental disorders, a ruling upheld by Quebec Superior Court.

The Quebec Court of Appeal however overturned the lower court decision.

“In my view, the Court of Quebec judge erred in law by confusing the physical consequences of an act with the objective sought,” said appeal court Justice François Doyon in Autorité des marchés financiers v. Patry, 2015 QCCA 1933. “He also erred in law by considering the mental disorder defence when it does not meet the minimum air of reality test, or by giving it effect when the evidence was clearly insufficient to rebut the presumption. The evidence did not support the defence.”

The Quebec appeal court convicted Patry of 89 counts of securities violations and returned the dossier to the Court of Quebec case for sentencing.

Court of Quebec Judge Claude Leblond said in Autorité des marchés financiers c. Patry, 2018 QCCQ 1144 that were it not for extenuating circumstances, in other words his mental illness, he would have sentenced him to a 30-36 month prison sentence in addition to the fines.

Suspected PlexCoin founder sentenced to two months in prison

Dominic Lacroix, a Quebec City businessman believed by Quebec’s financial watchdog and the U.S. Securities and Exchange Commission to be behind PlexCorps, a controversial cryptocurrency start-up accused of fraudulently selling up to $15 million of tokens, was sentenced to two-month jail term and fined $10,000 for contempt of court.

“The defendants fully understood the orders but intentionally and voluntarily disrgarded them,” said Quebec Superior Court Justice Marc Lesage in a 15-page ruling dated December 8th. “The Court finds that this is a case of exteme case of contempt and bad faith by the defendants.”

Lacroix and his company DL Innov inc. were found guilty in mid-October by Justice Lesage of failing to respect broad ex parte orders issued by the Quebec Financial Markets Administrative Tribunal on July 20th that forbade them from “engaging in activities for the purpose of directly or indirectly trading in any form of investment” covered by section 1 of the Quebec Securities Act, either in Quebec or from Quebec to outside of the province. DL Innov inc. was fined $100,000 for the same offense. Both Lacroix and DL Innov have three months to pay the fine.

Search warrants conducted by the Quebec’s financial regulator, the Autorité des marchés financiers (AMF), at Lacroix’s home and the offices of DL Innov inc. uncovered exchanges Lacroix had with one of DL Innov’s employees between July 25th and July 28, 2017. According to Justice Lesage, it revealed the “cavalier” attitude they had towards the court orders and “their intention not to follow them.” Among other things, they said:

  • “These are administrative procedures ordered by a juge. We don’t care about the AMF.”
  • “Our target audience is…those who don’t understand crypto.”
  • “We received another summons by the AMF. They won’t give up, there must be no traces.”

On December 1, the U.S. Securities and Exchange Commission filed charges against Lacroix, a “recidivist” Quebec securities law violator, his partner Sabrina Paradis-Royer and his company PlexCorps. The SEC’s complaint charges Lacroix, Paradis-Royer and PlexCorps with violating anti-fraud provisions, and Lacroix and PlexCorps with violating the registration provision, of U.S. federal securities laws. The complaint seeks permanent injunctions, disgorgement plus interest and penalties.

The SEC also obtained an emergency asset freeze against PlexCoin, a controversial “fast-moving” and “purported” initial coin offering (ICO) that has raised up to $15 million from thousands of investors since August 2017.

U.S. SEC files charges against PlexCorps

The U.S. Securities and Exchange Commission has obtained an emergency asset freeze against PlexCoin, a controversial “fast-moving” and “purported” initial coin offering (ICO) that has raised up to $15 million from thousands of investors since August 2017.

The SEC also filed charges against Dominic Lacroix, a “recidivist” Quebec securities law violator, his partner Sabrina Paradis-Royer and his company PlexCorps, according to a new filing dated December 1, 2017 in Brooklyn, New York.

The SEC’s complaint charges Lacroix, Paradis-Royer and PlexCorps with violating anti-fraud provisions, and Lacroix and PlexCorps with violating the registration provision, of U.S. federal securities laws. The complaint seeks permanent injunctions, disgorgement plus interest and penalties. The SEC is also seeking an officer-and-director bar for Lacroix as well as a bar from offering digital securities against Lacroix and his partner Paradis-Royer.

Initial coin offerings have become a bonanza for digital currency entrepreneurs in spite of increased attention from regulators. So far, ICOs have raised US$3 billion in 2017 thanks to more than 200 offerings held during the course of the year, according to data obtained from CoinSchedule.

