West Vancouver businessman Frederick Sharp has been fighting for years against accusations of stock fraud and that he has hidden income offshore and helped others do the same.
Starting in 2016 in the Federal Court of Canada, he opposed a probe by the Canada Revenue Agency of his finances after he was named in the massive leak of documents from Panamanian company Mossack Fonseca. That leak, known as the Panama Papers, revealed how thousands of people and entities used offshore tax havens.
Since last year, Sharp, 71, has been fighting in B.C. Supreme Court the U.S. Security and Exchange Commission’s efforts to enforce in Canada a $37-million illicit profit component of a U.S. penalty over an alleged $1.3-billion stock fraud for which he was named the “mastermind”.
He has also been fighting the Quebec securities commission’s right to bring a claim that he was involved in an alleged pump-and-dump stock fraud, because he lives in B.C. and not Quebec.
That six-year fight ended this month when the Supreme Court of Canada ruled against Sharp and three others who had launched appeals against Quebec’s securities commission, the Autorité des marchés financiers, and Quebec’s Financial Market Administrative Tribunal.
But even the high court’s decision — which came after rejections from the tribunal, the Superior Court of Quebec, and the Quebec Court of Appeal — does not end that regulatory battle.
The matter now goes back to the Autorité des marchés financiers.
Officials there said this week a hearing to determine scheduling and any preliminary matters takes place on Dec. 7.
Cristie Ford, a law professor at the University of B.C., said the recent Supreme Court of Canada’s decision is welcome, reinforcing that provinces’ financial market regulators can have jurisdiction over an accused in other provinces if there is a substantive connection.
But it does underscore the length of time and resources that defendants will expend to fight cases, which can sometimes result in law-changing decisions, said Ford.
Had Sharp and others won in the Supreme Court of Canada it would have been a significant blow to financial regulators’ ability to pursue alleged fraudsters across borders, she said.
“You’ve got defendants with deep pockets who hire very talented lawyers to come up with creative arguments,” said Ford, who has expertise in securities and financial regulation.
“Running out the clock is the wrong way to put it — but (they) take advantage of every argument they can think of and litigate to the n-th degree,” she said.
Sharp fought the Canada Revenue Agency probe to the Federal Court of Appeal, arguing the agency misused its audit powers and that its powers violated constitutional privacy rights. The appeal court ruled against Sharp and others in 2022 and he discontinued the case.
In documents filed in federal court to support its probe, the Canada Revenue agency said its investigations team had uncovered an alleged well-structured organization linked to Sharp whose sole strategy was to hide assets and income so that persons did not have to file or pay taxes in Canada. The revenue agency said it had tracked cash flows in and out of this organization of more than $300 million in hundreds of companies, most of which originated off shore.
In the Quebec securities commission case, Sharp and three others British Columbians are alleged to have hidden the ownership of shares in mining company Solo, fraudulently inflated the price of the shares with promotions and netted $2.6 million in profits when the shares were dumped on unsuspecting investors.
Shell companies in places such as the Marshall Islands, Belize and the Antilles were used as well as banks in Switzerland and the United Kingdom during 2011 and 2012, the commission alleges.
Others named in the 2017 case are Shawn Van Damme of Maple Ridge, Vincenzo Antonio Carnovale of West Vancouver, and Pasquale Antonio Rocca of Vancouver.
The lawyer in the high court case representing Van Damme, Carnovale and Rocca, and Sharp’s lawyer in the case, did not respond to a request for comment.
The Quebec securities commission is seeking the four accused to be banned for five years from serving as directors or officers in companies and other entities involved in the Quebec financial markets. The commission also seeks to impose penalties of $2 million on Sharp, $630,000 on Rocca, $500,000 on Van Damme, and $300,000 on Carnovale.
In the Supreme Court of Canada’s 7-1 decision, the justices found Quebec’s Financial Markets Administrative Tribunal and the province’s securities commission has jurisdiction when there is a “sufficient connection” or a “real and substantial connection” between the province and the defendant.
In this case, the connection included that the company whose share price was allegedly inflated was Quebec-based, and the company they were allegedly hyping was involved in mining activities in Quebec.
In its decision, the high court highlighted that because contemporary securities manipulation and fraud are often transnational and extend across provincial and national borders, courts and tribunals must take a flexible and purposive approach when applying the principles of order and fairness in the securities context.
“It would defeat the purpose of the cross‑border nature of modern securities regulation to allow the defendants to escape the reach of Quebec’s regulatory oversight,” wrote Chief Justice Richard Wagner and Justice Mahmud Jamal in the court’s majority decision.
Unlike other Western nations, including the U.S. and the United Kingdom, Canada does not have a national securities regulator. Each province and territory is responsible for securities regulation.
While Sharp did not defend himself against the civil case brought by the U.S. Securities and Exchange Commission, in his fight in B.C. Supreme Court to oppose collection of the $37 million penalty in B.C, he denies all of the SEC’s claims.
Sharp argues he was denied “procedural fairness,” not properly served notice of the U.S. court proceedings, and that the U.S. court action has no jurisdiction over him.
The U.S. Attorney’s Office in the District of Massachusetts said this week a criminal case against Sharp linked to the stock fraud scheme remains active. No court dates have been set.
Carnovale is also named in an U.S. Securities and Exchange prosecution in U.S. courts for a separate pump-and-dump scheme that was allegedly assisted by Sharp, part of the larger alleged $1.3-billion stock fraud scheme.
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