FTX: Kids Round-tripping in Crypto-land

By Christine Duhaime | December 1st, 2022

Another crypto company bit the dust early this week, and with it, up to US$10 billion in customer money evaporated. BlockFi was a digital currency exchange, deposit-taking institution, and lender. BlockFi also issued and sold securities. It was not government-registered to provide any of those financial services in Canada. In early 2022, it settled a case with the SEC for misrepresentations made to investors.


Like many others in crypto before it, it promised to “protect your assets” if consumers used its services. On Monday, it filed for bankruptcy protection. According to the bankruptcy filings, consumer assets were put at risk and not protected.

In the past few months, a slew of crypto companies – Terra-Luna, Three Arrows Capital, Celsius, Voyager Digital, FTX and now BlockFi – have gone kaput, and with them, billions upon billions of dollars of customer money are gone. 

Voyager Digital is in a different category than the others because it is a Canadian public company, and one of its directors was a lawyer in British Columbia. It is being sued in the US for being an alleged Ponzi scheme.

The combined losses of those six crypto companies are of unprecedented proportions. This isn’t a Bernie Madoff sized evaporation of customer money held in trust – it’s many Madoffs. Before it blew up, CME Group CEO Terry Duffy said FTX was a pump and dump scheme, eg., like a capital markets fraud scheme.

Some of the founders of the six defunct crypto companies fled to extradition-friendly countries, where they are now professing their innocence in the court of Twitter.

It seems obvious that many crypto guys are not good at running companies but they seem exceptionally good at the art of deception. 

Crypto dudes fool everyone

These crypto dudes fooled executives at the Ontario and Quebec pension funds, they fooled lawyers, they fooled banks, they fooled experienced venture capitalists, they fooled journalists, they fooled members of parliament in several countries, and they fooled regulators. 

Canadian Kevin O’Leary talks about how he was fooled too, and talks about being targeted with hate on social media (and by the media) for his ties to FTX (here).(Footnote 1)

We got a taste of early deception in 2017, when a Canadian crypto dude settled with the SEC (see here) for lying in a pitch deck, on phone calls and in emails to banks, lawyers and investors about advisors, claiming untruthfully that several prominent people were advisors of his crypto company. Not only were they not advisors, but they had no knowledge that their likeness, bio and name were being used without consent to raise money, until reporters called them. 

In crypto culture, some of these guys don’t just fib about advisors, high investment returns or the protection of customer assets – the US government warns that some are impersonating people (see here) as part of their business model.

Where were regulators?

The effects of the six crypto debacles, including British Columbia based Voyager Digital, are rippling across the globe, leaving many wondering how such vast schemes went on for so long without regulators stopping them, despite numerous red flags and warnings.

It’s not like there are no laws to protect the public from this. In Canada and the US, numerous laws, including securities, consumer protection, competition, banking, fraud, financial crime, and lending laws all have a role to play. 


One of the things emerging from these six crypto debacles is the extent to which crypto is a clubby, secretive world of guys who all know each other, and do transactions between each other. Not only that, if one looks at all of them together, it appears that some of them may have allegedly fronted for each other’s balance sheets or engaged in round-tripping. 

Round-tripping is a type of activity where money (or crypto) is moved in a circuit. It’s a type of financial magic trick that creates the illusion of having funds (or of solvency, assets, or revenues). Round-tripping is unknown to most professionals except in the world of public auditing. We wrote about round-tripping in the capital markets here and here.

With multi-party round-tripping for credit, a number of companies send money to each other, one by one. When credit is obtained by party one, the money is sent to party two. When credit is obtained by party two, the money is sent to party three. Around and around, it goes. The result is that the amount of credit extended by victim banks or other parties balloons, filled with hot air. 

Financial magic

Like all magic tricks, the illusion only lasts so long. The balloon must burst. 

A user on Twitter questioned the money movements of BlockFi and FTX, which we’ve paraphrased:

“BlockFi gave hundreds of millions of dollars to FTX; FTX gave it to its Alameda branch; Alameda gave it to Emergent, a shell company owed by SBF, FTX’s founder; Emergent used the money to buy shares of Robinhood; the Robinhood shares were used as collateral for a loan from BlockFi to FTX; FTX then used that money to bail out BlockFi.”

Changpeng Zhao, the CEO of the world’s largest crypto exchange, Binance, also tweeted about the money movements. We’ve paraphrased what he wrote like this:

“Voyager Digital gave hundreds of millions to Three Arrows Capital; FTX-Alameda gave $100 million to Three Arrows Capital; FTX-Alameda gave $110 million to Voyager; FTX-Alameda then borrowed $377 million from Voyager; Three Arrows Capital went bust; Voyager went bust.”

And then FTX went bust. And then BlockFi went bust.

A circus

But its circuitous, right? 

It was a kind of a merry-go-round of the same money spinning between many of these kaput crypto companies. Unfortunately, there were no adults in sight to turn off the circus lights at midnight and send the kids home. 

1: In that interview, O’Leary pitches using Canadian digital currency exchanges, which he alleges are “safe” if they are public companies – we know that isn’t the case because of the Voyager Digital case – it was a Canadian public company that was a digital currency exchange. FTX operated in several provinces in Canada, as well, as a digital currency exchange and it was not “safe”.

“The Lady Oil” – How an Italian singer went on Facebook to partner with the Mafia to build a billion-dollar illegal oil trafficking business

By Christine Duhaime | October 18th, 2022

The petrol mafia case was first police case of ‘Ndrangheta and Camorra convergence across Italy

A Deal with the Mafia

Anna Bettozzi with high boots, fur and a helicopter (Source: Instagram)

Here’s a question – what do you do to revive a failed oil business you inherited if you have no business skills and no money?

You might make friends with a Mafia associate on Facebook. And if you’re going to do this, you might as well go big and partner with the most feared and secretive Mafia organization in the world, the ‘Ndrangheta. If it goes bad, you might be dead; if it goes well, you might build a billion-dollar empire of dirty money.

That’s what Italian singer Ana Bettz did.

She almost couldn’t help herself – she was set to lose her luxury hotel apartment in the fashionable district of Milan, her Bentley and Rolls Royce, and access to plastic surgeons on speed dial.

Ana Bettz, who is really Anna Bettozzi, went to the powerful Camorra families in Naples and the dreaded ‘Ndrangheta in Calabria to finance her entry into the criminal world and become a petrol Mafia.

With their help, she built a billion-dollar empire that spread across Europe, using numerous shell companies to traffic in petrol and launder hundreds of millions for the Mafia.

A Ride to the Cannes Film Festival

It almost came crashing down in May 2019.

Bettozzi was on her way to the glamorous Cannes Film Festival in France to party with the rich and famous, being chauffeured in her favorite car – the Rolls Royce. Her deal with two of Italy’s most powerful Mafia groups was going well; business was booming.

The six hour drive from Milan to the Italian northern border town of Ventimiglia was pleasant enough; she could see Sardinia, her homeland, in the far distance across the glittering blue Ligurian Sea, as the car raced along the Italian coast.

In the trunk of the Rolls, she had stuffed €300,000 in dirty bills into a pair of high boots – a perfect way, she thought, to smuggle cash into France and avoid making a currency declaration at the border.

She had to hide the cash otherwise it would raise messy questions about its provenance.

She couldn’t exactly tell French border guards that it was from bootlegging oil with the ‘Ndrangheta. They would call Italy’s financial police, the Guardia di Finanza, and anti-Mafia investigators, the Direzione Investigativa Antimafia (DIA). The gig would be up and she couldn’t risk that. It wasn’t just the police she would have to face; she would also have to face the Mafia.

Under Surveillance

If Bettozzi had been paying attention during the trip from Milan to the French border, she might have noticed that the DIA and the Guardia di Finanza had been following her Rolls Royce for over six hours, from the moment  she had stepped out of the lobby of the Gallia Hotel that morning.

The ‘Ndrangheta and secret service agents share a common operating rule – always have a mirror to your back. Bettozzi preferred her own rule – keep the mirror on your own face. For the past few months, teams of federal law enforcement agents had her under surveillance after she came on their radar when she made a call to the Mafia on a phone line they were intercepting, discussing the petrol smuggling business. 

As the Rolls passed though the small town of Ventimiglia and approached the Italian-French border, the Guardia di Finanza made their move. They stopped her car before she could enter France. Bettozzi was detained.

Call to Mafia Lawyer

She asked to make a call to her lawyer – Ilario D’Apolito. She was playing right into their hands. You see, D’Apolito was the lawyer for the petrol trafficking operation with the Mafia who, police say, allegedly incorporated shell companies for the criminal operation.

He was one of the people they were investigating as part of “Operation PetrolMafias”. There were wiretaps on their phones, so police were listening when Bettozzi called her lawyer after she was detained. Whatever she said to him wasn’t privileged or confidential because that does not apply when lawyers are used (wittingly or not) for fraud or crime.

Bettozzi told the lawyer that she had been stopped and detained. She was panicking – not because of the €300,000 stuffed in her high boots – but because she had a safety deposit box key in her purse and she didn’t want the Guardia to find the key. She had €1.7 million in proceeds of crime stashed in that box back in Milan.

“Take the key”, instructed the lawyer, “and hide it in the chauffeur’s clothing.” 

The lawyer then spoke to the chauffeur and told him to put the key in his underwear. 

Anna Bettozzi with high boots, a python coat, snake boots (Source: Instagram)

Catch and Release

The officers listening in on the intercepted call then phoned the Guardia in Ventimiglia, who had detained Bettozzi, and told them that Bettozzi had told her lawyer about a lot of money hidden in a safety deposit box at the Gallia Hotel in Milan, and that the key was going to be stashed in the underwear of the chauffeur.

Law enforcement agencies will often conduct a controlled intervention where they cause a disruption to a suspect’s routine because it causes suspects to panic and react. Often the first thing suspects do is call the lawyers who helped them paper-up shell entities, and then they call their crime partners.  They call those lawyers because they are concerned with the paper trail; they call crime partners because they are concerned with the money trail.

The Guardia decided to do a “catch and release,” and let Lady Oil continue her trip to the Cannes Film Festival after they seized the €300,000 in her boots.

When the safety deposit box was opened in Milan, law enforcement found €1.7 million in cash, wrapped up in baggies.

Money in baggies from Operation PetrolMafias (Source: Guardia di Finanza)

From May 2019 to April 2021, the police continued listening to Bettozzi’s phone calls and those of her lawyer, and learned how two powerful Mafia organizations – the Camorra and ‘Ndrangheta – helped turn her failed business around by buying illegal oil and gas from as far away as Kazakhstan and Russia, and importing it into Italy.