Regulators around the world are becoming increasingly concerned about the dangers posed by ICOs and are warning about the risks of asset bubbles, market manipulation and fraud. Indeed, the SEC established last September a cyber unit to keep an eye on ICOs, distributed ledger technology, the spread of false information through electronic and social media, and hacking and threats to trading platforms.

PlexCoin caught the attention of Quebec’s financial watchdog this summer which unsuccessfully tried to stop its ICO. The SEC’s complaint does not mince words.

“This is an emergency action to stop Lacroix, a recidivist securities law violator in Canada, and his partner Paradis-Royer, from further misappropriating investor funds illegally raised through the fraudulent and unregistered offer and sale of securities called ‘PlexCoin’ or ‘PlexCoin Tokens’ in a purported Initial Coin Offering,” affirms the 35-page SEC complaint.

The SEC complaint alleges that from August 2017 to December 1, 2017, PlexCorps, Lacroix and Paradis-Royer “purportedly” obtained $15 million from thousands of investors through “materially false and misleading statements” made by Lacroix and through entities Lacroix controls such as promising investors returns of 1,354% in under 29 days. The statement further alleges that Lacroix and Paradis misappropriated investor funds and engaged in deceptive acts relating to PlexCoin.

The false and misleading statements, according to the SEC’s statement, include:

  • Lacroix and PlexCorps asserted that their team consisted of a growing cadre of experts stationed around the world, and that the principal place of business was in Singapore.

In fact, the SEC asserts that “Lacroix knew or recklessly disregarded, PlexCorps and PlexCoin are a scam” because there is no PlexCorps team other than a handful of Lacroix’s employees in Quebec.

  • According to Lacroix, the identity of PlexCorps’ executives were kept hidden to avoid poaching by competitors.

In fact, the SEC states that the reason why PlexCorps did not disclose the identity of its principal executive was because Lacroix was a known recidivist securities law violator in Canada.

  • Lacroix said that the proceeds of the PlexCoin ICO would be used to develop other PlexCorps products.

The SEC alleges that the proceeds from the PlexCoin ICO were intended to fund Lacroix and Paradis-Royer’s expenses including home décor projects.

The funds fraudulently raised during the PlexCoin ICO have been channeled through various fiat currency accounts belonging to Lacroix and Paradis-Royer and through cryptocurrency addresses under their control on various blockchains, according to the SEC statement.

Of the 81 million PlexCoins purchased, approximately $810,000 is currently held in three accounts to which Lacroix and his associates will soon gain access, alleges the SEC. The SEC also alleges that Lacroix and Paradis-Royer have misappropriated or attempted to misappropriate at least $200,000 of these amounts on “extravagant” personal expenditures.

“PlexCoin is and was a fraud aimed at enriching” Lacroix and Paradis-Royer, plainly states the SEC in its statement.

PlexCorps disputes the charges. “We are being depicted as robbers, scammers and fraudsters everywhere in the media. They are smearing our name with some allegations that can sometimes be false or misleading,” it said in a Facebook posting dated December 4th.

PlexCorps also states that it will be cooperating with Quebec’s securities regulator, the Autorité des marchés financiers, and the SEC “until the end of the investigation.”

Lacroix’s legal hurdles are from over. Earlier this fall, he was found guilty of contempt of court. He is now awaiting his sentence.

PlexCoin still under scrutiny by Quebec financial regulator

Quebec’s financial watchdog is putting the squeeze on Dominic Lacroix.

He is a Quebec City resident who is thought to be behind an initial coin offering, PlexCoin, that is set to launch on Friday, October 13th.

The Autorité des marchés financiers (AMF) is working hard to prevent that from happening, and is ramping up the pressure.

Next Tuesday, on October 3rd,  before Quebec Superior Court in Quebec City, the AMF will argue that Lacroix should be found guilty of contempt of court for failing to comply with orders issued by the Quebec Financial Markets Administrative Tribunal. What’s more, the AMF will be asking for a “severe sentence,” said Sylvain Théberge, AMF’s spokesperson. He refused to describe what he meant by a severe sentence.

Virtual currencies have captured the imagination of a certain segment of the public. Initial coin public offerings (ICO) are rising, raising more than US$1.8 billion so far this year. An ICO allows start-ups to raise funds by selling digital coins or tokens to investors. But regulators around the world are becoming increasingly concerned about the dangers posed by ICOs and are warning about the risks of asset bubbles, market manipulation and fraud. This week South Korea banned ICOs, keeping in lockstep with China. Switzerland in the meantime is investigating a number of cases of ICOs for possible breaches of regulations while Australian and UK financial regulators cautioned investors to be wary.

