Commission panel significantly lowers freeze orders of Bridgemark Group by not factoring in lucrative consulting contracts
The $15-million West Vancouver waterfront residence of chartered professional accountant and stock promoter Anthony Jackson will not be under a freeze order ahead of his insider trading hearing in November.
Rather, Jackson and other “architects” of a $50.8-million consulting arrangement alleged by the BC Securities Commission have succeeded in reducing, or eliminating, the amount of assets frozen by the regulator, following lengthy and complex legal proceedings.
Now, Jackson will have just $50,000 of assets frozen, assuming the status quo remains before his hearing, while his alleged co-accomplice Justin Liu will have $750,000 of assets frozen; furthermore, freeze orders against alleged co-accomplice Cameron Paddock have been lifted, according to a ruling from the commission’s independent panel of commissioners Audrey Ho and Judith Downes.
The commission’s executive director Peter Brady alleges Liu and his company Lukor Capital Corp. obtained $6.4 million by contravening the BC Securities Act, whereas Jackson and his company BridgeMark Financial Corp. obtained $1.5 million.
The July 14 ruling redacted the previous amounts frozen; however, the length of the editorial indicates Liu and Jackson both potentially had assets valued at over $1 million frozen.
The hearing respondents argued hardship arising from the freeze orders and while the panel stated it did not see any such specific evidence, it acknowledged two frozen properties of Liu has a 50% co-owner as did one owned by Jackson.
Jackson’s residence on Bellevue Avenue is co-owned by his wife Lisa Jackson and her father Kenneth Tollstam, a retired North Vancouver city manager. It was bought in November 2018 for close to $15.9 million in a cash sale, according to land title records.
Tollstam is among dozens of purported consultants and their respective companies (about 50 entities) who had allegations of market misconduct dropped against them in April 2021, following an unprecedented hearing notice in November 2018.
Many of those entities had associations with Jackson personally or with his company BridgeMark Financial Corp. The alleged participants are known in Vancouver trading circles as the Bridgemark Group.
As alleged by the commission, between February and August 2018, the respondents (Jackson, Liu and Paddock) took part in a plan involving nine companies (issuers) listed on the Canadian Securities Exchange.
In total, the companies sold $50.8 million worth of new shares through 12 fundraisers (private placements).
Some companies have since admitted they never disclosed to investors they kept only a small portion of those funds while using most of the money to pay consultants with prepaid consulting contracts, despite the fact little or no consulting work was done to warrant those fees.
Those consultants, many of which are closely connected to Jackson and Liu, were also purchasers of the shares, which were then quickly sold to retail investors, often at a loss. The lucrative contracts made up for those losses, according to the commission.
The companies’ shares were thus diluted and lost value, sparking an ongoing class-action lawsuit.
In an effort to preserve funds against potential monetary claims and penalties for possible contraventions of the act, the commission had issued a large number of freeze orders against bank and brokerage accounts, as well as registered charges against properties of the purported consultants, including Jackson, Liu and Paddock.
Since, the group has sought to extinguish the orders and appealed to the BC Court of Appeal. The group argued that the orders were invalid because Brady had not alleged any specific violation of the act, which is required for such orders; rather, they had only initially been accused broadly of “conduct contrary to the public interest.”
Last October the appeal judge agreed the commission erred; however, it sent the appeal back to the commission panel only after Brady filed a new hearing notice against the group specifically alleging insider trading in the middle of the appeal process. (The judge also set aside freeze orders against Jackson’s firm Jackson and Company Professional Corp.)
The panel noted how the group called Brady’s new notice an 11th hour recharacterization of the evidence that is “nothing more than a tortured attempt to dress up his allegations of the Scheme as a breach of the Act” and thus maintain the “disproportionate” freeze orders in bad faith.
Representing Jackson were lawyers Patrick Sullivan and Sara Shuchat; representing Liu were Kenneth McEwan QC and Emily Kirkpatrick and representing Paddock was Andrew Crabtree.
Brady argued that he was within his rights to amend the original November 2018 notice.
For the appeal, the panel accepted Brady’s new allegations; it then needed to assess if the evidence would reasonably justify the orders by raising “a serious question that the investigation could show a contravention of the insider trading provisions under the act,” namely that Liu and Jackson had a special relationship with the issuing companies and traded shares with material (and undisclosed) knowledge of the private placements.
The panel noted, according to Brady’s evidence, Jackson and Liu appeared to arrange both the financing and the pre-paid consulting contracts for some companies.
“We are satisfied on a preliminary assessment basis that the evidence raises a serious question that Liu and Jackson knew of the amounts of consulting fees paid by each of the issuers at the time of the financing,” noted the ruling.
And, stated the panel, “There is sufficient evidence to raise a serious question that the investigation could show that Liu and Jackson brought to each issuer (company) a group of people to subscribe in the issuer’s private placement with the condition that the issuer would also engage a group of people named by Liu and Jackson (not always the same people as the placeees) as consultants and pay significant amounts of consulting fees to those consultants concurrently with the financing.”
However, because under the act the orders only cover the insider trading violations, and the group allegedly traded many of the shares for a loss, the panel significantly reduced the freeze orders.
“In assessing the magnitude of the potential claims and penalties at this preliminary stage, we took into account the gains or losses incurred by the Reconsideration Applicants from sales of the issuers’ shares, but not the consulting fees allegedly paid to them, directly or indirectly .”
This is in part because Brady “did not take us to any evidence on whether consulting services were provided.”
And, said the panel, “We cannot speculate that little or no work was actually provided under the consulting agreements at issue. Without some evidence on that issue, there is no foundation for us to conclude that the consulting fees allegedly received should be included when determining if there is proportionality between the value of the frozen assets and any potential financial sanctions.”
Meanwhile, the panel also ruled on Paddock’s circumstances, deeming there was no similar evidence that indicated Paddock may have been in custody of material facts upon which he traded with. As such the panel dismissed his freeze orders and refused to apply new ones against a recently purchased home.
“When we weigh the weak evidence of the Paddock Applicants’ knowledge of any material information against the intrusive nature of the freeze orders, for the purpose of this application, the public interest favors revoking the freeze orders at this time,” stated the panel.
The sides will now determine what assets are to be frozen, according to the panel.