Early Life in Sardinia

Anna Bettozzi grew up on the island of Sardinia. She always had dreams of being famous. In a 1999 article in Italy’s La Repubblica, after her house had been robbed, she was quoted as saying that she “dreams of conquering the world”.

She went into real estate in the hopes of meeting one of the many Russian Oligarchs, other billionaires, actors and European royalty who summer on Sardinia’s Emerald Coast each year.

She came up with the stage name Ana Bettz, and pivoted to singing, self-financing several CD albums. She had a small following in Russia. In 1997, she paid for Michael Jackson’s producer to work on her first music video called “Ecstasy”, hoping it would give her career a boost. It didn’t.

Ana Bettz singing “You Are the One” (Source: YouTube)

She married a wealthy Italian oil dealer named Sergio Di Cesare, who controlled Europetroli SRL, an oil reselling business. 

Di Cesare had a summer house in the Porto Rotondo area of Sardinia, beside Italy’s Prime Minister, Silvio Berlusconi. Bettozzi and Berlusconi became close friends. Very close.

Bunga Bunga Parties

During this time, the Italian Prime Minister was regularly hosting his now famous “bunga bunga” parties, which were after dinner sex parties for wealthy old men. At these “bunga bunga” parties, young women were hired to dress up in costumes, and perform sexual acts for Berlusconi and his old male guests. At least one girl regularly hired was underage – 17-year-old Karima el-Mahroug.

Bettozzi was also very close to Dario Lele Mora, one of the men who procured young women for the Prime Minister’s sex parties.

Berlusconi and Mora were both charged and convicted of prostitution-related charges. At Mora’s trial, el-Mahroug testified that “a singer close to Berlusconi attended the [bunga bunga] parties” – that singer was Bettozzi.

For at least six years – from 2006 to 2012 – Bettozzi hosted her own famous parties every August at her husband’s villa in Sardinia with Berlusconi.

Russian Oligarch Roman Abramovich, a close friend of Berlusconi, arrived in Sardinia for many of the Bettozzi-Berlusconi hosted summer parties, with numerous other wealthy Russian men on his superyacht “Le Grand Bleu.” 

Russian President Vladimir Putin, not to be left out, went to Sardinia too, to hang out with Berlusconi in August. What did they do there? Only Bettozzi can say for sure.

Obstruction of Justice and Witness Poisoned

After his conviction, Berlusconi threw his wealth into one appeal after another and was eventually acquitted on appeal. But the case didn’t stop there. He was then accused of obstruction of justice for bribing witnesses, allegedly paying as much as €10 million to Karima el-Mahroug, who changed her testimony.

Another young witness died of a mysterious poisoning. If it was Novichok, the deadly nerve agent developed by Russian scientists to poison opponents of the Russian government, it would be undetected in an autopsy. Novichok was the nerve agent used in the attempted murder of Alexei Navalny.

The obstruction of justice proceedings against Berlusconi have been going on for 8 years. The prosecutor in the case alleges that Berlusconi’s “bunga bunga” parties involved sex slavery, and that Berlusconi gave away money, houses, cars and horses to stop witnesses from testifying against him.

Death of Sergio Di Cesare

In 2018, Di Cesare died, leaving his oil business in shambles and with significant debt. Bettozzi took over the ailing business. Lele Mora was right there too, fresh from prison, helping Bettozzi at oil and gas shows.

Bettozzi needed capital to buy equipment, hire employees, operate the business and buy oil. She also needed petrol sellers and introductions to a network of buyers.

But no one in traditional finance would invest in a business operated by one of Berlusconi’s entertainers.

Using Facebook to find Mafia Associates

Using Facebook, Bettozzi reached out to Alberto Coppola, an associate of the Camorra in Naples. Coppola was known to be an expert in trade-based money laundering in the oil and gas sector, with expertise in fictitious invoicing.

Coppola agreed to help Bettozzi. He brokered deals for financing with three powerful Camorra Mafia families, the Moccia, the Formicola, and the Casalesi, which allowed Bettozzi to revive the fortunes of the company.

Disguising Fuel Imports

Coppolla helped to operate the business, while Camorra leader Alberto Moccia provided underground contacts to buy illegal oil and gas from Eastern Europe, and traffic it in Italy. One method they used was disguising diesel fuel as agricultural fuel in trucks outfitted with special levers that could add dye to fuel in tanks to change its color to fool inspectors.

Mafia accountants Claudio Abbondandolo and Maria Luisa Di Blasio oversaw payments of dirty money. The ‘Ndrangheta had to approve the deal with the Camorra and Bettozzi. The Camorra became the intermediaries between Bettozzi and the ‘Ndrangheta, who agreed to let the Camorra finance Bettozzi in exchange for a cut and for money laundering services.

Extortion Payments

Sales of the company grew to a whopping €370 million in 18 months – all of it dirty money. Bettozzi expanded beyond oil trafficking and joined the Mafia in forcing businesses to pay extorting payments under threats of violence – Russian Oligarch style, where extortion payments were filtered up to leaders in a pyramid scheme. 

For several years, the DIA and Guardia di Finanza intercepted and recorded phone calls between Bettozzi, Coppolla, the Camorra and the ‘Ndrangheta.  

Taking in over €8 Billion per Year

During one of those phone calls the police were intercepting, Bettozzi told her sister that she was working with the Camorra, and they were earning between €25 million to €30 million per day. 

That’s €8.1 billion per year.

Although very secretive, the ‘Ndrangheta went into business with Bettozzi because, as they were heard saying during an intercepted phone call, “trafficking oil yields more than trafficking drugs,” meaning it was more lucrative to traffic oil. 

Kazak Oil

The police had recorded a meeting in ‘Ndrangheta-controlled territory in the town of Vibo Valentia. The meeting was between the Mafia and representatives of the Kazak oil company, KazMunayGaz, discussing oil sales to service Calabria. 

The discussion involved the possibility of building a transshipment dock in the ocean to dock oil tankers, so that oil shipments could be delivered to Italy without passing through the Port of Gioia Tauro. They didn’t want it to transit through the Port of Gioia Tauro because it is controlled by other ‘Ndrangheta families who were not part of their money laundering business.

‘Ndrangheta Control

Although Bettozzi originally struck her deal with the Camorra, the ‘Ndrangheta – perhaps because of its greater power in the global organized crime hierarchy – dominated the financial side of the business and controlled most of the shell companies, properties and bank accounts used to launder the dirty money.

The Lady Oil’s Empire

Bettozzi boasted that she had “created an empire larger than Berlusconis”, and that she was so important, Berlusconi called her several times a day and she often did not take his calls. When she did talk to Berlusconi, the police heard those calls too.

In addition to a luxury apartment in Milan, Bettozzi had a sumptuous gold-infused villa in Rome’s upscale district of Appio-Pignatelli, with a blue lagoon pool, gold furniture, and rococo fireplaces, not far from the home of fashion designer Valentino. 

Under her stage name Ana Bettz, she often Instragrammed herself in her villa, or posted photos of herself at the villa on Facebook, wearing high boots and tight clothes.

Anna Bettozzi in her villa instragramming about her Versace carpet (Source: Instagram)

Arrest and Sentencing of Bettozzi

The Guardia di Finanza and DIA decided to end “Operation PetrolMafias” on April 8, 2021, with the arrest of Bettozzi, her lawyer, Mafia leaders and 60 other people in several early morning raids across Italy and Europe.

Guardia di finanza: operazione PETROL MAFIE (Source: YouTube)

Bettozzi was charged with membership in an organized crime group, association with the Mafia, extortion, money laundering, and a host of other charges.

According to police, she arranged, through law firms, to make corporate changes of shell companies to keep members of the criminal association off the corporate records and obfuscated from investigations. The money they earned was used to buy luxury cars and real estate, and was laundered through 100 private companies and bank accounts associated with those companies in Hungary, Bulgaria, Greece, Malta, England and Croatia.

Over €360 million in cash was seized and over €1 billion in assets, including properties and companies.

Last week, Anna Bettozzi was sentenced to 13 years in prison, and Europe’s biggest dirty oil trafficking case came to a close. While police found €360 million in cash, there is still over €30 billion in cash missing.

Rise of the Petrol Mafias

The phenomena of Petrol Mafias is far from over in Europe.

As the ‘Ndrangheta said in intercepted phone calls, trafficking in stolen oil is more lucrative than drug trafficking. With the energy crisis, the opportunities for organized crime to make more profits from illegal petrol trafficking is exponentially greater.

Global energy frauds are coming fast and furious from all directions including at the retail level with pump fraud in Asia, at the pipeline level in Mexico from cartels that siphon oil directly from pipelines while it is in transit; and crude oil theft in Africa.  Nigeria lost more than 115,000 barrels per day to oil theft over a 12 month period.

Petrol Mafia in Pakistan

US Department of Defence announces new Arctic strategy unit

By Christine Duhaime | October 10th, 2022

Climate change is key driver for military Arctic visibility

Climate change and Arctic

Last week, the US Department of Defense announced the establishment of new unit in the Pentagon, the “Arctic Strategy and Global Resilience Office,” situated in Alaska, to build preparedness to address climate change, and strategies to defend the Alaska Arctic-fronting coast. 

After the Cold War, the US was occupied in other theatres; in particular, terrorism and the Middle East, and the Arctic region was not its military priority. It is now refocusing on its two peer competitors – China and Russia – and in the Arctic.

It makes sense – the convergence point of Russia, China and climate change is the Arctic circle. 

There are only 8 Arctic countries – Russia, Canada, Denmark, US, Iceland, Norway, Sweden and Finland. 

Arctic countries (Source: Britannica)

A number of factors are driving the US desire to have a renewed presence in the Arctic.

As a result of global warming, temperatures in the Arctic are rising three times as fast as the world average. The Arctic ice surface is shrinking by 1.6% annually, and now, 70% of the Arctic ice is seasonal. The reduction of the Arctic ice surface, and the seasonal nature of the ice means the Arctic Ocean is becoming more navigable for more days each year.

NASA Goddard (Source: YouTube)

Russia’s North Sea Route

That has opened up the Northeast Passage (also called the Northern Sea Route) which follows the Russian territory, and the Northwest Passage, which follows the Canadian territory and creates shipping lanes through the Arctic.

The Northeast Sea Route connects the Atlantic and the Pacific Oceans, is 40% shorter than the route through the Suez Canal and bypasses the Straits of Malacca and Hormuz, which are politically unstable.