PlexCoin is among one of many ICOs trying to seize the moment, but it is facing an uphill battle.

The Autorité des marchés financiers (AMF) filed a motion this week before Quebec Superior Court seeking contempt of court charges against Lacroix for failing to comply with orders issued by the Tribunal earlier this summer on July 20th, according to Théberge.

On July 20th, at the request of the AMF, the Tribunal issued a broad ex parte order forbidding Lacroix and his companies DL Innov inc. and Gestio inc from “engaging in activities for the purpose of directly or indirectly trading in any form of investment” covered by section 1 of the Quebec Securities Act (Act), either in Quebec or from Quebec to outside of the province. The Tribunal issued the same order against PlexCorps and PlexCoin. (An ex parte order is an order granted by a judge at the request of and for the benefit of one party only, without notice or challenge by the other party).

“We are visibly faced with a situation that resembles non-compliance of orders issued by the Tribunal,” said Théberge. “From all evidence, PlexCoin is not respecting any of the orders issued by the Tribunal because it appears they have solicited and still are soliciting investors.”

More recently still, on September 21st, following yet another application by the AMF, the Tribunal issued an order that forbids Dominic Lacroix, his company DL Innov inc. and his spouse Sabrina Paradis-Royer from directly or indirectly “disposing” funds, securities or other property in the safekeeping of another person who has them on deposit or in custody or in control of them, no matter where.

The Tribunal also issued an order that forbids Royal Bank of Canada, Shopify Inc., Shopify Payments Canada and Wells Fargo Canada Corp. from disposing funds, securities or other property they have on deposit or custody and control belonging to Lacroix, Paradis-Royer and DL Innov inc. The financial organizations have been cooperating with Quebec’s financial regulator, said Théberge.

In a filing dated September 20th, obtained exclusively by Law in Quebec, the AMF notes that in spite of the Tribunal’s July 20th order that barred Lacroix, DL Innov, Gestion inc, PlexCoin and PlexCorps  from soliciting investments from the public, the internet sites plexcorps.com and plexcoin.com were in operation, accessible to Quebecers and continued to solicit funds. “Faced with the inaction of the defendants,” two warrants were executed on Lacroix’s home and DL Innov on August 2nd.

Investigators found in Lacroix’s home documents used to create the website plexcoin.com and PlexCoin’s white paper, according to the filing.

Invoices registered for the domain name of PlexCoin by web host provider GoDaddy, dated May 24, 2017 and addressed to Lacroix, were also found in the premises. In a computer used by one of DL Innov’s employees, a list of the 91,445 persons who were registered for PlexCoin’s presales was also found.

As well, a search of DL Innov’s employee’s cell phone revealed a text message from Lacroix sent on June 14, 2017. The message stated: “Don’t forget that when you talk about plex it’s not me who is behind it. You don’t know who it is. You just saw it from somewhere. It must be super private.”

None of the allegations made by the AMF have been proven in court.

Montreal man ordered to pay largest fine ever issued for Quebec securities offences

A Montreal man was fined $11.2 million, the largest fine ever issued in Quebec for securities offences, and sentenced to a three-month jail sentence for fraudulent penny stock practices commonly referred to as a “pump and dump” scheme.

Jean-François Amyot is among one of five people and two companies that plead guilty to charges laid against them nearly three years ago by the Quebec financial watchdog, Autorité des marchés financiers, during a trial earlier this year.

They were accused of market manipulation involving five companies, including Spencer Pharmaceutical Inc., Energy 1 Corp., Andes Gold, Kender Energy et Wanderport Corp. They were accused of attempting to influence the market price or the value of securities by means of unfair, improper or fraudulent practices, and misrepresentation, breaching articles 195.2 and 207 of the Quebec Securities Act.

A plea agreement reached earlier this year that was approved by the Court of Quebec led Amyot to plead to five counts of market manipulation and two counts of conspiracy.

  • Under the same deal, Francis Mailhot plead guilty to three counts of market manipulation and one count of conspiracy, and was fined $5 million.
  • Daniel Ryan plead guilty to two counts of market manipulation and was fined $500,000. Ryan plead guilty to another count of market manipulation in another matter and was fined $225,000.
  • Conseils Hilbroy Inc. plead guilty to one count of market manipulation and was fined $1 million.
  • IAB Média Inc. plead guilty to one count of market manipulation and was fined $500,000.
  • Andrew Barakett plead guilty to one count of market manipulation and was fined $50,000.
  • Eric Boyd plead guilty to one count of market manipulation and was fined $30,000.

