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Suits filed against Stanhiser, Canaccord
The Vancouver Sun
David Baines, Sun Business Reporter Vancouver Sun
U.S. investors in a stock scheme orchestrated by former Seventh Day Adventist pastor Gary Stanhiser have filed lawsuits in California and Washington state against him and a string of related parties.
Heading the list of defendants in both actions is Vancouver-based Canaccord Capital Corp., which allegedly helped Stanhiser funnel investors' money to offshore companies for reinvestment in public companies, most listed on the Vancouver Stock Exchange.
The plaintiffs claim they did not receive their shares or recover their money, and are suing for fraud, breach of contract, breach of fiduciary duty and violation of the Racketeer Influenced and Corrupt Organization Act, commonly known as the RICO Act.
The B.C. Securities Commission has alleged that Stanhiser -- who operated from offices in San Bernardino and Vancouver -- and associates Del and Linda Knowlton of Langley raised $15 million from about 300 investors in the U.S. and Canada.
The commission alleges the scheme was designed to circumvent rules prohibiting the sale of stock to individual investors in amounts less than $25,000 without a prospectus or offering memorandum.
Last fall, a commission panel held a hearing into the conduct of Stanhiser and the Knowltons. A decision has not yet been rendered.
In a rare move, the commission is also investigating Canaccord's conduct. Broker disciplinary matters are normally handled by the Vancouver Stock Exchange.
Meanwhile, U.S. investors have file lawsuits in Superior Court in San Bernadino and in U.S. District Court in Tacoma.
Canaccord lawyer Don Sorochan said his client is defending the lawsuits and attempting to move the actions from state court to U.S. federal court.
According to the California lawsuit, Stanhiser and his company, Excel Asset Management, induced investors to "lend" money to several offshore companies which Stanhiser controlled including Diomondmark Investments Ltd., Diomondmark Trust and Excel Funding Inc., all of which are named as defendants.
The money was pooled and used to purchase large blocks of shares and warrants in several public companies including SAMEX Mining Corp., Golden Hat Resources, Kensington Resources Ltd., IMA Resource Corp. and Mosquito Consolidated Gold Mines Ltd. All are listed on the Vancouver Stock Exchange and named as defendants
The lawsuit alleges that officials of these companies -- including IMA president Joe Grosso, Golden Hat president Wally Boguski, Mosquito president Brian McClay and Kensington representative Don Nicholson -- gave "sales pitches" and promotional material to induce people to invest. These officials are also named as defendants.
The lawsuit claims these defendants "knew, or had reason to know, the pooling arrangements into which the individual investors were entering . . . were sham contrivances designed to evade the securities laws."
The companies, however, "benefitted by their participation in the scheme by obtaining needed working capital and so were willing to 'go along'."
The suit alleges Vancouver lawyer Stephen Dadson helped "concoct" the scheme and "cloak it with the appearance of legality" by "drafting documents designed to conceal the true nature of what was occurring."
The suit also names Jamal Dawood, Andrea Buckberrough and Del Knowlton, all of whom received commissions for facilitating the "illegal stock placements."
The lawsuit says Dawood acted as a "straw man" for Stanhiser, receiving commissions for transactions in which he had no real involvement. It also claims Knowlton's commissions were actually for Stanhiser's benefit.
The lawsuit claims Canaccord was "used by the defendants to give credibility to their scheme and to facilitate the offshore transactions and sham 'loan' or pooling arrangement to evade the securities laws."
It alleges Canaccord broker John Johnston and his assistant, Graham Dahl, "knowingly and deliberately conspired with and worked with defendant Stanhiser and his cohorts to defraud plaintiffs and the other victims."
It also claimed that Canaccord compliance director Ward McMahon and Canaccord vice-president David Horton "either negligently or deliberately turned a blind eye to what was going on . . . ."
The 10 plaintiffs, who live in Southern California, are seeking at least $3 million US in compensatory damages, $500,000 in legal fees and $10 million in punitive damages.
The Washington state lawsuit, which also claims violations of the RICO Act and is seeking unspecified damages, was filed on behalf of 20 other plaintiffs who live in Washington, Oregon, Texas and Colorado.
Defendants are Canaccord, brokers Johnston and Dahl, and Stanhiser and Excel Asset Management. No lawsuits have yet been filed in Canada.
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