Registered retirement accounts are fair game: Enhanced tools for securities regulators to fight white-collar crime
In November 2020, the British Columbia Securities Commission (the “Commission”) dismissed an application brought by Earle Pasquill for an order to revoke a preservation order made under the British Columbia Securities Act (the “Act”) that prohibited Pasquill from withdrawing or transferring funds from his registered retirement income funds.
In 2014, the Commission found that Pasquill and Michael Lathigee, who jointly directed and controlled the Freedom Investment Club group of companies (“FIC Group”), perpetrated a fraud by misleading investors and misusing investment funds. In one of British Columbia’s largest frauds, Pasquill and Lathigee raised $21.7 million from nearly 700 Canadian investors without disclosing important facts about FIC Group’s financial circumstances. DLA Piper’s case comment on the Lathigee case can be found here.
In 2015, the Commission ordered Pasquill and Lathigee to jointly and severally pay $21.7 million for disgorgement of the funds fraudulently obtained from investors and administrative penalties of $15 million each. Following this order, the Executive Director of the Commission obtained, without notice, a Preservation Order against Pasquill, restraining Pasquill’s wealth management firm from disposing or transmitting from two life income accounts (“LIF Accounts”), which were registered retirement income funds in Pasquill’s name.
The Commission’s decision
Paquill relied on the following legislative provisions to assert that the LIF Accounts were exempt from enforcement:
- the Court Order Enforcement Act (“COEA”) exempts all property in registered plans from any “enforcement process”. The COEA defines an enforcement process to mean “attachment, garnishment, execution, seizure or any other remedy or legal process to enforce payment of debt”; and
- the Pension Benefits Standards Act (“PBSA”) prohibits the “execution, seizure, or attachment” of benefits, pension funds, and money transferred under various provisions of the PBSA, except in certain circumstances identified in the Pension Benefits Standards Regulations.
On a plain and ordinary reading of the COEA, the Commission found that the words “attachment”, “garnishment”, “execution”, and “seizure” each imply an “action taken for the purpose of realizing on a judgment or similar instrument.” The Commission held that all these processes “provide for outcomes that are substantially different from a preservation under the Act.” As such, the Commission held that the Preservation Order “does not constitute an ‘enforcement process’ as contemplated by the COEA. It merely restrains ‘dispositions or transmissions from the [LIF] Accounts or from any other accounts’ held in the name of the Applicant at the Applicant’s [wealth management firm].” Accordingly, the Commission found that the Preservation Order does not take any enforcement steps, “but rather preserves assets for future legitimate purposes” and “maintain[s] the status quo.”
Alternatively, the Commission held that a preservation order is expressly permitted by the COEA, which exempts enforcement processes “arising under an order made under the [Act].” The COEA was amended effective March 27, 2020 to support concurrent amendments to the Act relating to collection of financial sanctions by the Commission and allowed orders under the Act to be enforced against registered plans. The Commission found that “the clear legislative intent of the amendments to the COEA was to strengthen the Commission’s powers” by “legislating that any enforcement process arising from an order issued under the Act [would fall] outside the scope of the COEA and [be] effective against a registered plan.”
Finally, Pasquill argued that the provisions of the PBSA stood apart from the COEA in prohibiting execution against registered plans. The Commission held that the COEA expressly specified that its provisions prevailed if it was inconsistent with another act. Alternatively, the Commission held that the provisions of the PBSA do not apply because “the Preservation Order does not constitute an execution against, seizure of[,] or attachment of the LIF Accounts.” Any funds subject to the Preservation Order, on the other hand, would remain in situ.
Takeaways
This case comes at the heels of far-reaching legislative amendments to the Act which came into force on March 27, 2020. The amendments, which were included in Bill 33, were described by the British Columbia Minister of Finance Carole James as “landmark changes” giving the Commission “the strongest powers across Canada to protect people and crack down on white-collar crime.” Following the introduction of the amendments, the Chair and CEO of the Commission stated, “[w]e now have new and better tools to go after the bad actors who break the law and cause significant harm to investors and the capital markets.”
The amendments to the Act in conjunction with amendments to the COEA and other legislation in British Columbia have given the Commission some of the strongest sanction, enforcement and collection powers of any securities regulator in Canada in addressing financial malfeasance. This recent decision in Pasquill confirms the power of these enhanced tools. More challenges to these enhanced powers seem inevitable; what remains to be seen is if these challenges will be successful in reducing the Commission’s reach or whether assets like registered plans remain fair game.
