Canada: BCSC Panel Finds That B.C. Resident Committed Fraud On Three Investors

Recently in Re Dhanani, a British Columbia Securities Commission (BCSC) panel found that Ayaz Dhanani, a British Columbia resident, perpetrated a fraud on three investors. Dhanani had raised a total of $188,800 from three investors in exchange for promises to purchase shares in three resource companies that Dhanani claimed were about to go public. Dhanani promised each investor that their investments would increase significantly in value over a short period of time. No securities were ever purchased with the investors' money.

Section 57(b) of British Columbia's Securities Act, provides that a person must not, directly or indirectly, engage in or participate in conduct relating to securities if the person knows, or reasonably should know, that the conduct perpetrates a fraud on any person. The BCSC panel cited from the decision in Anderson v. British Columbia (Securities Commission), in which the British Columbia Court of Appeal held the actus reus of the offence of fraud will be established by proof of: (i) the prohibited act, be it an act of deceit, a falsehood or some other fraudulent means; and (ii) deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim's pecuniary interests at risk. Correspondingly, the mens rea of fraud is established by proof of: (i) subjective knowledge of the prohibited act; and (ii) subjective knowledge that the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in knowledge that the victim's pecuniary interests are put at risk).

The BCSC panel noted that in order to contravene section 57(b), the impugned conduct must relate to securities. In this case, the BCSC panel found that it was clear that the investors were led to believe they would be purchasing securities and Dhanani committed acts of deceit. Dhanani committed a deceit when he took the investors' funds on the promise of investing them in the shares of companies about to go public and then failed to do so. The BCSC panel also found that Dhanani had the requisite subjective knowledge of the deceit and the deprivation. Dhanani was aware that he told the investors that he would invest their funds and that he did not.

As the BCSC panel found that Dhanani had engaged in fraud, the panel directed that the parties make submissions on sanctions at a later date.

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