Why Russia is Building an Arctic Silk Road (Source: YouTube)

As global warming becomes worse, shipping through the Northern Sea Route is expected to grow but such growth is not without geopolitical concerns; if shipping routes move to the Northeast Passage over the next few decades, it will shift power and wealth to Russia because the sea route is almost completely inside Russian territorial waters.

Canada’s Northwest Passage 

Canada has the second largest land mass in the Arctic, and controls the Northwest Passage but unlike Russia, Canada has not developed or militarized its Arctic territory and some say Canada hasn’t taken Arctic sovereignty seriously. Sixteen years ago, Canada announced plans to build a naval refueling facility in Nanisivik – its only proposed military facility – but still hasn’t finished building it. For decades, legal scholars have said that because Canada does not defend, or take an interest in investing to defend, the Arctic, it may lose its Arctic footprint – likely to the US. 

Russia’s Arctic military expansion

Russia has built significant settlements, infrastructure, ice-capable shipping ports, and three new military bases in the Arctic, including its large Northern fleet, and has expanded and modernized a dozen legacy military bases and airfields across the Arctic, including Rogachevo on Novaya Zemlya. 

Russian Arctic instatllations (Source: Arctic Review on Law and Politics, August 2022)
Inside Russia’s Arctic Military Base (Source: BBC News YouTube)

The new bases, commonly referred to as “Arctic Trefoil” consist of one central living and administrative building in a triangular shape. There is one base in each of the western, central and eastern part of the Russian part of the Arctic.

China and Japan have Arctic ambitions

Meanwhile China and Japan, both non-Arctic nations, are building new transportation, infrastructure and commercial capabilities tied to the Arctic. In its 2021 five-year plan, China has said it will be involved in Arctic development. It is already launching a satellite for Arctic observation. 

Both Japan and China are building nuclear-powered icebreakers to navigate the Arctic Ocean, ostensibly for “science.” Both are major investors in Russian LNG infrastructure projects in the Arctic off Siberia, and in LNG projects in Canada

Access to resources

The Arctic is rich in rare earths and strategic minerals and contains vast oil and gas reserves. As the Arctic ice surface recedes, those resources will become accessible to Arctic nations for potential exploitation.

As climate change becomes more extreme and causes the loss of arable lands, and resultant human displacement, there will be renewed pressure on access to more basic Arctic resources – water and fish – from Arctic and non-Arctic nations, and the defence against IUU fishing in the Arctic will become more urgent.

The Chinese fishing fleet, which engages in the majority of IUU fishing around the world, is bigger than any navy in the world, and bigger than most navies combined.

By setting up the new Arctic Strategy and Global Resilience Office, the US military presence in the Alaskan Arctic will enable it to better understand how climate change will affect the international security environment and use that to inform military decisions.

More Arctic developments are likely to be announced within the next five years or sooner – for example, Canada may cede some sovereignty to the US and agree to the installation of a US military base on Canadian Arctic territory; and if that happens, Russia may follow suit and do the same with China.

Vancouver doctor, Avtar Singh Dhillon, of Emerald Health, charged for 3rd time; facing 30 years in jail

By Christine Duhaime | October 5th, 2022

New charges levied against Dhillon and against his lawyer

Three times a charm or a curse?

A Vancouver doctor who allegedly partnered with the now-infamous Vancouver lawyer Frederick Sharp in an international microcap alleged fraud scheme (summarized here) – Avtar Singh Dhillon – was charged criminally by the US Government, the FBI announced yesterday. It’s the third set of securities-related charges against Avtar Singh Dhillon in thirteen months.

Less than a week ago, Avtar Singh Dhillon (“Dhillon“) was charged by the Securities and Exchange Commission (“SEC“) for alleged fraud in connection with undisclosed promotional activities to sell the stock of Emerald Health Pharma Inc. (those charges are summarized here).

Yesterday, the FBI announced that Dhillon was charged with conspiracy in connection with payments to the same stock promotor of Emerald Health Pharma Inc. (“Emerald Pharma“).

In connection with another microcap company, Arch Therapeutics Inc., the FBI announced that Dhillon was charged with failing to disclose stock sales and with aiding and abetting the sale of unregistered securities.

Dhillon’s lawyer charged

Dhillon’s lawyer, Daniel V. Martinez, was charged with the sale of unregistered securities.

The FBI alleged that Martinez created a company for Dhillon and shares of Arch Therapeutics Inc. were parked there (meaning the lawyer created the central securities register and entered Arch Therapeutics Inc. as the shareholder of that private entity the lawyer incorporated in California). The private entity then sold the shares of the public company. Because it was a private company selling and fronted by the law firm, it looked to the outside world like it was not Dhillon beneficially controlling the shares. Dhillon earned US$1.3 million in proceeds of that crime. The securities disclosure of that issuer did not disclose these events to investors or to the capital markets.

Dhillon facing 30 years in jail

Both agreed to plead guilty. Dhillon is facing a term of incarceration of up to 30 years. No date has been set for Dhillon’s sentencing. He will be sentenced pursuant to US federal sentencing guidelines in effect as at the date of the events.

Because he was heavily lawyered-up in Vancouver throughout the whole of his capital markets career, including partnering during that career with a Vancouver securities lawyer, there isn’t much he can advance downwards for the sentencing guidelines. The 30 years is a baseline – it can be increased, for example, if a person directed the intimidation of a whistleblower, attempted to obstruct justice or refused to accept responsibility. There is usually a “role enhancement”, that increases sentencing where the person was in charge. Sentencing can also be reduced (called downward departures) if, for example, a person was young and made a mistake. A defendant who enters a guilty plea is not automatically entitled to an adjustment for acceptance of responsibility because it can be outweighed by conduct that is inconsistent with acceptance of responsibility such as a defendant telling family members or business partners that he’s going to get off. The SEC, in the Frederick Sharp case, alleges that several instances of the obstruction of justice emanated from Dhillon, including in connection with a purported land transfer.

Emerald Pharma and Sciences

According to the Vancouver office of Deloitte LLP, and the last available consolidated financial statements they created of Emerald Health Sciences Inc., Emerald Pharma is owned 53% by Vancouver-based Emerald Health Sciences Inc., and it used to be a British Columbia entity that moved jurisdiction to Delaware.

In the charges announced last week, the SEC alleged that Dhillon caused officers of Emerald Pharma, whom he directed as a director, to draft fake consulting agreements to obfuscate payments to undisclosed stock promoters, and Emerald Pharma then paid fake invoices rendered by the promoters. Dhillon settled that case with the SEC and didn’t have to pay a fine for the alleged wrongful conduct. It is possible that he avoided civil penalties because of the then-undisclosed criminal charges announced today against him related to Emerald Pharma.

Dhillon voluntarily disclosed the list of shareholders of Emerald Health Sciences Inc. in a Court proceeding, and in that list Martinez appears as a shareholder.

Excel of stockholders of Sciences (Source: From Avtar Dhillon)

Dhillon was dealing with the death of his father-in-law the last few weeks, and it is likely that the FBI, US Department of Justice and SEC delayed making an announcement in respect of Emerald Pharma to allow him to deal with family matters.

Adding internal controls

Emerald Pharma issued a news release two days ago (here) in which they stated that they intend to “add internal accounting controls.”

Wait – they’re going to “add” internal controls? Why were there no internal controls before?

Since Deloitte LLP completes (perhaps “completed” if they have resigned from Pharma and Sciences), the financials of both entities consolidated together, it begs two questions – how it was able to issue audited financials without internal accounting controls in place for a public company, and whether Deloitte LLP informed Emerald Health Sciences Inc. (as control person and pursuant to consolidated financials that included Emerald Pharma), that there was a significant deficiency in internal controls. An auditor is required to report on internal controls to the client and more importantly, to the capital markets.

If they didn’t, that’s an issue for Deloitte LLP; if they did, that’s an issue for Emerald Pharma.

Controversial entity

As noted here, Emerald Health Sciences Inc. is a controversial entity because Dhillon swore in an affidavit years after soliciting investments from investors, that one of its co-founders is Yadvinder Singh Dhillon. Singh-Dhillon is a US felon who was convicted of smuggling one of the largest amounts of heroin into the US with Ranjit Cheema, the deceased leader of an Indo-Canadian organized crime group. The Emerald Health Sciences Inc. entity controlled a number of public companies. One of those companies entered the legalized cannabis space in Canada and obtained a federal cannabis producer licence with the US felon in the mix.

How any of that was possible remains a mystery. Singh-Dhillon’s criminal history was well-known because the heroin smuggling case was heavily covered in the media for over a decade in Canada.

Dhillon incorporated a company in California through Martinez that they decided to name “Walk on Water” – an expression that means a person believes he or she is untouchable, superhuman, godlike. One suspects the FBI may have some views on that.

Vancouver doctor Avtar Singh Dhillon of Emerald Health, charged for the 2nd time by the SEC

By Christine Duhaime | September 30th, 2022

New SEC charges

A Vancouver doctor who allegedly partnered with Vancouver lawyer Frederick Sharp in an International microcap fraud scheme (summarized here) – Avtar Singh Dhillon – was charged by the Securities and Exchange Commission (“SEC“) again today. This time it involves a different public company and hits closer to home for Vancouver residents because the company is Emerald Health Pharmaceuticals Inc. (“Emerald Pharma“).

Emerald Pharma is owned 53% by Vancouver-based Emerald Health Sciences Inc., according to Deloitte LLP’s Vancouver office, which completed consolidated financial statements of Emerald Health Sciences Inc. which included the financials of Emerald Pharma.

Emerald Pharma was incorporated in Delaware in 2017, but according to Deloitte LLP, before that it was a British Columbia company located and operating in Vancouver since May 2015, and was wholly-owned by Vancouver’s Emerald Health Sciences Inc.

Emerald Health Sciences Inc. is a controversial entity because it is the control person (in the US securities common law sense) of a number of public companies but was co-founded by a US felon who was involved in one of the largest heroin smuggling cases in US history. This was not disclosed to investors at the time, but was revealed years later in an affidavit Dhillon voluntarily filed in a Court proceeding, together with a list of all of the shareholders with their addresses of the Sciences entity (which included nominees that the SEC says are, or were, controlled by Frederick Sharp). The Ontario Securities Commission held, in the Russian gangster case involving the FBI’s most wanted, Simeon Mogilevich, that criminality must be disclosed to investors, as a matter of risk. How they found a solicitor willing to do securities work with a felon co-founder is a mystery.

Subsidiaries of Emerald Health Sciences Inc. Source: Deloitte LLP, 2016

The SEC also charged Emerald Pharma and its CEO James DeMesa (“DeMesa“).

