Canadian regulators announce national effort to contain U.S. pump-and-dump schemes
Counterparts in other provinces say they will follow B.C.'s lead to rein in companies listed on American over-the-counter markets
By David Baines, Vancouver Sun June 13, 2012 2:05 AM
In September 2008, the B.C. Securities Commission instituted a new set of rules to stem the mass manufacture of shell companies that were being used for "pump-and-dump" schemes on the U.S. over-the-counter markets.
Now, finally, the other provincial commissions are following suit.
The BCSC rules require any U.S. over-the-counter company that is either based in B.C. or has a significant connection to B.C. - such as a promoter, lawyer or geologist - to become a reporting issuer in B.C.
This brought these companies under the jurisdiction of the BCSC, where they could be properly regulated. The new rules also put B.C. brokerage firms that deal in OTC stock on a tighter leash, so they aren't as likely to be used as conduits for illicit share dealings.
The new rules have proved very effective in curbing illicit over-the-counter bulletin board activity in Vancouver, but they haven't completely solved the problem. Promoters have simply moved their deals elsewhere, most notably to Alberta, but also Saskatchewan, Ontario, Quebec and the Maritimes.
In Newfoundland, for example, a very aggressive OTCBB promotion called Stevia Nutra Corp. is currently in full flight.
The company, which is registered in Nevada, started as a tiny, under-financed New Jersey-based rental car business called AAA Best Car Rental Inc.
AAA was helped onto the bulletin board by Seattle-based lawyer Thomas Puzzo and Houston-based accountants M&K CPAs, who have figured in many such deals. Most have never developed into viable businesses.
The company followed the usual pattern. Several months after it went public, president Suresh Gupta announced what we already knew: It didn't have enough money to develop a rental car business, so he would sell control of this tight little shell company to Brian W. Dicks, a former financial planner who lives in Corner Brook, N.L.
Dicks promptly changed the company's name to Stevia Nutra Corp. and announced it would go into the business of cultivating stevia plants in Cambodia. (Stevia is used to make a low-calorie substitute for sugar).
The stock is now being pumped by Shawn Ambrosino, a former WWE-type wrestler who pens a U.S. tout sheet called M3 Profit Accelerator.
"Multibillion-dollar companies like Pepsi, Coca-Cola & Nestlé are scrambling, buying as much sugar substitute, stevia, as they can. They need more and Stevia Nutra can give it to them - putting them at the top of a very short list!" Ambrosino said in his newsletter.
He went on to say that Ste-via "could be bought out at any moment by Pepsi, Coke, Nestlé -. meaning this one trade could make us wealthy!"
This is nonsense, of course. To date, the company hasn't reported a cent of revenue from the sale of stevia.
The disclaimer at the bottom of Ambrosino's report reveals that it is part of a $1,275,000-promotional campaign financed by a private company called Glenrothe Consulting Ltd., whose beneficial owners are not identified.
Whether due to the promotion or some unseen hand, Ste-via stock opened at 82 cents on May 22 and traded as high as $1.03 on Tuesday on brisk share volume.
The company's investor relations person - Brad Long, who works out of Blaine, Wash. - denied any knowledge of Ambrosino's newsletter. In any event, he said, the company doesn't comment on third-party reports like this.
Stevia - and dozens of other U.S. over-the-counter companies operating in provinces outside of B.C. - can get away with this sort of nonsense because they are not required to become reporting issuers in their respective provinces.
That will change soon, though. Starting July 31, the other provincial commissions will follow B.C.'s lead and implement new rules to regulate these deals.
"The reputation of Canada's capital markets has been negatively impacted by market participants who engage in questionable activities through the OTC markets in the United States," Bill Rice, head of the Canadian Securities Administrators, the umbrella group for provincial regulators, said in a news release.
"We have enacted the OTC rule to address this reputational harm, and to help protect legitimate issuers, investment dealers, and other market participants in participating jurisdictions."
I am relieved to see that our newspaper's efforts to expose this problem in our corner of the country have finally developed into a national effort to contain it.
.
The Investment Industry Regulatory Organization of Canada has alleged that Raymond Ho, formerly a mutual fund sales-person with TD Investments Services Ltd., falsified a client's signature to effect a trade the client didn't ask for.
In a notice of hearing, IIROC alleged that a $192,000 guar-anteed investment certificate belonging to a client matured in May 2010.
Instead of depositing the proceeds into her bank account, as the client had requested, Ho opened an account in her name, falsified her signature and invested the money in a TD mutual fund.
IIROC alleged that, under questioning by his supervisor, Ho maintained that the client had authorized the opening of the account and the purchase of the mutual fund, but he hadn't retained any notes of that conversation.
TD Investment Services reversed the trade and returned the principal. It also compensated the client for the decline in value of the mutual fund while it was in her account, and for forgone interest.
Ho resigned on May 22, 2010, as a result of the events in question.
A hearing to determine the validity of the allegations is set to start on Aug. 2.
dbaines@vancouversun.com
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