British Columbia's securities regulator is funnelling more resources into a crackdown on suspicious trading activity coming from offshore bank accounts in "secrecy" jurisdictions, saying the accounts often belong to locals who are hiding their identities.
Lang Evans, manager of special investigations at the British Columbia Securities Commission, is heading a small investigative team focusing on cases where money is being funnelled into B.C. through bank accounts in countries with banking secrecy laws, including locations in the Caribbean.
"I think many of these instances where I'm encountering suspicious trading by a dealer supposedly in the Caribbean, or a bank in Liechtenstein or Switzerland, I believe they're acting for people in North America, and I suspect in most cases they're acting for people in the 604 [Vancouver] area code," Mr. Evans said in an interview.
A BCSC hearing panel ruled this week that two men acted "contrary to the public interest" when they used a stock newsletter to make false claims to tout shares of companies trading in the U.S. over-the-counter market.
The newsletter writer, Colin McCabe, was paid for his reports through bank accounts in Switzerland. The BCSC panel concluded Erwin Speckert was acting as a middleman to pay Mr. McCabe for the reports, providing the payments through his Swiss-based company. Mr. Speckert would not reveal to the BCSC who his marketing firm was representing.
The BCSC panel said Mr. McCabe's reports were "clearly designed to significantly stimulate trading volumes in shares of companies ... to artificially increase their stock prices."
Mr. Evans said the case is a "perfect example" of a situation where regulators don't know who is behind suspicious trading being financed with offshore money, demonstrating why the BCSC is devoting more resources to the issue.
As part of its efforts to limit offshore manipulations, the BCSC has also published a proposed new rule that would prohibit investment dealers from conducting trades for accounts at financial institutions based in countries where the local securities regulator is not a signatory to an international agreement to share information and help on international enforcement efforts.
The proposed rule has not been implemented and is still being researched. The BCSC said its goal is to ensure investment dealers know who owns securities that are being traded from offshore accounts, and to ensure regulators can investigate trading in the same way they can monitor domestic activity.
Mr. Evans said the issue of offshore trading came into focus in 2008, when the BCSC prohibited Liechtenstein-based Hypo Alpe-Adria-Bank from trading securities in the province.
The BCSC said that during a 10-month period, the bank's account holders traded 463 million shares in B.C. worth over $165-million using 11 different B.C. investment dealers, but regulators were unable to determine who owned the accounts because of Liechtenstein's bank secrecy laws.
In a more recent case, the commission ordered Bahamas-based Gibraltar Global Securities Inc. to pay $300,000 in 2012 for trading securities in B.C. without registration and for refusing to provide information about B.C. residents' accounts with the firm.
Mr. Evans said the offshore investigation team was set up shortly after the Gibraltar case concluded, because the regulator wanted to increase its focus on cases of suspicious trading activity from offshore accounts.
Last year, the regulator issued an order halting trading by a Swiss private bank, Bank Gutenberg, alleging it was carrying out trades for at least two B.C. residents without being registered to do so. The BCSC alleged Bank Gutenberg employed two former B.C. registrants with "regulatory enforcement histories" to trade on the TSX Venture Exchange.
The BCSC said it "strongly suspects" B.C. residents were using accounts at Bank Gutenberg for trading, but the bank refused to provide information, citing Swiss secrecy laws.
Mr. Evans said he is working on two more cases involving offshore trading that should be public within the next six months.