Undisclosed stock promotions

The SEC alleges that Avtar Singh Dhillon (“Dhillon“) and DeMesa hired a newsletter writer to write purported independent articles to promote the stock of Emerald Pharma without disclosing that the articles were paid promotional content and without disclosing who received the payment (a §17(b) issue).

According to the SEC, several executives from Emerald Pharma (whom they do not name), attended a meeting in November 2019, to work on the promotional plan, subsequent to which the SEC alleges that Dhillon arranged to secretly pay the promoter to promote a Reg A offering to US investors.

The SEC alleges that Emerald Pharma entered into fake consulting agreements as a method to move money to pay the promoter secretly.

Fake consulting agreements

Vancouver capital markets has the dubious distinction of having invented the idea of fake consulting agreements to move money, which on its face is a form of trade-based money laundering (“TBML“). TBML revolves around invoice fraud for goods or services whereby goods or services are over or under-priced, or there are invoices for no goods or services. TBML can be domestic or across state or national lines. The SEC says that in this case, fake invoices were submitted to Emerald Pharma for payment with work described on the invoices as “developing agave syrup.”

The SEC alleges that it was Dhillon who urged DeMesa to enter into the fake consulting agreements on behalf of Emerald Pharma.

The SEC also alleges, without using these words, that the promoter was being paid as a finder, earning 6% of funds raised. Emerald Pharma paid the promoter US$1.7 million to promote, plus issued shares to the promoter with a value of US$600,000. Emerald Pharma raised USS$30 million from the alleged illegal promotions.

The SEC charged Emerald Pharma, Dhillon and DeMesa with numerous securities violations for their deception, allegedly employing various schemes to defraud investors, and making materially false statements in the disclosure material of Emerald Pharma.

The SEC sought injunctive relief against Emerald Pharma, Dhillon and DeMesa, and their attorneys among others, to prevent them from continuing to break the law. Why attorneys? Because attorneys are capital markets gate-keepers – they draft the continuous disclosure, and then publish the disclosure they write on Edgar or Sedar, which investors rely upon.

Parties settled

All of the parties charged settled.

Emerald Pharma agreed to pay a penalty – more like a parking ticket really, since they raised US$30 million – of US$517,955; DeMesa agreed to pay a penalty of US$103,591.

And Dhillon?

Although there are other securities fraud charges against him, including criminal charges in connection with other public companies, he got off Scot-Free. Not even $1 did he have to pay.

It’s hard to understand the logic, or the deterrent and denunciation message of a settlement with Dhillon on such terms. He was the director, e.g., the directing mind of the entity; the person living in the luxury mansion with the greatest capacity to pay (investors on the East coast told us that Dhillon flew around on a private jet with a body guard), who may prove to be a recidivist if the Frederick Sharp related charges are concluded with a conviction.

In a shareholder newsletter of the control person, Emerald Health Sciences Inc., DeMesa once said that his philosophy is to get outstanding business results by working closely as a team and by following the philosophy of Dhillon, which he said was to ” be a family and not just a typical business.”

But alas, they were no family – they booted DeMesa out of Emerald Pharma.

Hey, Be Happy!

DeMesa runs a YouTube channel on “being happy” with 5 subscribers.

Voyager Digital: Asking Questions about Canadian Capital Markets

By Christine Duhaime | September 11th, 2022

Part 1 – Securities Fraud in Canada and l’affaire Uramin-Areva

Voyager Digital

“Asking Questions About Canadian Capital Markets” is a series of articles about the capital markets in which we explore some Canadian public companies and ask questions. These questions may shed light on the now-defunct Canadian digital currency exchange called Voyager Digital based in Vancouver. 

One of the founders of Voyager Digital is a Canadian attorney named Stephen Dattels.

To understand Voyager Digital, we’re going to look at some of the public companies he was involved in before Voyager Digital.

Voyager Digital, the digital currency exchange, is a subsidiary of a British Columbia public company(1). 

According to several media reports, some investors have filed a class action lawsuit in the US against Voyager Digital, alleging that it was a Ponzi scheme with US$5 billion allegedly missing(2).

When people talk about loses to investors, sometimes it’s not clear what they mean. In the case of digital currency exchanges, if they are public companies, there are two separate pools of investments – funds from investors who bought shares of the public company (e.g., shareholders), and funds from consumers taken in as a deposit-taking function and held in trust for consumers. 

The billions of dollars allegedly missing according to the US class action lawsuit refers to the money that ordinary consumers deposited in trust to buy digital currencies, some of which are so-called “tokens” or so-called “stable coins” and most are a securities. This series of articles is not about that activity or consumers; it’s about the capital markets side. 

In this Part 1, we explore historic attempts to federally legislate Canada’s capital markets and then we look at one of the public companies Dattels was at the helm of called Uramin Inc., which came to be know as the scandal “l’affaire Areva” or “l’affaire Uramin” in France.

Systemic securities fraud

There is a perception in Canada that legislators haven’t done much to address securities fraud in Canada.  According to research we conducted in early 2021 (see Business in Vancouver here), while Canada represents only 12.5% of the US population, it often represents 40% of securities fraudulent activities in the US capital markets involving micro-capitalized public companies. In 2020, we researched US Court records and calculated that there was over US$4.5 billion in open securities fraud cases involving Canadians in the US. 

When Covid-19 fraud started occurring in the capital markets with false representations by microcap public companies stating that they had magic Covid-19 drugs or cures, the US Securities and Exchange Commission (“SEC”) issued emergency orders to stop misrepresentative statements by suspending the trading of securities on more Canadian public companies than companies from anywhere else in the world. The SEC v. Frederick Sharp et. al. alleged securities fraud prong of cases with British Columbia actors adds another US$1 billion to the tally of open securities fraud cases involving Canadians.

Canadian public companies cause more per capita harm to US investors and to the US capital markets than any other country. The schemes also involve American wealth stripping – e.g., removing wealth from the US to Canada, although it could also involve other countries. For example, the YBM Magnex case (see here) involved removing wealth from the US routed through Canada, destined for Russia. YBM Magnex Inc. is the first known case of state-sponsored securities fraud and wealth stripping in the capital markets but because of a lack of knowledge about Yvegeny Primakov in the West, the case was never viewed as one of state-sponsored activity.

The problem of securities fraud perpetrated by Canadians on American investors has been known to US lawmakers since at least the 1940s. In a New York Times article dated June 2, 1940, a reporter noted that the best suckers grow in the US, suckered by Canadian fraudsters who target the US investors because they want access to a wealthy, large investment pool they can’t get in Canada.

The Washington Post, in 1952, wrote that the US Senate’s concern for American investors being defrauded by Canadians with phoney stock claims, including phoney uranium mining claims, was so heightened that there was talk of a treaty just to ship fraudsters from Canada to the US where they could be prosecuted.

Fraud on the capital markets (called by its 1920s name, “public markets,” in the Criminal Code of Canada) is a predicate offence under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, so if there is a capital markets fraud problem, we also have a money laundering problem in the capital markets.

From time to time, Canadian federal legislators have tried to address Canadian securities fraud and to force a cultural change using the law.  Unfortunately, to no avail.

Bond Dealers Association of Canada

Canada was once ahead of its time in securities legislation discourse.

In 1916, the Bond Dealers Association of Canada was formed by a handful of nationally known bond house executives in Toronto – John Worth Mitchell of Dominion Securities Corporation Limited (now RBC Dominion Securities), J. H. Gundy of Wood, Gundy & Company Limited and A.E. Ames of A. E. Ames & Company Limited. They were famous financiers in Canada, the US and the UK who later ran (with E. B. Wood), Canada’s Victory Bond programs for the federal government for both World Wars.

In its first year, the Bond Dealers Association set up a committee at the request of the federal Minister of Finance to consult on securities matters.

In 1919, Bond Dealers Association leaders J.W. Mitchell, (who was previously an Ontario lawyer), J.H. Gundy and C.H. Burgess drafted a securities legislative framework which proposed that a federal securities commission be established in Ottawa, with branches in every province, to examine projects before securities could be sold to the public. Securities dealers would be required to be registered to sell securities and every issuer of securities for public sale would be required to provide full disclosure and any other information desired by the federal securities commission. The federal securities commission could reject a project that involved the issuance of securities to the public, and no offering of securities by advertising, circular or letter could be conducted without advance approval of the securities commission. The securities commission would be empowered to investigate issuers and their statements. Speculative securities would be “so marked on all literature.” The markings on securities literature would also include yield representations and any securities which promised to yield more than 7% return or that made representations to investors that the investment would be twice its value in two years, would have to be marked as speculative for investors. Those who violated the new proposed securities laws, could be fined or subject to imprisonment by the federal securities commission.

This was 14 years before the US Government enacted its federal securities laws and created the SEC. Canada did not enact federal securities legislation as proposed by a committee of the Bond Dealers Association but almost identical concepts were enacted in the United States in 1933 and 1934.

In 1921, the Bond Dealers engaged in discussions for Ontario’s proposed securities legislation. With the Toronto Stock Exchange, they were looking at investor protection legislation. A mining exchange called the Standard Exchange in Toronto pushed back, arguing that investor protection would harm the mining sector. The Globe and Mail noted at the time that the members of the Toronto Stock Exchange believed that mining companies on the Standard Exchange were of “questionable quality” and wanted protection for small investors, who they said had little opportunity to determine the merits of an offering.

For context, J.W. Mitchell, A.E. Ames and J.H. Gundy owned numerous utilities and financial businesses together in the United States and Canada, and sold bonds in New York. They were tight socially – for example, A.E. Ames hired the brother of J.W. Mitchell, who operated the London securities branch office of A.E. Ames & Company Limited. Dominion Securities Corporation Limited, was founded in 1901 and J.W. Mitchell, E.R. Wood, Sir Wiliam Mackenzie, and George A. Cox were among its founders and were officers or directors. Mitchell, Ames and Gundy were extremely well-connected to American industrialists and American bankers and often consulted American legislators on securities law matters with a view to ensuring that Canadian, US and UK securities laws were aligned to facilitate international finance during critical war and post-war periods.

Because they were in International finance and securities specifically, they were more acutely aware than most that harm to investors from securities fraud caused market distrust and would erode Canada’s ability to attract investment. While they had a personal interest in ensuring the market was operated with integrity, they also had a deeper obligation to Canada as the sellers of the federal bonds in international and national markets.

The way of the business world back then was through private clubs and for example, J.W. Mitchell for whom records survive, was one of a handful of Canadians invited to join the prestigious Bankers Club of New York and the Detroit Club frequented by presidents Truman, Hoover and Roosevelt. For all of their connections to federal lawmakers, access and power as the captains of bond finance in Canada, they were unable to bring about investor protection for securities on a national level in Canada.

