B.C. residents Zhiying Yvonne Gasarch and Jackson Friesen have been found liable for their roles in a complex $1-billion U.S. penny stock fraud scheme orchestrated from Vancouver, the U.S. Securities Commission announced in a statement Wednesday.
On Aug. 5, 2021, Gasarch, of Richmond, and Friesen, of Delta, were charged with securities fraud by the commission in a civil case in Boston, alongside seven other British Columbians and an American stock promoter.
The scheme involved over 100 penny stock companies and over $1 billion worth of trades. Its "mastermind" was West Vancouver resident Frederick Sharp, a former lawyer turned offshore shell facilitator, who never responded to the commission's complaint; A US$52.9-million default judgment was awarded against him in May 2022.
Four others, including B.C. cannabis company founder Avtar Dhillon, had previously admitted to the violations the commission had alleged.
“We are pleased with today’s jury verdict holding the two remaining defendants in this case liable for securities fraud and other charges,” stated Gurbir Grewal, the commission’s director of enforcement.
“Despite their efforts to conceal their control and ownership of penny stock companies and to defraud unwitting retail investors in the U.S. markets, these defendants will now be held accountable thanks to the hard work of the SEC team. As this trial demonstrates, the SEC is committed to holding fraudsters, including those located outside the U.S., accountable for their violations of the federal securities laws,” stated Grewal.
It remains undetermined what, if any, fines and penalties will be issued to Friesen and Gasarch. Likewise, co-defendants Courtney Kelln, of Surrey, Mike Veldhuis, of Vancouver, and Paul Sexton, of Anmore (based on their known locations from an August 2021 complaint), who had reached settlements just ahead of the nine-day trial, have yet to be issued any fines or disgorgement orders.
That is not the case for B.C. businessman Graham Taylor, who used a Vancouver law firm to orchestrate the "pump and dump," according to SEC claims which he neither admitted nor denied in a US$5-million settlement last February.
Nor is it the case for Dhillon, 62, who only recently admitted to the scheme and is ordered to pay back US$10.4 million of ill-gotten gains.
And Sharp is ordered to pay disgorgement and prejudgment interest of US$28,934,433 and a civil penalty of US$23,990,781.
Dhillon faces a sentencing hearing this November for related criminal charges he confessed to last year. Sharp, Veldhuis and Kelln also face parallel criminal charges, via the Federal Bureau of Investigation, with those proceedings yet to begin.
Unlike the others, Gasarch and Friesen went to trial this month. A jury overseen by Judge William Young in the United States District Court for the District of Massachusetts found the two liable.
According to the commission's civil complaint, Gasarch worked closely with Sharp, who was found to have created a web of offshore companies to hide beneficial ownership of stocks that were controlled by the cohort.
Gasarch, whose Chinese name is Zhiying Chen, misrepresented disclosures to brokers and trading agents to hide beneficial owners of shares, among other claims made by the commission.
To communicate trades and payments Gasarch worked with an encrypted cell network Sharp had dubbed "X phones" while trading data was held in the “Q system.”
Sharp, 71, called himself “Bond” while Gasarch was code-named “Wires.”
Among the evidence put forth, in 2015 Gasarch drafted a memo to company insiders (clients) with instructions on how to “delete all secure chats when xphone is shut down (e.g., to cross a border).”
The commission had alleged Gasarch typically arranged wire transfers of the proceeds of illegal stock sales; this included "routinely creating false invoices, loan and subscription agreements, and other documents that purported to originate from Sharp Group-administered nominees, and that could serve as the 'back up' to support these payments if they were questioned by the banks and brokerage firms from which the proceeds were being sent."
In one example provided by the commission, Gasarch created an invoice to a Sharp nominee called Quezon Group LLC for $125,000 from a homebuilder in Canada that was renovating a property for one of the Sharp Group's clients. She sent this invoice from a Quezon Group email to Wintercap SA to request a payout. This was purportedly for a 500,000 share subscription.
Gasarch, 51, also allegedly modified a law firm invoice for a $129,000 payout in connection to a company working with Veldhuis.
The commission also revealed text exchanges Gasarch and Sharp had, showing concerns about money laundering and keeping their operation concealed.
"On aug 12 u wrote a draft for grand yachts against cash. Cld u pls explain to me how this is legitimate payment? My concern is money laundering: hells angels gives us cash, we give them a draft to buy a boat. Later, boat is seized, polic investigate, find out charterhouse paid for it; visit us and ask why. What will u say?" Sharp told Gasarch.
Friesen, 35, belonged to what the commission called the “Veldhuis Control Group,” which also included Sexton.
On March 6, 2014, according to the complaint, Veldhuis sent an encrypted text to Friesen, who was also in on the deal: "u r getting 173k today …Buy a boat [expletive]. Rich mother [expletive]."
In one instance, the 91-page complaint outlining transactions for just four companies shows Taylor using an unnamed Canadian law firm trust account to move $65,000.