“The manipulation of securities on the markets is a very serious offence that deserves appropriate sanctions,” said Louis Morisset, AMF’s president, in a statement. “The convictions obtained in this case are the culmination of lengthy investigative procedures and the sustained work of our teams of investigators and prosecutors.”

Amyot was involved in a similar scheme several years ago. In October 2015, the U.S. Securities and Exchange Commission (SEC) described Amyot as a “Canadian Pump-And-Dump Operator” and fined him, IAB Media Inc. and Hilbroy Advisory Inc. (two Canadian companies controlled by Amyot, according to the SEC) and Spencer Pharmaceutical Inc., a publicly-traded company with addresses in both Boston, Massachusetts, and Canada, to more than $7 million.

According to the SEC’s complaint, filed on December 17, 2012, Amyot, Spencer, Hilbroy, and IAB Media were involved in a “pump-and-dump” scheme in 2010 and 2011 involving Spencer’s publicly-traded stock.

According to the complaint, Amyot worked with the three companies, as well as Spencer’s two officers and directors, to create and disseminate false and misleading press releases and to otherwise promote Spencer’s stock, including via websites and newsletters.

Quebec financial watchdog raids offices of man prohibited from promoting PlexCoin

The Quebec financial watchdog raided last week the offices of Dominic Lacroix, a Quebec City man who has been prohibited by a tribunal to promote and solicit investors for a new virtual currency called PlexCoin.

The raid turned up a list of people from around the world, including Quebec, the U.S., and Africa, who expressed an interest in investing in PlexCoin, said Sylvain Théberge, a spokesperson with the Autorité des marchés financiers (AMF), the regulatory and oversight body for Quebec’s financial sector.

On July 20, 2017, at the request of the AMF, the Quebec Financial Markets Administrative Tribunal issued a broad ex parte forbidding Lacroix and his companies DL Innov inc. and Gestio inc. from “engaging in activities for the purpose of directly or indirectly trading in any form of investment” covered by the section 1 of the Quebec Securities Act (Act), either in Quebec or from Quebec to outside of the province. The tribunal issued the same order against PlexCorps and PlexCoin. (An ex parte order is an order granted by a judge at the request of and for the benefit of one party only, without notice to or contestation by the other party.)

The AMF alleges that Lacroix, among others, have not complied with the orders issued by the tribunal. As a result it is now considering whether to launch penal proceedings against Lacroix and his companies before the Court of Quebec (a provincial court) or to hand the case over to police authorities. “We are now in the midst of examining all our options,” said Théberge.

In a filing before the Tribunal obtained exclusively by Law in Quebec, the AMF revealed that it began its investigation on Lacroix, Dl Innov and other companies affiliated with him on May 8, 2017. On July 4, 2017, the AMF’s investigation branch received an anonymous tip about PlexCorps. The person “sought to bring to the AMF’s attention” that PlexCorps was seeking public financing while boasting high returns, without a prospectus.

In its filing, the AMF argued that investing in PlexCorps by purchasing PlexCoin “constitutes an investment contract” as per the Quebec Securities Act, and that neither PlexCorps nor PlexCoin registered with the AMF as a securities dealer as required by the Act. The filing also notes that PlexCorps and PlexCoin did not submit a prospectus to the regulator as required by the Act. It points out that neither PlexCorps nor PlexCoin has a “legal existence” in Canada or Quebec, and that no such organization can be found in the widely-used company database web site opencorporates.com.

In its filing, the AMF alleges that PlexCoin actively participated in a French-language forum entitled cryptofr.com. According to the filing, an AMF investigation shows that discussions emanating from PlexCoin about the virtual currency in the French-language forum stems from an internet protocol address that is linked to DL Innov Inc, a Quebec City firm that was established as a holding company on December 2012 under the Quebec Business Corporations Act. DL Innov has never registered with the AMF as a securities dealer.

The filing also notes that in discussions about PlexCoin in the French-language forum, PlexCoin itself stated that “Gestio Inc., a company related to DL Innovo Inc, was mandated to manage the French-language social network of PlexCorps.” Gestio inc., a registered Quebec City company established on February 2013, operates in the IT sector and conceives and leases management software. Gestio Inc.’s major shareholder is DL Innov, and its president, secretary and treasurer is Domenic Lacroix. Like DL Innov, Gestio and Lacroix did not register with the AMF as a securities dealer.