But their legacy lives on – the Bond Association of Canada became the Investment Industry Regulatory Organization of Canada.

Bond Association of Canada founders J. W. Mitchell of Dominion Securities Corporation Limited (first from the left), J. H. Gundy of Wood, Gundy & Company Limited, A.E. Ames of A. E. Ames & Company Limited with E. B. Wood (third from the left), 1917 (Source: Collection of Sir Robert Borden).

Proposed federal securities legislation

In Canada in 2009, former Finance Minister Jim Flaherty set up a federal working group which drafted a federal securities act to replace provincial securities legislation. The legislation was designed to, among other things, address systemic fraud afflicting Canada’s capital markets, protect the Canadian financial system and investors, and enable the detection and prosecution of financial crimes arising from capital markets activities. Flaherty’s efforts were defeated by the Supreme Court of Canada which took a very provincial view and ruled in Reference re Securities Act, that capital markets had to remain provincial jurisdiction under The British North America Act, 1867.

The decision was rooted in a reality that existed in the last century when in Canada, capital markets were limited to Toronto and Montréal, and securities were evidenced on physical paper records and delivered to investors by horse and buggy.

The fact that the Canadian judiciary, in this day and age, thinks that the capital markets are like the 1890s is quite concerning. 

Where Canada’s capital markets were born – King and Bay Street, Toronto, Canada, circa 1890 (Source: Toronto Public Archives)

Senate attempts to amend Criminal Code

In 2016, the second federal attempt was undertaken by former Canadian Senator Céline Hervieux-Payette, who was the deputy chair of the Standing Senate Committee on Banking, Trade and Commerce. She introduced criminal legislation called the “Combating International Fraud Act”, to respond to fraud in the capital markets after a number of scandals involving public companies in Canada left investors (many of whom were elderly) destitute and which harmed Canada’s financial reputation internationally.

Senator Céline Hervieux-Payette, 2017 (Source: Eric Carrière, Flickr here)

Senator Hervieux-Payette said she was motivated to introduce the legislation because of Stephen Dattels. Stephen Dattels appears to be the only Canadian attorney, perhaps the only attorney anywhere in the world, in respect of which deterrent legislation has been drafted.

Uramin Inc.

In Parliament, the Senator stated that Dattels founded a company in Canada called Uramin Inc., which became a public company in Canada listed on the TSXV.  A short time after listing, Uramin’s stock price rose 467% and it was sold for €2.5 billion to Areva S.A., a state-owned nuclear energy corporation in France.

According to its filed securities disclosure and a book that Dattels had written about the deal, some of the people involved in Uramin Inc. with Dattels included John Ian Stalker, Samuel Jonah, Neil Herbert, James Pitman, Ian Watson, Graham Mascall, Michael Beck, Francis Daniels and the Brexiter James Mellon. According to a book they paid to be created about themselves and Uramin, the idea to start a uranium issuer stemmed from watching Frank Guistra and Ian Telfer start a uranium issuer with a Russian national.

A simple network of Uramin Inc. before it was acquired by Areva SA

Why did a foreign government pay €2.5 billion for a little public mining company in Canada that had only been around for 674 days, that had mined nothing?  Investigators in France have theories but no one knows the answer. The CEO of Areva has testified before several federal bodies in France, and not all of her testimony has been made public. Part of the reason may be because of representations Uramin made about the extent or value of its uranium resources. Its disclosure says its uranium resources totalled 262.6 million pounds in three African countries.

The Senator told Canadian Parliament “there was no uranium” and she stated that various audits, including one by the French Parliament found that “Dattels and his associates lied outright about their uranium reserves and deposits.” We have not been able to find an audit document which confirms what the Senator stated. 

No uranium? Some uranium?

In France it took a while for Areva S.A. management to comprehend its own uranium acquisition and it wasn’t until 2010, that it hired external investigators to find out about its own deal. What they and investigative journalists (see “Areva: les secrets dune faillite” here) say they learned was that: (a)Uramin Inc. had uranium deposits in Namibia that were not exploitable because they were below 100 ppm U (below 100 ppm is graded “very low” and means there is 0.01% U or less); (b) deposits at the Bakouma site in the Central African Republic were not exploitable because of mining land access issues; and (c) there were no uranium mining rights in South Africa (see “Affaire Areva Uramin: 3 milliards en fuméehere).

“Affaire Areva Uramin: 3 milliards en fumée” (Source: YouTube Channel of Imineo Documentaires)

Uramin’s mining report, called a 43-101, states that the Uramin deposits in Namibia were, for the most part, above 100 ppm U and were “low” and not “very low”. Low grade is 1,000 ppm U or 0.1% U. 

With respect to the assets sold by Uramin in the Central African Republic, after the deal closed, Areva was unable to access the mining site it bought from Uramin, even though Uramin said it had paid US$27 million to the Central African Republic for a 90% interest in Bakouma and for licenses to commence mining activities.

Bakouma empty site

According to the Central African Republic, they were the shareholders of 10% of a Uramin subsidiary registered in the CAR which held the Bakouma mining rights, and its shareholder and mining agreement required the advance written consent of the CAR for the sale to Areva S.A., which was never given.

Areva negotiated with the President of CAR, François Bozizé, to re-acquire the mining rights it had already paid €2.5 billion for, and eventually agreed to pay another US$50 million to the CAR to access the mine site. The deal was negotiated by a New Zealand person, who acquired Belgium citizenship, but who lives in the Congo, named George Forrest. He is a controversial figure who, according to the US government, was talking to the Iranian regime about buying uranium. He attempted to do a capital markets deal for uranium in Canada, and was stopped by the US government. We’re going to look at George Forrest later in this series.

A person from Ghana named Samuel Jonah was the person at Uramin who dealt with President François Bozizé Yangouvonda‘s government to secure the mining rights.

Bozizé “opening up” the Bokouma empty mining site for Uramin in 2006

According to documents on Wikileaks, a bonus payment was allegedly also made by Uramin to officials in the CAR in June 2006.

Some in France have called the Uramin deal a scam (une escroquerie) or a fiasco (see “Affaire Areva Uramin: révélations due un scandal d’état?” here).

“Affaire Areva Uramin: révélations sur un scandale d’Etat?” (Source: YouTube Channel of CNEWS)

There were other aspects of “l’affaire Areva” that involved Canada beyond accusations about un-exploitable reserves, and those were concerns involving money laundering. And although they involved allegations tied to Uramin Inc., they don’t originate from Uramin.

Money laundered here and there?

The first is that, according to TracFin, the French federal financial intelligence unit, the spouse of the CEO of Areva, Olivier Fric, had access to material undisclosed information about Uramin Inc. and was able to buy securities of Uramin for several weeks during its blackout period. He conducted those securities transactions using a BVI shell company called Amlon Limited and netted €300,000.

TracFin told the French prosecutor that the transactions buying and selling the securities of the Canadian public company were suspicious transactions for money laundering purposes for fraud.

Spy thriller

One of the most interesting persons in l’affaire Areva was Saifee Durbar. He self-describes as a “bandit” and his role in l’affaire Uramin has been described in The Times as one of a key player in a spy thriller.

Saifee Durbar in Mayfair (Source: Le Media)

He told investigative journalists and the French government that millions of dollars in proceeds of corruption were paid to a South African named Tokyo Sexwale at the closing of the Uramin deal, which originated from ScotiaBank in Toronto. The funds, he alleged, were laundered to Bermuda and then to South Africa for the benefit of Sexwale. In 2017, he gave more specific statements in respect of Sexwale and Uramin (see “Candidat à la Fifa, Tokyo Sexwale, éclaboussé par une affaire de corruptionhere).

L’OBS headline, February 16, 2016

Saifee Durbar was a whistleblower. He had information no one else did because he was an advisor to Bozizé with access to information about Uramin and its executives, and Areva and its executives, and their dealings with the CAR government both before Uramin acquired its mining license from CAR, and after, when Areva tried to access the mining site without an authorized change of control.

He twice told investigators that he is in fear for his life over l’Affaire Uramin. Why? What don’t we know that he does? We’re talking about a little Canadian mining issuer – who could he be afraid of?

The French national financial office established two inquiries to investigate Areva S.A., including aspects of the Uramin deal.

Side deal for corruption

At the end of the day, the prevailing theory among some people in Europe and Africa who were involved, and who spoke to investigative journalists, appears to be that the deal involved a side-deal where a portion of the acquisition price went into a black suitcase (see “Enquête Areva – Uramin, filouterie radioactive?here). A black suitcase is an expression used in France and China, perhaps other places, that means a bag for black money. Black money is money for crime, most often to make corruption payments.

It was Areva’s black suitcase, though, not Uramin’s but the suitcase was in Canada, if it existed. And if it existed, when the suitcase needed to be opened, it was opened in Canada and the money it held was sent to intended recipients. By that I mean if foreign corruption payments were made, they were made from Canada. It can’t be otherwise because in any M&A deal, the deal proceeds are paid to one recipient in trust. That recipient then, on the authority of written consents to pay, disburses payments. Even if they disbursed to another black suitcase in the Bahamas, Bermuda or the Cayman Islands, it still came from Canada.

In France, “l’affaire Uramin” was a massive story for years. Several books have been written about it. 

“Vincent Crouzet. Enquête: Areva – Uramin, filouterie radioactive?” (Source: YouTube Channel of TV5 Monde)

Crickets in Canada

In Canada?  Nothing.

Senator Hervieux-Payette said that no securities regulator in any province conducted, or would conduct, an investigation into “l’affaire Uramin.” The Senator told Parliament that she tried to get the RCMP to investigate but that went nowhere, she said. Not even on the foreign corruption angle. The Senator then conducted her own investigation, which led to her proposed legislation to strengthen criminal enforcement of Canadian capital markets. 

Her draft legislation included provisions for extraterritorial application of the Criminal Code insider trading and tipping offences.  The latter provision, the Senator told Parliament, could have been used to investigate what she called the “Dattels gang.” She submitted her investigation report to Parliament.

But Parliament didn’t enact the Senator’s legislation. We asked a former investigator in France who investigated “l’affaire Uramin” for France, why there was no investigation in Canada if there was a case to be made, as alleged. He told us it was because Canada’s mining lobby group lobbied the Canadian government to take no action.

But how do we explain the fact that the Canadian media never picked up on or followed l’affaire Uramin even though it was so significant a story in France and Africa? The answer is language – most of the Areva and Uramin coverage, including about Dattels, is in French and from France and Africa.

