As published on cbc.ca, Thursday 16 December, 2021.
U.S. authorities are asking a court to order former Vancouver lawyer Fred Sharp to pay the equivalent of $68 million Cdn after he allegedly set up dozens of offshore shell companies to enable a decade-long, billion-dollar series of pump-and-dump penny stock frauds and failed to contest civil charges.
In a court filing Wednesday, the U.S. Securities and Exchange Commission says Sharp, a private banker from West Vancouver who ran one of Canada's biggest offshore-services firms, should pay $24 million US in penalties, $21.8 million US in disgorgement — a legal term for the repayment of wrongful earnings — and $7.2 million US in interest for his role in the stock market schemes.
"Over a decade, Sharp functioned as the mastermind of a network of services designed for the sole purpose of facilitating fraud. His schemes were planned as 'masterly stock manipulations' and he sold his services as a way to keep his clients 'out of jail,' " the SEC wrote in the U.S. District Court filing, quoting what it describes as Sharp's own writing.
"Sharp's scheme facilitated the fleecing of thousands of U.S. investors, and generated nearly a billion dollars in fraudulent securities sales that should not have happened."
The SEC first filed allegations against Sharp, along with seven other Canadians and one American, in August, following an investigation that began in 2017.
Authorities claim Sharp and associates set up and ran a network of shell companies and offshore accounts around the world, and effectively rented it out to clients so they could manipulate the prices of hundreds of publicly traded penny stocks.
It's alleged the shell companies enabled them to hide the ownership and control of the stocks they were selling and to get around public-disclosure requirements. Sharp allegedly even provided an encrypted communications system, using devices dubbed "xPhones," to his clients, operating on servers based in Curacao.
The stock-pump schemes generated net proceeds of $770 million US, the SEC claims.
Filings in the U.S. District Court in Massachusetts show Sharp made no effort to contest the civil charges against him. The SEC even tried to serve him court papers in West Vancouver via one of the Hague conventions. But when a British Columbia deputy sheriff visited Sharp's home, he noted that despite "lights on in residence, car in driveway, window open," no one answered the door.
Lawyers for Sharp did not immediately respond to a request for comment on Thursday. Legally speaking, by failing to respond to the civil charges and being found in default, Sharp is taken to have admitted the factual allegations against him.
An SEC accountant calculated that Sharp's personal take from the scheme amounted to $21.8 million US, which the agency is asking a judge to force Sharp to pay back with interest. The SEC says it aims to eventually distribute the money to investors who were defrauded by the stock manipulation.
The agency obtained a freezing order on Sharp's known accounts in August, including stock brokerage accounts in Mauritius and Malta and a Bank of Montreal account under a company name. It is now moving to seize any balances.
The agency is also seeking to ban Sharp from participating in any offerings of penny stocks and from engaging in any other stock transactions that aren't trading in his own personal accounts on a national stock exchange.
"Sharp poses an ongoing danger to investors and the U.S. markets," the SEC's court filing says. "The Commission also believes that there are many other accounts, and many other nominee entities, controlled and administered by Sharp that are available for further illegal activity."
The U.S. court has yet to rule on the SEC's requested penalties.
Sharp and two other Canadians also face U.S. criminal charges over their roles in the scheme.
CBC/Radio-Canada first reported in 2016 that Sharp was the top Canadian offshore middleman in the Panama Papers leak and ran what was known as the "go to" investment firm for wealthy Canadians wanting privacy, and minimal tax, for their assets. The Panama Papers revealed Sharp's Vancouver offshore-services firm had set up more than 1,100 offshore companies and accounts for clients.
He's also in the recent Pandora Papers leak, and is battling the CRA over its attempts to audit him.
While Sharp did not contest the civil claims against him, six of his fellow Canadian co-defendants are seeking to have their charges thrown out.
Jackson Friesen, Graham Taylor, Paul Sexton, Zhiying Yvonne Gasarch, Courtney Kelln and Mike Veldhuis, all B.C. residents, have brought motions to dismiss the SEC charges.
They variously claim that the SEC is well past the five-year time limit for bringing civil charges and seeking fines, or that, for some of them, the agency's claims don't actually detail any illegal activity.
A judge will hear their arguments on Jan. 18.