The Tribunal ordered Lacroix, DL Innov, Gestio, PlexCorps and PlexCoin to withdraw advertisements or solicitations on the internet or elsewhere relating to securities or any forms of investment, published or distributed by them directly or indirectly on the internet or elsewhere.

In issuing its broad ex parte orders, the tribunal notes that it was important to render a quick decision to protect the public.

Desjardins Financial Security Services fined $200,000 by regulator

Desjardins Financial Security Services Inc. has been fined $200,000 and costs of $25,000 following a settlement agreement reached with the Mutual Fund Dealers Association of Canada over its failure to conduct a reasonable supervisory investigation on one of its former representatives who misappropriated $3.7 million from several clients.

Conrad Eagan, a former mutual fund salesperson at Desjardins and Worldsource Financial Management Inc., was fined $5 million by the self-regulatory organization for Canadian mutual fund dealers last year, plead guilty to fraud, conspiracy and other charges earlier this year, and will be sentenced this coming August.

Eagan was registered as a mutual fund salesperson with Desjardins in Ontario, Alberta, and Quebec between October 1987 and May 24, 2011, and with Worldsource between May 2011 and August 2012. Desjardins Financial Security Services is part of the Desjardins Group, the largest integrated cooperative financial group in Canada. According to its website, Desjardins Financial Security ranks 5th among life and health insurers in Canada and 1st in Quebec in terms of written premiums.

“What is seriously aggravating is the fact that Eagan is a sophisticated person with long experience in the financial industry,” held the three-member MFDA Hearing Panel. “He should have known better. He must have known better. He was cavalier of his most fundamental obligations to his clients and their beneficiaries who suffered serious financial harm as a result of his misconduct. His misconduct was obviously deliberate and calculated. It extended for years.”

In the settlement agreement, Desjardins admitted that after discovering in December 2008 that Eagan had “engaged in unauthorized business activities” preparing wills for a client (JK) and accepted an appointment as estate trustee for the same client, it failed to conduct a “reasonable” supervisory investigation to investigate the “full nature and extent” of Eagan’s misconduct or take other supervisory and disciplinary measures warranted by the results of the investigation.

Desjardins also admitted that after it became aware in December 2008 that an “actual or potential” conflict of interest had arisen as a result of Eagan’s appointment as estate trustee of JK’s estate and that Eagan had thereby accepted discretionary authority over JK’s accounts in contravention of MFDA Rule 2.3.1., Desjardins failed to take steps to ensure that the “resulting conflict was addressed by the exercise of responsible business judgment” influenced only by the best interests of the client. It also admitted to having failed to take steps from preventing Eagan from exercising discretionary authority over the account, in breach of a number of MFDA rules.

Desjardins also acknowledged that it failed to conduct between August 2008 and April 2010 adequate trade supervision or implement sufficient internal controls to detect or prevent the processing of potentially unauthorized and – or – unsuitable trades in the accounts of several clients.

Just as damning, Desjardins admitted to failing to respond fairly to a complaint from a beneficiary of the estate of a deceased client regarding the proceeds from investment accounts that Eagan had not distributed or accounted for.

“If the Desjardins had conducted a reasonable supervisory investigation and implemented appropriate controls commencing in December 2008 after discovering that Eagan had drafted a will for client JK and accepted an appointment as Estate Trustee for the Estate of JK while continuing to service the investment account of the Estate of JK, it is more likely that Eagan’s misconduct with respect to the account of the Estate of PL and possibly other clients of the Respondent could have been detected or prevented before Eagan ceased to be an Approved Person of the Respondent,” said the MFDA.

All told, and “unbeknownst” to Desjardins, Eagan had stolen or misappropriated more than $2 million from Desjardins’ clients between February 2007 and October 2009. On May 24, 2011, Eagan resigned voluntarily from Desjardins and his registration was terminated.

Desjardins asserts that as of 2011 it has increased the number of compliance staff responsible for trade supervision, investigations and complaint handling, and changed the reporting structure in the compliance department. It also says that it has implemented a more robust back office system and has changed and enhanced its policies and procedures.

Eagan was charged by Ottawa police on April 2015. On February 2016, the MFDA handed Eagan its maximum penalty even though it concedes Eagan is unlikely to pay it.

“Sometimes there is little purpose to be served by imposing a fine when it is obvious that it is unlikely to be paid,” said the MFDA Hearing Panel. “This case, however, is so egregious that it seems to us that the requirement of general deterrence calls for the imposition of a substantial fine. If there is ever a case for a maximum fine, it is this one.”