It seems likely that the Uramin-Areva deal was about more than a black suitcase to help France make foreign corruption payments from Canada, where they could be assured there would be no investigation into foreign corruption, or from the capital markets side. It seems that something much more intense went on with the deal involving Africa, China, Russia and the nuclear energy industry as a whole. We’ll explore that later.

And Areva? 6,000 people lost their jobs in France, across the EU and across Africa, and the European nuclear energy industry was destroyed. Russia stepped in as the global nuclear energy leader.

And Canadian attorney Stephen Dattels? He moved to the United States, built a mansion in West Palm Beach, Florida, and kept a footprint in Ontario’s thoroughbred horse breeding country. But he also stayed involved in little Canadian public companies, including Voyager Digital.

We found him connected to a little Vancouver microcap company named BetterLife Pharma Inc., where he is mentioned in a fascinating lawsuit filed by a man named Aly Ismail, battling over a finder’s fee. 

Next up

In Part 2, we continue our journey to understand Voyager Digital with a backwards look at what investigations in France have uncovered about l’affaire Uramin thus far. 

In subsequent parts, we then take a look back at mining in Africa tied to Canada and Russia, and international spies in the mining industry. We then move forward and take a deep dive into hidden control persons, the suppression of warrant rights, and what Vancouver securities lawyers disclosed to investors in the disclosure record of another Vancouver issuer called BetterLife Pharma Inc., where Dattels appeared in a lawsuit over a finder’s fee, before ending to look at Voyager Digital. 


(1) There is sometimes confusion about jurisdiction in cases where a Canadian company decides to operate in other countries. A British Columbia company means its jurisdiction is British Columbia, and Canada. If it is a reporting issuer, the company makes a decision on which province it wishes to attorn to as a matter of jurisdiction for securities regulation and enforcement and in respect of investors. It also selects a principal regulator, and informs investors and securities regulators who that principal is. That provincial principal regulator has primary jurisdiction in Canada. A third prong in respect of jurisdiction is the jurisdiction of its directors. In the case of Voyager, it made the decision to report to all provinces and asked Ontario to be its principal regulator for investors. It has, perhaps had now, directors in Canada. That does not mean, however, that US securities and other regulators have no jurisdiction; they have jurisdiction in respect of US investors, financings and listing matters if a US exchange was used to list stock, and if securities were offered or sold to persons in the US. The US also has jurisdiction by virtue of correspondent banking rules, which means that all of the financial transactions of Voyager Digital fall under US jurisdiction, and that brings in the US Wire Act and financial crime laws.

(2) A Ponzi scheme simply means to take new investor money and use it to return money to old investors. Before Charles Ponzi, it was called “robbing Peter to pay Paul.” It’s one of the easiest alleged frauds to investigate and confirm because directors of a Ponzi scheme direct the making of statements about how much money is invested and held in trust and one call by a regulator to the DTC, or in the case of crypto, a review of its cold wallet holdings instantly affirms (or not) the truth of representations made to investors. That’s one of the things that happened with the Bernie Madoff Ponzi scheme – no regulator picked up the phone and called the DTC.

Part 2: Understanding round-tripping in the capital markets

By Christine Duhaime | September 9th, 2022

Part 2

A mysterious man from Asia and the most famous round-tripping case

In Part 1 of “Understanding round-tripping in the capital markets” (here), we discussed round-tripping and looked at a rare SEC enforcement action involving round-tripping by executives of a microcap public company. In this Part 2, we look at the most famous round-tripping case involving a mysterious man from Asia named Hady Hartanto.

Hady Hartanto is a foreign national of Indonesia and China, and seems to have appeared in Vancouver, Canada, from time to time.

Early Vancouver-managed issuer

He has a long history of involvement in public companies in Asia but he also appears in an SEC revoked OTC-listed microcap company called Worldstar Energy Corp. managed from Vancouver. In 2007, Hartanto sold Worldstar 18% of 50 mining licences he said he owned in Mongolia, and thus became involved in Worldstar.

Worldstar Energy Corp. has one of the weirdest things in a US public reporting company – an anonymous person who was a director named “Supriadi”. No first name, no middle name, no last name – just “Supriadi”. That’s like appointing “Michael” as a director of a public company and hoping no one notices on the exchange, securities regulatory, corporate or AML banking side. Actually, no one did notice.

It is supposed to be against securities law disclosure rules to fail to identify a director of a pubic company.

When Hartanto became involved in Worldstar, Supriadi appeared too.

“Supraidi” in the Form 10-K of Worldstar Energy Corp.

One of the other directors at Worldstar with Supriadi was Richard Tay, a/k/a Tay Thai Seng, a Chinese national.

In Vancouver, Supriadi appears to have replaced a director named Taj Mohamed who controlled a British Columbia entity named Cheer Beauty Investment Ltd. Taj Mohamed was a “finder” and the control person of Worldstar, holding over 32% of its securities according to its filings.

Singapore Exchange action

The round-tripping case that is so famous started out as an enforcement action against Hady Hartanto and others by the Singapore Exchange in 2011 (see here).

The story goes like this – sometime in March 2011, Hartanto’s BVI company, Telemedia Pacific Group Ltd. (“Telemedia Pacific”), bought over 25% of the shares of a public company in Singapore named Scorpio East Holdings Ltd. (“Scorpio East“). Hartanto was appointed a director and officer of Scorpio East.

At that time, Scorpio East’s only potential business was film production revenues with several film producers who had signed on to create content worth S$12 million (the “Scorpio Contracts”). Scorpio East had paid a deposit of S$5 million for the Scorpio Contracts, representing 70% of its net asset value.

After Hartanto joined Scorpio East, he cancelled the Scorpio Contracts on his own, without consulting the other directors, without getting consent from the other directors with an executed consent resolution, and without issuing a news release to announce a material change to the company.

Hartanto worked deals with a man named Low Shiong Jin, and he brought Low Shiong Jin into Scorpio East’s affairs, inviting him to attend director’s meetings. But Low Shiong Jin had been blacklisted by the Singapore Exchange.

Then on March 17, 2011, Hartanto, all on his own, signed a S$6 million contract between Scorpio East and Alpha Entertainment Group Pte. Ltd (“Alpha Entertainment”), without consulting the other directors and without getting consent from the other directors with an executed consent resolution.

Who was one of the directors and shareholders of Alpha Entertainment?  Jung Jin, the wife of Low Shoing Jin, the person blacklisted by the Singapore Exchange.

Hartanto then wired S$3.2 million from Scorpio East to Alpha Entertainment, without consulting the other directors and without getting consent from the other directors with an executed consent resolution. The S$3.2 million was ostensibly a deposit for film production.

The round-tripping

Alpha Entertainment then round-tripped S$2.86 million back to Scorpio East. When the round-tripped funds landed back into the coffers of Scorpio East, Hartanto then told the other directors that the Scorpio Contracts were terminated. He also stated that he had obtained a refund of S$2.86 million from the S$5 million deposit paid. It was not true.

No refund was received and the intent was to have the round-tripped amount fraudulently recorded on financial statements as a refund and not an impairment.  

Hartanto then tried to get Scorpio East to wire S$3,300,000 out – S$3,000,000 of that amount to his personal lawyer at JLC Advisors LLP; the rest to Alpha Entertainment.  Hartanto did so without consulting the other directors and without getting consent from the other directors with an executed consent resolution.  

A director stepped in and stopped the payments.

The directors then halted the stock, launched an investigation, and self-reported the events to the regulator.

After its investigation, the Singapore Exchange held that Hartanto did not demonstrate the qualities expected of a director or officer of a Singapore-listed company, and had failed to act in the interests of the shareholders as a whole. He was blacklisted.

Hady Hartanto with Горбулин Олег

Hartanto then sued the other directors of Scorpio East in Singapore over statements made in the required continuous disclosure over the Hady Hartanto affair.

The Court found that Hartanto’s failure to inform the other directors of what was going on, and to obtain the approval of the other directors for the transactions he approved on his own, was a breach of his fiduciary duties.  The Court also held that the Alpha Entertainment deal was not in the interest of Scorpio East. Hartanto’s lawsuit was dismissed.

Other lawsuits involving Hartanto

Hartanto was involved in a number of lawsuits after that, which centered around the movement of large sums of money or securities of public companies.

For example, in 2014, his company, Telemedia Pacific, sued a Swiss bank operating in Hong Kong for following the instructions of its bank account signatory to transfer securities, which allegedly caused a financial loss. The securities were of a Singapore public company called Next-Generation Satellite Group (“NextGen“).

Basically, the claim was that the bank signatory’s authority had been revoked by Hartanto and because the bank completed a transfer on the basis of the authority of that bank signatory, the bank was liable for the transfers and resulting loss of securities. If there was a change in authorized signatories, no one informed the bank.

Remember “Supriadi”? In that lawsuit, Hartanto gave evidence that Supriadi is his nominee for banking purposes. A nominee for banking purposes means a person who opens a bank account on behalf of another.

In another case, an investor in Hong Kong named Huang Li sued Hartanto and Telemedia Pacific in 2014, over a stock sale. She alleged that in January 2011, at a dinner in Shenzhen, Hartanto offered the sale of securities of NextGen to her for HK$10 million. She paid him via cheque and made the cheque out to a different entity name (not NextGen). After she had paid, she never received the NextGen shares. She chased him for 3 years and finally in 2014, he informed her that he had sold her warrants, not shares, and that he had given the money to another shareholder who was supposed to transfer the securities to her. She obtained a worldwide mareva injunction against Hartanto and Telemedia Group. No progress seems to have been made on the case since 2018.

EY reports on public company affairs

In the interim, NextGen launched an investigation into its affairs after its directors discovered that certain funds of the public company had been transferred to a Hong Kong MSB named Niaga Finance, and its records did not reconcile. It hired EY to investigate the matter.

At that time, two of the directors of NextGen were Hady Hartanto and Tay Thai Seng, a/k/a Richard Tay, the director on the Form 10-Ks of the Vancouver-managed Worldstar Energy Corp.

The non-conflicted directors of NextGen believed Niaga Finance was a bank. Hartanto co-owned and was a director of the MSB Niaga Finance. Hartanto told EY that the public company’s money was wired to his MSB because he was more comfortable with it being there, as director of both entities.

If you’re like “what??”, you wouldn’t be alone.

Hartanto and Tay Thai Seng a/k/a Richard Tay were two signatories of the MSB’s bank account at HSBC, where the public company’s money landed.

