In this criminal case, Carlos Alberto Pavao was found guilty of defrauding 10 investors in respect of the sale of shares in two gold mining companies, as well as one count of defrauding the public. Key to finding Mr. Pavao guilty was the Court's assessment that he was an unreliable and untruthful witness.
Mr. Pavao, a successful businessman, was the principal of 6048382 Canada Inc. (604) and the sole signatory on the corporate bank account. In 2005, a small group of people began investing in mineral stocks, with the funds to purchase shares being funnelled through 604. The charges in this case involved the shares in two companies: Rubicon Minerals Corporation, a public company that owned a gold mine in Northern Ontario, and Africo Resources Ltd., a gold and mineral exploration company owned and controlled by Rubicon until 2006, when it went public.
In 2004, Mr. Pavao and Sam Lawrence, an employee of Mr. Pavao's cleaning business, invested C$500,000 through 604 to purchase 614,401 common shares in Africo offered through a private placement. Mr. Pavao later approached two customers of his cleaning business and persuaded them to invest in Africo. Both customers thought they were purchasing Africo shares that Mr. Pavao already owned. They advanced funds to 604 for this purpose and signed subscription receipts, but were never provided with the share certificates. Mr. Pavao and Mr. Lawrence directed the Africo shares held in 604 to be transferred into their own personal accounts. The Court found Mr. Pavao did this knowingly and was found guilty of defrauding these two investors in respect of the Africo shares.
In 2007, Rubicon sought to raise funds through a private placement. Up until this point, a small group had been investing in Rubicon shares through 604. Mr. Pavao and Mr. Lawrence asked for as large a piece as possible in the private placement, but only C$100,000 was made available to the 604 group. Mr. Pavao took the shares for himself and directed the shares be placed in his own personal trading account. No shares were purchased by, or on behalf of, 604. Furthermore, no additional shares were available for either 604 or Mr. Lawrence to purchase. Mr. Pavao also persuaded investors to invest in Rubicon shares through 604, in part on representations by Mr. Pavao that he had access to C$1.5 million in Rubicon shares through the 2007 private placement. In this way, Mr. Pavao deceived these investors into paying for shares that did not exist. Mr. Pavao was found guilty of defrauding these investors with respect to the Rubicon shares. In addition, the Court found Mr. Pavao had made the opportunity available to the public by inviting investors to recruit others, and thereby had defrauded the public.
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