You can run but you can’t hide (your assets): ‎American appellate court upholds enforceability of Canadian securities disgorgement order

In May 2019, a district court of Nevada recognized a CAD$21.7 million disgorgement order issued by the British Columbia Securities Commission (the “BCSC”) against Michael Lathigee, a Canadian national residing in Nevada. Lathigee appealed the district court’s decision and on December 10, 2020, the Supreme Court of Nevada upheld the Nevada district court’s decision, marking the first time an American court has recognized an order issued by a Canadian securities regulator.

Background

The history of this case spans several years (you may find our previous case commentary here). In July 2014, after an administrative hearing before the BCSC, a panel of the BCSC found that Lathigee and other respondents (including FIC Group, a company directly controlled by Lathigee and his partner Earle Pasquill) perpetrated a fraud by raising over $20 million from approximately 700 Canadian investors without disclosing important facts regarding FIC Group’s financial situation and misusing investor funds.

In March 2015, the BCSC ordered Lathigee to pay, jointly and severally with other respondents, excluding administrative penalties, CAD$21.7 million for disgorgement of funds fraudulently obtained from investors pursuant to section 161(1)(g) of British Columbia’s Securities Act, RSBC 1996, c.418 (the “BCSA”). Lathigee appealed the decisions of the BCSC to the British Columbia Court of Appeal. After hearing submissions from the BCSC and Lathigee, the British Columbia Court of Appeal unanimously dismissed the appeal on May 31, 2017.

Section 161(1)(g) of the BCSA provides for a judgment debtor to “pay to the [BCSC] any amount obtained, or payment or loss avoided, directly or indirectly, as a result of the failure to comply or the contravention [of the BCSA].” Pursuant to section 15.1 of the BCSA, it is mandatory that the BCSC distribute disgorgement funds to proper claimants; it is therefore the BCSC’s strict mandate to do so.

Before Lathigee paid the disgorgement order, he left Canada and relocated to Las Vegas, Nevada, and the BCSC was unable to enforce on the disgorgement order.

The District Court of Nevada recognizes the BCSC order

In 2018, the BCSC filed an application with the Eighth Judicial Court of Nevada in Clark County (the “District Court”) for recognition of its disgorgement order against Lathigee. Ruling for the BCSC, the District Court recognized the ‎disgorgement judgment as enforceable under the Nevada Revised Statute § 17.750 (2011), Standards for recognition of foreign judgment. The District Court held that the judgment did not constitute a ‎penalty but, rather, an award designed to afford ‎eventual restitution to the defrauded investors under the ‎notice-and-claim mechanism provided by section ‎‎15.1 of the BCSA.

The Nevada Supreme Court upholds the District Court’s decision

On May 29, 2019, Lathigee filed an appeal of the District Court’s decision with the highest court in the state of Nevada, the Supreme Court of Nevada. In his appeal, Lathigee argued that the disgorgement order amounts to a penalty that should not be enforced outside of Canada.

In an unanimous decision, the Supreme Court of Nevada dismissed Lathigee’s appeal and upheld the District Court’s decision finding that the BCSC order was an enforceable judgment under the state’s Uniform Foreign-Country Money Judgments Recognition Act. In addition, the Supreme Court of Nevada emphasized the ‎close ties between Canada and the United States, ‎the fact that the securities commissions of each of the provinces, including the BCSC, often work closely with the U.S. Securities and Exchange ‎Commission (the “SEC”), and Canadian courts have repeatedly upheld SEC disgorgement judgments. Finally, the ‎Supreme Court of Nevada recognized the BCSC’s order based on comity, the doctrine by which “the courts of one jurisdiction may give effect to the laws and judicial decisions of another jurisdiction out of deference and respect.”

Takeaways

The Supreme Court of Nevada’s decision confirms that the BCSC has the right to pursue Lathigee’s assets across the border to enforce on the BCSC’s disgorgement order in an effort to return monies to Canadian investors he harmed. The Executive Director of the BCSC Peter Brady has publicly stated that the BCSC will take steps to enforce on its disgorgement order through seizure of Lathigee’s assets in Nevada, including a home in Las Vegas and that “[a]ny money we collect from …Lathigee will be returned to his many victims.” 

While it is unclear whether any amounts ultimately collected by the BCSC on Lathigee’s Nevada assets will approach the amounts lost by investors, the decision by the Supreme Court of Nevada appears to extend the reach of Canadian securities regulators to pursue assets into the U.S. Moreover, the decision sends a strong signal to those who violate Canadian securities laws that they may not be able to avoid Canadian disgorgement orders by securities regulators by moving south of the border.  

This article provides only general information about legal issues and developments, and is not intended to provide specific legal advice. Please see our disclaimer for more details.