Early Hady Hartanto connections (zoom out on a trackpad to read)

According to EY, S$22.5 million was transferred from the public company’s bank account at Barclay’s Bank to the MSB’s bank account at HSBC. From the MSB, the money then went to the credit of a company named Omega Creation Worldwide, which had no ties to the public company.

The funds were then wired to BNP Paribas under Omega’s name and no one could tell EY who controlled that bank account, although Hartanto told EY that it may be Tay Thai Seng. Another S$24 million was transferred to Niaga Finance according to EY for which EY stated there was no paperwork to explain such transfers. Additionally, S$20.7 million and S$17.3 million were transferred to Niaga Finance from the public company for unknown purposes, according to EY.

The first EY report was released in 2014 (available here). EY then was engaged to continue the investigation in 2014, and released a second report in 2017 (available here).

The 2017 EY report discusses the role of — a “Supriadi” — and stated that Supriadi appeared to be a “purported” director and shareholder of an entity named Bright Beach, together with another director named Wye Man, who told EY that she acts as Hartanto’s “dummy director.”

A “dummy” director? A “nominee” banker? A “purported” officer? Millions of dollars owned by a public company sent to an MSB and unrecoverable? The weirdness described in the two EY reports is quite astounding and it makes the round-tripping seem like child’s play.

世纪星⾠新材料(保定 ) 有限公司

We did some due diligence on Hartanto in China and according to federal government records in China, one of his companies, 世纪星⾠新材料(保定 ) 有限公司, is blacklisted.

Back to Vancouver

Hartanto has another private company in Hong Kong, called a “Foundation”, incorporated in 1997, from which he recently made a move to enter into a distribution deal with a British Columbia company. The deal fell through but it would likely have been blocked by RBC Royal Bank of Canada’s AML officers, which is the bank of the British Columbia company whose directors are connected to Hartanto, but it’s funny how it all started in Vancouver in 2007, and round-tripped back to Vancouver 15 years later.

Part 1: Understanding round-tripping in the capital markets

By Christine Duhaime | August 6th, 2022

Part 1

SEC files rare round-tripping enforcement action against Canadian issuer

We tend to think of round-tripping as tax evasion round-tripping tied to FDI, where investments are routed through a no tax jurisdiction before being reimported into the economy of origin as FDI. Mauritius comes to mind, because billions of dollars are round-tripped there every year, from India and emerging nations of Africa. The FATF has cautioned Mauritius about this type of activity.

But before there was sophisticated tax-evasion round-tripping, local capital markets had their own version of round-tripping, with new public companies inflating sales or revenues, to increase valuations to sell stock and dump it on unsuspecting investors. Round-tripping is as old as the capital markets themselves but for some reason, in the last 50 years, it has rarely been prosecuted.

That is until recently when the Securities and Exchange Commission (“SEC“) filed a handful of enforcement actions specifically addressing round-tripping, some involving Canadians.

Round-tripping is frequent and yet so infrequently addressed in the law, that we’ve decided to cover it in a two part series.

In Part 1, here, we discuss what round-tripping is and a recent SEC enforcement action. In Part 2, we explore the world’s most famous round-tripping case involving a mysterious man from Asia named Hady Hartanto.

What is round-tripping?

Round-tripping is a scheme involving financial transactions of public companies. It literally means money that went around and ended up at the same place (it went around in a circle), but deceptively, so that it appears to those not-in-the know that new money came in, when the same money re-enters an issuer. A round-trip involves several financial transactions, and combined, we use the term round-tripping.

Round-tripping happens frequently enough with little issuers – they do it to inflate their sales and revenues artificially to deceive banks, investors and analysts. Issuers may also round-trip to obtain a loan from a financial institution, and insiders sometimes take money from an issuer and circle it around to acquire securities using the issuer’s own money (instead of their own).

In terms of money laundering, round-tripping usually goes hand-in-hand with trade-based money laundering. To round-trip to deceive, the issuer has to fabricate invoices and sales to move the money, and that part of round-tripping is trade-based money laundering. The underlying crime is fraud (fraudulent financial statements, false documentation to obtain credit, etc.), and the proceeds are proceeds of crime, and thus the financial transactions are laundered funds.

SEC case involving round-tripping

In June, the SEC filed a claim against Mark Korb (“Korb“), the CFO of a Canadian issuer called Petroteq Energy Inc. (“Petroteq”), listed on the TSXV, OTC and Frankfurt exchanges. The CEO of Petroteq was Aleksandr Blyumkin (“Blyumkin”). 

Korb was charged by the SEC with multiple failures to disclose material information to investors, including executive compensation, related party transactions and mining rights.  

Failures to Disclose Related Party Transactions

In 2013, business associates of Blyumkin began buying shares of Petroteq, accumulating 8.96% of Petroteq’s shares and as a result of owning that amount of securities, became its control person (the “Control Group”).

That Control Group acquired mining rights from third parties on certain federal land leases in Utah for $275,000 and then flipped the mining rights to Petroteq for $23.8 million, meaning that the issuer’s own control person entered into a non-arms length deal and made over $23 million. Petroteq filed a Form 10-K, that was certified, which failed to disclose that the transaction was a related party transaction with its control person, and that the Control Group had an interest in the transaction.

Money From Acquisition of Mining Rights Round-Tripped

Petroteq acquired the mining rights in two transactions from the Control Group.  In the first transaction, Petroteq acquired a 50% interest from Vendor A for $10.8 million, satisfied with a $1.8 million cash payment and the remainder in Petroteq shares. It then acquired the remaining 50% interest from Vendor B for $13 million, satisfied with payments in cash and Petroteq shares. 

Most of the $1.8 million cash that Petroteq paid to Vendor A for mining rights was returned (round-tripped) to Petroteq and to Blyumkin. Blyumkin directed that $1.4 million paid by Petroteq be wired to two companies in the Control Group.  These two companies then wired $1.39 million back to Petroteq to buy its shares. The result was that the same money came in, went out and came back in. Issuers cannot round-trip in this manner.

There is a lot more to the civil case against Korb than round-tripping, including in respect of related party disclosure, which can be read here, and it is highly recommended for Vancouver CFOs and auditors.

Criminal round-tripping

Round-tripping can be dealt with criminally as well.

In USA v. Vitaly Fargesen and Igor Palatnik (involving the cannabis issuer Canadian CanaFarma), two CanaFarma control persons were charged for raising money from investors on false statements, lying about having cannabis facilities and creating bogus deals to round-trip money around to create fake revenue for the issuer. They were hoping that by round-tripping using fake deals for technology, the stock price would increase and because they were the control persons, their stock holdings would be more valuable and they could cash out.

The auditor signed off on round trip transactions but likely was not aware of round-tripping risks or how to detect them.

YouTube Channel of SAExploration

In another case, USA v. Whiteley, the CFO of SAExploration, a well-known public oil and gas company was charged for round-tripping $12 million through several companies to create the illusion of having sales on the books in order to qualify for a corporate loan. In doing so, he certified to false financial statements which were filed with the SEC. The CFO pled guilty to securities and wire fraud and at his plea hearing, stated that he understood that he faced a 90 year jail sentence.

Stay tuned for Part 2, where we review the most famous round-tripping case involving a mysterious man from Asia.

BVI Premier arrested for conspiracy to import cocaine for Mexican cartel

By Christine Duhaime | April 29th, 2022

BVI – a global money laundering safe haven

The Premier of the British Virgin Islands, Andrew Alturo Fahie, and BVI port authority head Oleanvine Maynard (“Maynard“), were arrested on drug trafficking and money laundering charges in Miami yesterday, shortly after looking at $700,000 in cash in a private jet that was earmarked for them.

The cash, they were told, was a payment from the Sinaloa cartel in Mexico for facilitating the movement of cocaine and money through the BIV.

Alas, that wasn’t true – they were looking at bags of cash that were never going to come to them because they were the target of a US investigation to root out corruption in foreign government tied to drug trafficking and money laundering.

The case was a DEA undercover operation involving the BVI.

In an affidavit, a DEA agent says that persons who said they are members of the Lebanese terrorist organization Hezbollah, met a DEA undercover agent in Tortola and gave him Maynard’s name as a BVI government official who could help with drug importations and money laundering.

The DEA undercover agent was posing as a “fixer” for the Sinaloa, seeking a transshipment point for cocaine from Colombia. The Hezbollah told the DEA undercover agent that he “owned” Maynard and that BVI government officials would need to be paid to help with drug transshipments.

The son of Maynard, Kadeem Maynard, was also arrested. He acted as the contact person between the Hezbollah and the DEA undercover agent, and later for access to his mother. At the first meeting, Kadeem Maynard informed the undercover agent that he had been trafficking drugs for 20 years.

With respect to money laundering, at that first meeting Maynard told the DEA undercover agent that “we set up shell companies” for banking to get the proceeds of crime into the BVI. Her son owns a real estate company in Florida and Maynard offered his company bank accounts to launder money in the US.

Maynard told the agent that BVI Premier Fahie was “a little crook sometimes” and “not always straight.”

Oleanvine Maynard (Source: Government of BVI)

The undercover agent eventually met BVI’s Premier Fahie through Maynard, and they reached an agreement for drug trafficking protection in exchange for a cut of the drug proceeds. Part of the arrangement involved providing Fahie with seizures of bad drugs and money in the BVI so that Fahie would avoid suspicion and it would appear to the world as if he was combatting drug trafficking and money laundering in the BVI, when of course he was not.

Fahie said he wanted $500,000 upfront and he would handle the ports and airports. He also asked for an advance of $83,000 to pay a man from Senegal who had “fixed” some political issues for him in the past.

Andrew Fahie, Premier of BVI (Source: Government of BVI)

When he was being arrested, Fahie asked: “Why am I getting arrested? I don’t have any money or drugs.”

People say the most prophetic things to undercover law enforcement officers – take Fahie, for example. Almost like he was foreshadowing, at the beginning of the relationship, he told the undercover agent that he hoped the agent was not law enforcement because it took him 20 years to become Premier and he didn’t want to lose it all in 20 minutes being caught in a drug trafficking operation. He knew, in his gut, that the agent was law enforcement and in the end, many weeks later, he did lose it all – in 20 minutes. Maybe even in two.

Next steps

The defendants are charged with conspiring to import more than five kilos of cocaine into the US and conspiring to commit money laundering, and will be prosecuted in Miami.

The DEA issued a statement about the arrest, noting the agency’s “resolve to hold corrupt members of government responsible for using their positions of power to provide a safe haven for drug traffickers and money launderers in exchange for their own financial and political gain.”

AML Risks

The BVI has a population of only 29,000 and yet it has 400,000 shell companies and other private companies (with bank accounts attached to them). It is a known money laundering safe haven for politically exposed persons, criminal organizations and oligarchs. In the chart, below, we describe the money laundering and narco-trafficking risks for each Caribbean nation, including the BVI (on page 2).

If you look at Cayman Islands (page 3 of the document below), while it has similar shell, banking and money laundering risks as the BVI, the ratio of the population to shell companies is significantly less, as is the number of shells. That’s because while the Cayman Islands is a money laundering haven, it does not have the narco-trafficking transshipment footprint that the BVI has.

Checklist of AML Risks for each Caribbean Nation

If you’re wondering about the Hezbollah and whether they really are chilling in Tortola, setting up shells and moving dirty money and drugs, we don’t know from the DEA whether in this case, it really was Hezbollah operatives or Lebanese nationals just claiming to be the Hezbollah, who made the connection for the DEA to alleged corrupt BVI government officials.

Vancouver Hells Angels part of a group that controlled eight public companies

By Christine Duhaime | April 28th, 2022

The Securities and Exchange Commission (“SEC“) filed more cases in New York over Easter, targeting actors in the Canadian capital markets. The cases are for alleged pump and dump schemes. One of the two latest cases by the SEC charges Courtney Vasseur, a full-patch member of the Hells Angels in Vancouver, with securities fraud and alleges that he was part of a group that controlled eight public companies.

In total, five cases were filed or unsealed charging a group of mostly Canadians with securities fraud brought by the SEC and/or the US government. The defendants in the first set of actions are David Sidoo, Ronald Bauer, Craig Auringer, Adam Kambeitz, Alon Friedlander, Massimiliano Pozzoni, Daniel Mark Ferris, Petar Dmitrov Mihaylov, Chris Lehner (“Lehner“), Julius Csurgo (“Csurgo“), Anthony Korculanic, Dominic Calabrigo (“Calabrigo“), Hasan Sario (“Sario“) and Courtney Vasseur (“Vasseur“). 

All five cases are tied to the US$1 billion securities fraud case in Vancouver, SEC v. Frederick Sharp, Avtar Dhillon et. al., which is a series of actions brought by the SEC and the US government. That case alleges that for at least a decade, Vancouver’s Frederick Sharp (“Sharp”) and his associates (the “Sharp Group”) ran a factory of fraud in Vancouver offering securities fraud services, with a tight circle of gate-keepers, facilitators and “corrupt intermediaries”, who together, allegedly defrauded the capital markets and investors of US$1 billion. The money and the securities of many little public companies was laundered and integrated through the Vancouver financial system. 

First Case

The first newest case by the SEC charged defendants Dean Shah (“Shah“), Csurgo, Henry Clarke and a corporate entity owned by Csurgo in Toronto, Canada, called Antevorta Capital Partners Ltd. (“Antevorta“). Henry Clarke is tied to Shah in the corporate sense in Malta.

Antevorta Capital Partners website

In this case, the SEC alleges that Shah and Clarke were clients of the Sharp Group, and used his services to acquire and conceal control of several public companies to run pump and dumps to defraud investors. Part of the manner in which this was accomplished was using multiple private companies to act as nominee shareholders. 

According to the SEC, Sharp sold shelf companies to clients as part of the alleged obfuscation services. In order to communicate secretly, Sharp established an encrypted communication service with devices called X phones, that he used with clients to run the operation and, according to the FBI, assist clients commit fraud without law enforcement visibility. The SEC alleges that Shah and Clarke used the X phone service. 

Because the beneficial owners of the stocks involved were concealed behind private companies, the SEC alleges that the defendants were able to pump stocks and dump them on innocent investors at inflated prices. Investors were unaware that stocks they were buying were allegedly derived from fraud and from a secret control group. 

The SEC says that one of the pump and dump schemes conducted by the defendants was of Zenosense Inc. (“Zenosense”), and the fraud was carried out in several phases. 

The SEC says that Shah and Clarke acquired Zerosense from Sharp, and came to control most of its issued and outstanding shares. When they became the controller of the issuer, and therefore its affiliate, they hid that fact from the market, and failed to make the requisite disclosure filings. 

The SEC says that when new shares were being issued, Clarke asked Sharp if the certificates should be mailed to shareholders. 

Sharp is alleged to have replied: “Nooo. Never.” 

The SEC says that Sharp told Clarke that the share certificates should be sent to a lawyer who would forward them to Sharp. Clarke replied that he was working with a “straight” lawyer, which he stated was concerning. Sharp told Clarke to find a lawyer who would be willing to take the certificates from the transfer agent and send them to Sharp. 

According to the SEC, Sharp informed Clarke that the purpose of layering securities[1] was to insulate Sharp in the event of an investigation by the SEC because, according to Sharp, the SEC would not bother the lawyer. 

The SEC alleges that a lawyer in Canada working for one or more of the defendants deposited money wired from a bogus financial entity into their law firm trust account. That lawyer then wired the money to another law firm. The SEC says that in some instances, no legal services were rendered in connection with the movement of such money in and out of law firm trust accounts. 

Once Shah and Clark had secret control of Zerosense, they allegedly incorporated a shell in Belize through Sharp to act as the hidden payor for promotions of the stock, then pumped the stock and sold it when the price became artificially high, unjustly becoming enriched in an amount equal to US$2.3 million. 

A few years later, they allegedly undertook a second pump and dump of Zerosense. This time, Shah and Clarke allegedly partnered with Csurgo in Toronto and his company, Antevorta, to gain control of 90% of Zenosense’s issued and outstanding shares.

The SEC alleges that some of the defendants prepared fake stock purchase agreements purporting to evidence the purchase by Antevorta of the stock of one or more of the issuers for alleged consideration. One such agreement was with a company named Total Investment Holdings Ltd. The two pages of that agreement, below, show, for example, that there is not even a seller of the shares identified, as well as inconsistencies in respect of the parties to the contract and the use of a corporate seal.

For comparison purposes, except for the fictitious party names, the two pages, below, are from a real stock purchase agreement.

Total Investment Holdings Ltd. is a shareholder of a public company in Vancouver named Green 2 Blue Energy Corp., now G2 Technologies Corp.

The SEC alleges that Csurgo also acquired Zenosense shares from Sharp, and also executed a fake stock purchase agreement purporting to evidence an alleged payment for such shares when no consideration was paid for those shares. The Csurgo alleged fake stock purchase agreement was allegedly sent to broker-dealers to defeat their compliance processes. 

The SEC alleges that the Zerosense stock was pumped with Shah, Clarke and Csurgo selling over 6.3 million shares and earning proceeds of US$7.9 million. According to the SEC, they conducted a third pump and dump of Zenosense, earning US$3.2 million.

The SEC alleges that the same pattern of activity took place in respect of Drone Guarder Inc., Envoy Group Corp. and EnviroTechnologies International Inc., whereby one or more defendant amassed secret control of the stock of issuers for no consideration, orchestrated promotional activity, and engaged in manipulative trading to condition the market ahead of a pump and dump, subsequent to which shares were then dumped on innocent investors and everyone in the chain was unjustly enriched thereby.

Csurgo posted a video on YouTube on how stock manipulation works.

Second Case

In the second case, the defendants are Calabrigo, Lehner, Sario and Vasseur and they face similar allegations of securities fraud.

Vasseur is a full-patch member of the Hells Angels in Vancouver. Although a member of transnational organized crime, Vasseur was allegedly able to infiltrate the capital markets and with one or more of the defendants, allegedly controlled eight public companies.

The SEC says that for a three year period, some or all of the defendants manipulated the stock of at least nine public companies, including Zenosense, Blake Therapeutics Inc., Bingo Nation Inc., Drone Guarder Inc., Horizon Minerals Corp., I-Wellness Marketing Group Inc., Oroplata Resources Inc., Preston Corp. and Vilacto Bioscience Inc. and earned US$39 million in unlawful proceeds. 

The SEC alleges that they obtained the majority of the shares of these companies from Sharp associates or from the conversions of purported debt for shares, and held such shares in various nominee and shell companies which enabled them to conceal their control of the public companies. The SEC says that they were Sharp clients and part of the Sharp circle.

The SEC alleges that Vasseur helped draft promotional emails sent to investors for at least two of the companies. In one such promotional email, investors were promised returns of 15,000%. 

With another company called Bingo Nation, the defendants alleged that the company supplied gambling kiosks to gaming venues in the US which would generate US$30 million per week in revenues which promised to turn a US$2,000 investment into US$26,880 for investors.

The SEC suspended trading of the shares of Bingo Nation, and the SEC says that the company’s officers lied and denied knowledge about the pumping of its stock. 

The SEC says that the defendants used a boiler room to help promote the stock of issuers they controlled. Vasseur, Lehner and Sario allegedly worked with Luis Carrillo. In August 2021, he was charged criminally and civilly in connection with alleged securities fraud as part of the Sharp cases and was allegedly part of the Sharp circle.

When the stock prices were elevated, the SEC says that one of more of the defendants liquidated stock of the issuers. 

In order to move the proceeds around without running into questions by anti-money laundering professionals, the SEC says that the defendants used fake invoices and fake consulting agreements to wire funds.[2]

In these cases collectively, the SEC alleges that the defendants are responsible for pulling off a US$194 million securities fraud scheme.

There may be more cases coming down the pipe against Vancouver capital markets actors tied to the Sharp circle. But this set of cases, in particular, is important because of the threat posed to the capital markets arising from the fact that transnational organized crime allegedly infiltrated the capital markets through Vancouver and were able to allegedly control, with others, eight public companies.

In terms of liability for gate-keepers such as attorneys, providing services for criminality to enter the capital markets, the YBM Magnex case in Canada reminds us that the costs can be high – in that case, the insurers of auditors, brokers, book-runners, underwriters and lawyers had to pay $185 million to investors for facilitating Russian organized crime figures to raise money and launder it using the capital markets of Canada. Almost everyone has ignored the YBM Magnex case for over two decades but have recently come to pay it more heed as a result of new interest in the provenance of dirty money held by Russian oligarchs.

[1] Layering is a money laundering term and it involves obscuring criminal origin and as far as possible, to distance money or securities and the beneficial owners from their sources and to make it difficult for an investigator to trace the securities or funds back to that source. Layering may be done in part through repeated transfers in different locations and may involve the use of a variety of transactions and the use of corporate structures as cover. 

[2] This is called trade-based money laundering, whereby fake documentation including invoices, or documentation that changes the amount or value of goods, services or securities, is created to launder money and often to defraud customs agencies. Although infrequently explored, TBML can be a material component of cross-border securities fraud and is prevalent in Vancouver, Canada.